UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2013~~MARCH 31, 2014

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to


Commission File Number	Exact name of registrant as specified in its charter and principal office address and telephone number	State of Incorporation	I.R.S. Employer ID. Number
1-14514	Consolidated Edison, Inc.	New York	13-3965100
	4 Irving Place, New York, New York 10003
	(212) 460-4600

1-1217	Consolidated Edison Company of New York, Inc.	New York	13-5009340
	4 Irving Place, New York, New York 10003
	(212) 460-4600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Consolidated Edison, Inc. (Con Edison)	Yes x	No ¨

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Con Edison	Yes x	No ¨

CECONY	Yes x	No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Con Edison

Large accelerated filerx	Accelerated filer¨	Non-accelerated filer¨	Smaller reporting company¨

CECONY
Large accelerated filer¨	Accelerated filer¨	Non-accelerated filerx	Smaller reporting company¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Con Edison	Yes ¨	No x

CECONY	Yes ¨	No x

As of ~~October 30, 2013,~~May 2, 2014, Con Edison had outstanding ~~292,888,192~~292,894,192 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.

Filing Format

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). CECONY is a subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. As used in this report, the term the “Companies” refers to Con Edison and CECONY. However, CECONY makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

Glossary of Terms

The following is a glossary of frequently used abbreviations or acronyms that are used in the Companies’ SEC reports:


Con Edison Companies
Con Edison Consolidated Edison, Inc.		~~Consolidated Edison, Inc.~~
CECONY		Consolidated Edison Company of New York, Inc.
Con Edison Development		Consolidated Edison Development, Inc.
Con Edison Energy		Consolidated Edison Energy, Inc.
Con Edison Solutions		Consolidated Edison Solutions, Inc.
O&R		Orange and Rockland Utilities, Inc.
Pike		Pike County Light & Power Company
RECO		Rockland Electric Company
The Companies		Con Edison and CECONY
The Utilities		CECONY and O&R
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits
EPA		U. S. Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
IRS		Internal Revenue Service
ISO-NE		ISO New England Inc.
NJBPU		New Jersey Board of Public Utilities
NJDEP		New Jersey Department of Environmental Protection
NYISO		New York Independent System Operator
NYPA		New York Power Authority
NYSAG		New York State Attorney General
NYSDEC		New York State Department of Environmental Conservation
NYSERDA		New York State Energy Research and Development Authority
NYSPSC		New York State Public Service Commission
NYSRC		New York State Reliability Council, LLC
PAPUC		Pennsylvania Public Utility Commission
PJM		PJM Interconnection LLC
SEC		U.S. Securities and Exchange Commission
Accounting
ABO		Accumulated Benefit Obligation
ASU		Accounting Standards Update
FASB		Financial Accounting Standards Board
LILO		Lease In/Lease Out
OCI		Other Comprehensive Income
SFAS		Statement of Financial Accounting Standards
VIE		Variable interest entity
Environmental
CO₂		Carbon dioxide
GHG		Greenhouse gases
MGP Sites		Manufactured gas plant sites
PCBs		Polychlorinated biphenyls
PRP		Potentially responsible party
SO₂		Sulfur dioxide
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes


2


Units of Measure
AC		Alternating current
dths		Dekatherms
kV		Kilovolt
kWh		Kilowatt-hour
mdths		Thousand dekatherms
MMlbs		Million pounds
MVA		Megavolt ampere
MW		Megawatt or thousand kilowatts
MWH		Megawatt hour
Other
AFDC		Allowance for funds used during construction
COSO		Committee of Sponsoring Organizations of the Treadway Commission
EMF		Electric and magnetic fields
ERRP		East River Repowering Project
Fitch		Fitch Ratings
First Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31 of the current year
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
S&P		Standard & Poor’s Financial Services LLC
~~Second Quarter Form 10-Q~~		~~The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year~~
~~Third Quarter Form 10-Q~~		~~The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended September 30 of the current year~~
VaR		Value-at-Risk


					3

TABLE OF CONTENTS


		PAGE
PART I—Financial Information
ITEM 1	Financial Statements (Unaudited)
	Con Edison
	Consolidated Income Statement		6
	Consolidated Statement of Comprehensive Income		7
	Consolidated Statement of Cash Flows		8
	Consolidated Balance Sheet		9
	Consolidated Statement of Common Shareholders’ Equity		11
	CECONY
	Consolidated Income Statement		12
	Consolidated Statement of Comprehensive Income		13
	Consolidated Statement of Cash Flows		14
	Consolidated Balance Sheet		15
	Consolidated Statement of Common Shareholder’s Equity		17
	Notes to the Financial Statements (Unaudited)		18
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4838
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		8054
ITEM 4	Controls and Procedures		8054
PART II—Other Information
ITEM 1	Legal Proceedings		8155
ITEM 1A	Risk Factors		8155
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		8256
ITEM 6	Exhibits		8357
	Signatures		8559


4

FORWARD-LOOKING STATEMENTS

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

the failure to operate energy facilities safely and reliably could adversely affect the Companies;

the failure to properly complete construction projects could adversely affect the Companies;

the failure of processes and systems and the performance of employees and contractors could adversely affect the Companies;

the Companies are extensively regulated and are subject to penalties;

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

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

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

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

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

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

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

a cyber attack could adversely affect the Companies; and

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


					5

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

   For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
   2013 2012 2013 2012
(Millions of Dollars/Except Share Data)
OPERATING REVENUES

Electric
$ 2,822    $ 2,810    $ 6,799    $ 6,762
Gas
225    216    1,333    1,161
Steam
72    68    522    414
Non-utility
365    344    833    950
TOTAL OPERATING REVENUES
3,484    3,438    9,487    9,287
OPERATING EXPENSES

Purchased power
946    930    2,421    2,440
Fuel
56    59    261    213
Gas purchased for resale
74    56    443    314
Other operations and maintenance
795    826    2,400    2,365
Depreciation and amortization
258    240    764    709
Taxes, other than income taxes
500    476    1,431    1,360
TOTAL OPERATING EXPENSES
2,629    2,587    7,720    7,401
OPERATING INCOME
855    851    1,767    1,886
OTHER INCOME (DEDUCTIONS)

Investment and other income
8    4    19    14
Allowance for equity funds used during construction
1    1    2    3
Other deductions
(4 ) (3 ) (12 ) (13 )
TOTAL OTHER INCOME (DEDUCTIONS)
5    2    9    4
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
860    853    1,776    1,890
INTEREST EXPENSE

Interest on long-term debt
145    146    433    440
Other interest
2    6    143    17
Allowance for borrowed funds used during construction
(1 ) —    (1 ) (2 )
NET INTEREST EXPENSE
146    152    575    455
INCOME BEFORE INCOME TAX EXPENSE
714    701    1,201    1,435
INCOME TAX EXPENSE
250    261    373    501
NET INCOME
464    440    828    934
Preferred stock dividend requirements of subsidiary
—    —    —    (3 )
NET INCOME FOR COMMON STOCK
$ 464    $ 440    $ 828    $ 931
Net income for common stock per common share—basic
$ 1.58    $ 1.50    $ 2.83    $ 3.18
Net income for common stock per common share—diluted
$ 1.58    $ 1.49    $ 2.81    $ 3.16
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
$ 0.615    $ 0.605    $ 1.845    $ 1.815
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)
292.9    292.9    292.9    292.9
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)
294.3    294.6    294.3    294.6


	For the Three Months Ended March 31,
	2014			2013
	*(Millions of Dollars/Except Share Data)*
OPERATING REVENUES
Electric		$2,237			$1,958
Gas		882			742
Steam		341			332
Non-utility		329			152
TOTAL OPERATING REVENUES		3,789			3,184
OPERATING EXPENSES
Purchased power		963			707
Fuel		156			147
Gas purchased for resale		400			250
Other operations and maintenance		825			830
Depreciation and amortization		261			251
Taxes, other than income taxes		499			473
TOTAL OPERATING EXPENSES		3,104			2,658
OPERATING INCOME		685			526
OTHER INCOME (DEDUCTIONS)
Investment and other income		12			4
Allowance for equity funds used during construction		1			1
Other deductions		(3	)		(3	)
TOTAL OTHER INCOME		10			2
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		695			528
INTEREST EXPENSE
Interest on long-term debt		146			143
Other interest		(9	)		136
Allowance for borrowed funds used during construction		(1	)		—
NET INTEREST EXPENSE		136			279
INCOME BEFORE INCOME TAX EXPENSE		559			249
INCOME TAX EXPENSE		198			57
NET INCOME FOR COMMON STOCK		$ 361			$ 192
Net income for common stock per common share—basic		$ 1.23			$ 0.66
Net income for common stock per common share—diluted		$ 1.23			$ 0.65
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.630			$0.615
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)		292.9			292.9
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)		294.1			294.2

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


6

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

   For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
   2013 2012 2013 2012
(Millions of Dollars)
NET INCOME
$464    $440    $828    $934
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

Pension plan liability adjustments, net of $1 and $4 in 2013 and $1 and $5 taxes in 2012, respectively
2    2    7    8
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
2    2    7    8
COMPREHENSIVE INCOME
466    442    835    942
Preferred stock dividend requirements of subsidiary
—    —    —    (3 )
COMPREHENSIVE INCOME FOR COMMON STOCK
$466    $442    $835    $939


	For the Three Months Ended March 31,
	2014		2013
	*(Millions of Dollars)*
NET INCOME	$	361	$	192
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension plan liability adjustments, net of $2 taxes in 2014 and 2013		4		3
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES		4		3
COMPREHENSIVE INCOME FOR COMMON STOCK	$	365	$	195

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


					7

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

For the Nine Months
Ended September 30,

     2013     2012
(Millions of Dollars)
OPERATING ACTIVITIES

Net Income
$ 828    $ 934
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

Depreciation and amortization
764    709
Deferred income taxes
116    344
Rate case amortization and accruals
1    32
Common equity component of allowance for funds used during construction
(2 ) (3 )
Net derivative (gains)/losses
(6 ) (61 )
Pre-tax gains on the termination of LILO transactions
(95 ) —
Other non-cash items (net)
46    (53 )
CHANGES IN ASSETS AND LIABILITIES

Accounts receivable – customers, less allowance for uncollectibles
(51 ) (196 )
Special deposits
(305 ) —
Materials and supplies, including fuel oil and gas in storage
(38 ) 1
Other receivables and other current assets
(8 ) 54
Prepayments
(362 ) (288 )
Accounts payable
(193 ) 18
Pensions and retiree benefits obligations
665    713
Pensions and retiree benefits contributions
(887 ) (821 )
Accrued taxes
217    (80 )
Accrued interest
171    46
Superfund and environmental remediation costs (net)
(6 ) 7
Deferred charges, noncurrent assets and other regulatory assets
(6 ) 183
Deferred credits and other regulatory liabilities
291    83
Other assets
51    —
Other liabilities
47    16
NET CASH FLOWS FROM OPERATING ACTIVITIES
1,238    1,638
INVESTING ACTIVITIES

Utility construction expenditures
(1,701 ) (1,450 )
Cost of removal less salvage
(144 ) (118 )
Non-utility construction expenditures
(149 ) (68 )
Investments in solar energy projects
(174 ) (258 )
Proceeds from grants related to solar energy projects
88    27
Increase in restricted cash
(15 ) —
Proceeds from the termination of LILO transactions
200    —
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,895 ) (1,867 )
FINANCING ACTIVITIES

Net proceeds of short-term debt
681    340
Preferred stock redemption
—    (239 )
Issuance of long-term debt
919    400
Retirement of long-term debt
(707 ) (304 )
Issuance of common shares for stock plans, net of repurchases
(4 ) (16 )
Debt issuance costs
(12 ) (4 )
Common stock dividends
(540 ) (524 )
Preferred stock dividends
—    (3 )
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
337    (350 )
CASH AND TEMPORARY CASH INVESTMENTS:

NET CHANGE FOR THE PERIOD
(320 ) (579 )
BALANCE AT BEGINNING OF PERIOD
394    648
BALANCE AT END OF PERIOD
$ 74    $ 69
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for:

Interest
$ 372    $ 379
Income taxes
$ 27    $ 46


	For the Three Months Ended March 31,
	2014			2013
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net Income	$	361		$	192
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		261			251
Deferred income taxes		195			(87	)
Rate case amortization and accruals		32			10
Common equity component of allowance for funds used during construction		(1	)		(1	)
Net derivative gains		(20	)		(45	)
Other non-cash items (net)		4			192
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		(315	)		(135	)
Special deposits		324			(438	)
Materials and supplies, including fuel oil and gas in storage		60			60
Other receivables and other current assets		8			85
Prepayments		(353	)		(263	)
Accounts payable		113			(84	)
Pensions and retiree benefits obligations		193			250
Pensions and retiree benefits contributions		(200	)		(235	)
Accrued taxes		(378	)		(18	)
Accrued interest		(39	)		174
Superfund and environmental remediation costs (net)		9			—
Deferred charges, noncurrent assets and other regulatory assets		(103	)		12
Deferred credits and other regulatory liabilities		86			(5	)
Other assets		27			10
Other liabilities		(40	)		(9	)
NET CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES		224			(84	)
INVESTING ACTIVITIES
Utility construction expenditures		(498	)		(538	)
Cost of removal less salvage		(47	)		(47	)
Non-utility construction expenditures		(61	)		(91	)
Investments in solar energy projects		(80	)		—
Proceeds from grants related to solar energy projects		36			13
Increase in restricted cash		16			—
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(634	)		(663	)
FINANCING ACTIVITIES
Net proceeds of short-term debt		(621	)		482
Issuance of long-term debt		850			700
Retirement of long-term debt		(200	)		(509	)
Debt issuance costs		(6	)		(7	)
Common stock dividends		(184	)		(180	)
Issuance of common shares for stock plans, net of repurchases		(1	)		(1	)
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES		(162	)		485
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		(572	)		(262	)
BALANCE AT BEGINNING OF PERIOD		674			394
BALANCE AT END OF PERIOD	$	102		$	132
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	91		$	90
Income taxes	$	416		$	24

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


8

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

   September 30,
2013 December 31,
2012
(Millions of Dollars)
ASSETS

CURRENT ASSETS

Cash and temporary cash investments
$ 74    $ 394
Special deposits
375    70
Accounts receivable – customers, less allowance for uncollectible accounts of $95 and $94 in 2013 and 2012, respectively
1,273    1,222
Accrued unbilled revenue
425    516
Other receivables, less allowance for uncollectible accounts of $8 and $10 in 2013 and 2012, respectively
257    228
Fuel oil, gas in storage, materials and supplies, at average cost
368    330
Prepayments
521    159
Deferred tax assets – current
186    296
Regulatory assets
46    74
Other current assets
179    162
TOTAL CURRENT ASSETS
3,704    3,451
INVESTMENTS
444    467
UTILITY PLANT, AT ORIGINAL COST

Electric
23,041    22,376
Gas
5,388    5,120
Steam
2,117    2,049
General
2,301    2,302
TOTAL
32,847    31,847
Less: Accumulated depreciation
6,952    6,573
Net
25,895    25,274
Construction work in progress
1,450    1,027
NET UTILITY PLANT
27,345    26,301
NON-UTILITY PLANT

Non-utility property, less accumulated depreciation of $84 and $68 in 2013 and 2012, respectively
581    555
Construction work in progress
29    83
NET PLANT
27,955    26,939
OTHER NONCURRENT ASSETS

Goodwill
429    429
Intangible assets, less accumulated amortization of $4 in 2013 and 2012
4    2
Regulatory assets
9,190    9,705
Other deferred charges and noncurrent assets
238    216
TOTAL OTHER NONCURRENT ASSETS
9,861    10,352
TOTAL ASSETS
$ 41,964    $ 41,209


	March 31, 2014		December 31, 2013
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$	102	$	674
Special deposits		3		327
Accounts receivable – customers, less allowance for uncollectible accounts of $96 and $93 in 2014 and 2013, respectively		1,566		1,251
Other receivables, less allowance for uncollectible accounts of $10 in 2014 and 2013		210		240
Accrued unbilled revenue		456		514
Fuel oil, gas in storage, materials and supplies, at average cost		303		363
Prepayments		489		136
Regulatory assets		8		29
Deferred tax assets – current		82		122
Other current assets		265		235
TOTAL CURRENT ASSETS		3,484		3,891
INVESTMENTS		547		461
UTILITY PLANT, AT ORIGINAL COST
Electric		23,955		23,450
Gas		5,661		5,494
Steam		2,202		2,194
General		2,394		2,336
TOTAL		34,212		33,474
Less: Accumulated depreciation		7,208		7,072
Net		27,004		26,402
Construction work in progress		1,076		1,393
NET UTILITY PLANT		28,080		27,795
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $97 and $90 in 2014 and 2013, respectively		534		605
Construction work in progress		68		36
NET PLANT		28,682		28,436
OTHER NONCURRENT ASSETS
Goodwill		429		429
Intangible assets, less accumulated amortization of $4 in 2014 and 2013		4		4
Regulatory assets		7,082		7,201
Other deferred charges and noncurrent assets		253		225
TOTAL OTHER NONCURRENT ASSETS		7,768		7,859
TOTAL ASSETS	$	40,481	$	40,647

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


					9

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
	*(Millions of Dollars)*				*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$	483	$	706	$	285	$	485
Notes payable		1,220		539		830		1,451
Accounts payable		925		1,215		1,079		1,017
Customer deposits		316		304		326		321
Accrued taxes		379		162		98		476
Accrued interest		324		153		210		249
Accrued wages		93		94		97		92
Fair value of derivative liabilities		25		47		4		13
Regulatory liabilities		117		183		243		148
Uncertain income tax liabilities		—		44
Other current liabilities		491		498		404		478
TOTAL CURRENT LIABILITIES		4,373		3,945		3,576		4,730
NONCURRENT LIABILITIES
Obligations under capital leases		2		2		1		1
Provision for injuries and damages		195		149		198		195
Pensions and retiree benefits		3,816		4,678		1,502		1,727
Superfund and other environmental costs		512		545		741		749
Asset retirement obligations		164		159		144		143
Fair value of derivative liabilities		29		31		4		5
Uncertain income tax liabilities		8		—
Other noncurrent liabilities		120		125
TOTAL NONCURRENT LIABILITIES		4,846		5,689
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		8,481		8,372		8,564		8,466
Regulatory liabilities		1,557		1,202		1,800		1,728
Other deferred credits		48		70
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		10,086		9,644
Other deferred credits and noncurrent liabilities						187		169
TOTAL NONCURRENT LIABILITIES						13,141		13,183
LONG-TERM DEBT		10,493		10,062		11,338		10,489
COMMON SHAREHOLDERS’ EQUITY (See Statement of Common Shareholders’ Equity)		12,166		11,869		12,426		12,245
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	41,964	$	41,209	$	40,481	$	40,647

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


10

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)


	Common Stock					Additional Paid-In Capital			Retained Earnings				Treasury Stock							Capital Stock Expense				Accumulated Other Comprehensive Income/(Loss)						Common Stock					Additional Paid-In Capital			Retained Earnings				Treasury Stock							Capital Stock Expense				Accumulated Other Comprehensive Income/(Loss)
*(Millions of Dollars/Except Share Data)*	Shares			Amount					Retained Earnings			Shares				Amount							Total					Shares			Amount			Shares							Amount					Total			Capital Stock Expense				Accumulated Other Comprehensive Income/(Loss)
BALANCE AS OF DECEMBER 31, 2011		292,888,521		$	32	Additional Paid-In Capital	$	4,991		$	7,568				23,194,075			$(1,033	)	Capital Stock Expense			$(64	Accumulated Other Comprehensive Income/(Loss)	)		$(58	)		$11,436
Net income for common stock										277																		277
Common stock dividends										(177	)																	(177	)
Issuance of common shares for stock plans, net of repurchases		(7,225	)											7,225			(2	)										(2	)
Preferred stock redemption																					4							4
Other comprehensive income																									7			7
BALANCE AS OF MARCH 31, 2012		292,881,296		$	32	$	4,991		$	7,668				23,201,300			$(1,035	)			$(60	)			$(51	)		$11,545
Net income for common stock										214																		214
Common stock dividends										(178	)																	(178	)
Issuance of common shares for stock plans, net of repurchases		1,700												(1,700	)						(1	)						(1	)
Other comprehensive loss																									(1	)		(1	)
BALANCE AS OF JUNE 30, 2012		292,882,996		$	32	$	4,991		$	7,704				23,199,600			$(1,035	)			$(61	)			$(52	)		$11,579
Net income for common stock										440																		440
Common stock dividends										(177	)																	(177	)
Issuance of common shares for stock plans, net of repurchases		(11,100	)											11,100			(2	)										(2	)
Other comprehensive income																									2			2
BALANCE AS OF SEPTEMBER 30, 2012		292,871,896		$	32	$	4,991		$	7,967				23,210,700			$(1,037	)			$(61	)			$(50	)		$11,842

BALANCE AS OF DECEMBER 31, 2012		292,871,896		$	32	$	4,991		$	7,997				23,210,700			$(1,037	)			$(61	)			$(53	)		$11,869			292,871,896	$	32		Additional Paid-In Capital	$	4,991	Retained Earnings		$	7,997				23,210,700			$(1,037	)			$(61	)			$(53	)			$11,869
Net income for common stock										192																		192											192																			192
Common stock dividends										(180	)																	(180	)										(180	)																		(180	)
Issuance of common shares for stock plans, net of repurchases		95,468					(2	)						(95,468	)		7											5			95,468					(2	)						(95,468	)		7												5
Other comprehensive income																									3			3																										3				3
BALANCE AS OF MARCH 31, 2013		292,967,364		$	32	$	4,989		$	8,009				23,115,232			$(1,030	)			$(61	)			$(50	)		$11,889			292,967,364	$	32		$	4,989		$	8,009				23,115,232			$(1,030	)			$(61	)			$(50	)			$11,889
BALANCE AS OF DECEMBER 31, 2013																															292,872,396	$	32		$	4,995		$	8,338				23,210,200			$(1,034	)			$(61	)			$(25	)			$12,245
Net income for common stock										172																		172											361																			361
Common stock dividends										(180	)																	(180	)										(184	)																		(184	)
Issuance of common shares for stock plans, net of repurchases		(4,078	)				1							4,078			(1	)										—			51,656					(2	)						(51,656	)		2												—
Other comprehensive income																									2			2																										4				4
BALANCE AS OF JUNE 30, 2013		292,963,286		$	32	$	4,990		$	8,001				23,119,310			$(1,031	)			$(61	)			$(48	)		$11,883
Net income for common stock										464																		464
Common stock dividends										(180	)																	(180	)
Issuance of common shares for stock plans, net of repurchases		(34,931	)											34,931			(3	)										(3	)
Other comprehensive income																									2			2
BALANCE AS OF SEPTEMBER 30, 2013		292,928,355		$	32	$	4,990		$	8,285				23,154,241			$(1,034	)			$(61	)			$(46	)		$12,166
BALANCE AS OF MARCH 31, 2014																															292,924,052	$	32		$	4,993		$	8,515				23,158,544			$(1,032	)			$(61	)			$(21	)			$12,426

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


					11

Consolidated Edison Company of New York, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

   For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
   2013 2012 2013 2012
(Millions of Dollars)
OPERATING REVENUES

Electric
$ 2,622    $ 2,611    $ 6,309    $ 6,307
Gas
199    189    1,190    1,017
Steam
72    68    522    414
TOTAL OPERATING REVENUES
2,893    2,868    8,021    7,738
OPERATING EXPENSES

Purchased power
624    604    1,548    1,554
Fuel
56    59    261    213
Gas purchased for resale
58    45    376    264
Other operations and maintenance
686    725    2,102    2,065
Depreciation and amortization
237    225    705    664
Taxes, other than income taxes
480    456    1,370    1,300
TOTAL OPERATING EXPENSES
2,141    2,114    6,362    6,060
OPERATING INCOME
752    754    1,659    1,678
OTHER INCOME (DEDUCTIONS)

Investment and other income
1    2    7    6
Allowance for equity funds used during construction
1    —    1    2
Other deductions
(3 ) (2 ) (10 ) (10 )
TOTAL OTHER INCOME (DEDUCTIONS)
(1 ) —    (2 ) (2 )
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
751    754    1,657    1,676
INTEREST EXPENSE

Interest on long-term debt
127    130    384    395
Other interest
1    8    12    19
Allowance for borrowed funds used during construction
—    —    (1 ) (1 )
NET INTEREST EXPENSE
128    138    395    413
INCOME BEFORE INCOME TAX EXPENSE
623    616    1,262    1,263
INCOME TAX EXPENSE
222    227    431    436
NET INCOME
401    389    831    827
Preferred stock dividend requirements
—    —    —    (3 )
NET INCOME FOR COMMON STOCK
$ 401    $ 389    $ 831    $ 824


	For the Three Months Ended March 31,
	2014			2013
	*(Millions of Dollars)*
OPERATING REVENUES
Electric	$	2,074		$	1,814
Gas		789			660
Steam		341			332
TOTAL OPERATING REVENUES		3,204			2,806
OPERATING EXPENSES
Purchased power		617			455
Fuel		156			147
Gas purchased for resale		346			219
Other operations and maintenance		725			741
Depreciation and amortization		240			233
Taxes, other than income taxes		477			451
TOTAL OPERATING EXPENSES		2,561			2,246
OPERATING INCOME		643			560
OTHER INCOME (DEDUCTIONS)
Investment and other income		7			3
Allowance for equity funds used during construction		1			—
Other deductions		(2	)		(2	)
TOTAL OTHER INCOME		6			1
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		649			561
INTEREST EXPENSE
Interest on long-term debt		128			127
Other interest		3			5
NET INTEREST EXPENSE		131			132
INCOME BEFORE INCOME TAX EXPENSE		518			429
INCOME TAX EXPENSE		184			152
NET INCOME FOR COMMON STOCK	$	334		$	277

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


12

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	For the Three Month Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
	2013		2012		2013		2012			2014		2013
	*(Millions of Dollars)*									*(Millions of Dollars)*
NET INCOME	$	401	$	389	$	831	$	827		$	334	$	277
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $(1) taxes in 2012		—		—		—		(2	)
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension plan liability adjustments, net of $- taxes in 2014 and 2013											1		—
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES		—		—		—		(2	)		1		—
COMPREHENSIVE INCOME	$	401	$	389	$	831	$	825		$	335	$	277

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


					13

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2013			2012			2014			2013
	*(Millions of Dollars)*						(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	831		$	827		$	334		$	277
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		705			664			240			233
Deferred income taxes		364			220			178			241
Rate case amortization and accruals		1			32			32			10
Common equity component of allowance for funds used during construction		(1	)		(2	)		(1	)		—
Other non-cash items (net)		(72	)		84			2			(10	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		(39	)		(197	)		(265	)		(102	)
Materials and supplies, including fuel oil and gas in storage		(26	)		12			46			49
Other receivables and other current assets		(27	)		(41	)		(49	)		(15	)
Prepayments		(347	)		(308	)		(295	)		(310	)
Accounts payable		(180	)		50			12			(58	)
Pensions and retiree benefits obligations		616			639			184			239
Pensions and retiree benefits contributions		(830	)		(761	)		(200	)		(235	)
Superfund and environmental remediation costs (net)		(6	)		7			9			—
Accrued taxes		(92	)		40			(214	)		(79	)
Accrued interest		43			46			40			46
Deferred charges, noncurrent assets and other regulatory assets		63			84			(115	)		39
Deferred credits and other regulatory liabilities		302			88			105			(14	)
Other liabilities		64			(21	)		(32	)		39
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,369			1,463			11			350
INVESTING ACTIVITIES
Utility construction expenditures		(1,614	)		(1,368	)		(464	)		(515	)
Cost of removal less salvage		(139	)		(115	)		(46	)		(47	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,753	)		(1,483	)		(510	)		(562	)
FINANCING ACTIVITIES
Net proceeds of short-term debt		621			332			(541	)		(108	)
Preferred stock redemption		—			(239	)
Issuance of long-term debt		700			400			850			700
Retirement of long-term debt		(700	)		(300	)		(200	)		(505	)
Debt issuance costs		(7	)		(4	)		(6	)		(7	)
Dividend to parent		(545	)		(512	)		(178	)		(182	)
Preferred stock dividends		—			(3	)
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		69			(326	)
NET CASH FLOWS USED IN FINANCING ACTIVITIES								(75	)		(102	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		(315	)		(346	)		(574	)		(314	)
BALANCE AT BEGINNING OF PERIOD		353			372			633			353
BALANCE AT END OF PERIOD	$	38		$	26		$	59		$	39
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	336		$	344		$	85		$	84
Income taxes	$	117		$	50		$	276		$	45

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


14

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

   September 30,
2013 December 31,
2012
(Millions of Dollars)

ASSETS

CURRENT ASSETS

Cash and temporary cash investments
$ 38    $ 353
Special deposits
86    65
Accounts receivable – customers, less allowance for uncollectible accounts of $89 and $87 in 2013 and 2012, respectively
1,147    1,108
Other receivables, less allowance for uncollectible accounts of $6 and $9 in 2013 and 2012, respectively
142    106
Accrued unbilled revenue
329    406
Accounts receivable from affiliated companies
35    61
Fuel oil, gas in storage, materials and supplies, at average cost
311    285
Prepayments
428    81
Regulatory assets
42    60
Deferred tax assets – current
123    193
Other current assets
60    69
TOTAL CURRENT ASSETS
2,741 2,787
INVESTMENTS
231 207
UTILITY PLANT AT ORIGINAL COST

Electric
21,680    21,079
Gas
4,794    4,547
Steam
2,117    2,049
General
2,123 2,126
TOTAL
30,714    29,801
Less: Accumulated depreciation
6,357 6,009
Net
24,357    23,792
Construction work in progress
1,373    947
NET UTILITY PLANT
25,730 24,739
NON-UTILITY PROPERTY

Non-utility property, less accumulated depreciation of $25 in 2013 and 2012
5    6
NET PLANT
25,735 24,745
OTHER NONCURRENT ASSETS

Regulatory assets
8,497    8,972
Other deferred charges and noncurrent assets
171 174
TOTAL OTHER NONCURRENT ASSETS
8,668 9,146
TOTAL ASSETS
$ 37,375 $ 36,885


	March 31, 2014		December 31, 2013
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$	59	$	633
Special deposits		2		86
Accounts receivable – customers, less allowance for uncollectible accounts of $90 and $87 in 2014 and 2013, respectively		1,388		1,123
Other receivables, less allowance for uncollectible accounts of $9 and $8 in 2014 and 2013, respectively		112		127
Accrued unbilled revenue		336		405
Accounts receivable from affiliated companies		289		119
Fuel oil, gas in storage, materials and supplies, at average cost		254		300
Prepayments		397		102
Regulatory assets		5		26
Deferred tax assets – current		61		100
Other current assets		66		55
TOTAL CURRENT ASSETS		2,969		3,076
INVESTMENTS		250		247
UTILITY PLANT AT ORIGINAL COST
Electric		22,556		22,073
Gas		5,056		4,891
Steam		2,202		2,194
General		2,208		2,154
TOTAL		32,022		31,312
Less: Accumulated depreciation		6,595		6,469
Net		25,427		24,843
Construction work in progress		986		1,303
NET UTILITY PLANT		26,413		26,146
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 in 2014 and 2013		4		4
NET PLANT		26,417		26,150
OTHER NONCURRENT ASSETS
Regulatory assets		6,522		6,639
Other deferred charges and noncurrent assets		168		146
TOTAL OTHER NONCURRENT ASSETS		6,690		6,785
TOTAL ASSETS	$	36,326	$	36,258

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


					15

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
	*(Millions of Dollars)*				*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$	475	$	700	$	275	$	475
Notes payable		1,042		421		669		1,210
Accounts payable		737		989		840		824
Accounts payable to affiliated companies		16		22		22		45
Customer deposits		304		292		314		308
Accrued taxes		20		37		35		46
Accrued taxes to affiliated companies		140		215		210		413
Accrued interest		176		133		179		139
Accrued wages		89		84		88		82
Fair value of derivative liabilities		19		28		1		12
Uncertain income tax liabilities		—		36
Regulatory liabilities		86		145		199		107
Other current liabilities		419		410		344		385
TOTAL CURRENT LIABILITIES		3,523		3,512		3,176		4,046
NONCURRENT LIABILITIES
Obligations under capital leases		2		2		1		1
Provision for injuries and damages		188		141		183		180
Pensions and retiree benefits		3,414		4,220		1,237		1,453
Superfund and other environmental costs		403		433		637		644
Asset retirement obligations		163		158		144		143
Fair value of derivative liabilities		7		11		2		3
Other noncurrent liabilities		109		115
TOTAL NONCURRENT LIABILITIES		4,286		5,080
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		7,888		7,452		7,942		7,832
Regulatory liabilities		1,431		1,077		1,647		1,598
Other deferred credits		43		67
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		9,362		8,596
Other deferred credits and noncurrent liabilities						137		145
TOTAL NONCURRENT LIABILITIES						11,930		11,999
LONG-TERM DEBT		9,366		9,145		10,216		9,366
COMMON SHAREHOLDER’S EQUITY (See Statement of Common Shareholder’s Equity)		10,838		10,552		11,004		10,847
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	37,375	$	36,885	$	36,326	$	36,258

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


16

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Repurchased
Con Edison
Stock

Capital
Stock
Expense
Accumulated
Other
Comprehensive
Income/(Loss)
Total

(Millions of Dollars/Except Share Data) Shares Amount
BALANCE AS OF DECEMBER 31, 2011
235,488,094    $ 589    $ 4,234    $ 6,429    $ (962)    $ (64)    $ (8 ) $ 10,218
Net income
276    276
Common stock dividend to parent
(171 ) (171 )
Cumulative preferred dividends
(3 ) (3 )
Preferred stock redemption
4    4
Other comprehensive income
—    —
BALANCE AS OF MARCH 31, 2012
235,488,094    $ 589    $ 4,234    $ 6,531    $ (962)    $ (60)    $ (8 ) $ 10,324
Net income
163    163
Common stock dividend to parent
(171 ) (171 )
Other comprehensive loss
(2 ) (2 )
BALANCE AS OF JUNE 30, 2012
235,488,094    $ 589    $ 4,234    $ 6,523    $ (962)    $ (60)    $ (10 ) $ 10,314
Net income
389    389
Common stock dividend to parent
(171 ) (171 )
Cumulative preferred dividends
—    —
Other comprehensive loss
—    —
BALANCE AS OF SEPTEMBER 30, 2012
235,488,094    $ 589    $ 4,234    $ 6,741    $ (962)    $ (60)    $ (10 ) $ 10,532
BALANCE AS OF DECEMBER 31, 2012
235,488,094    $ 589    $ 4,234    $ 6,761    $ (962)    $ (61)    $ (9 ) $ 10,552
Net income
277    277
Common stock dividend to parent
(182 ) (182 )
Other comprehensive income
—    —
BALANCE AS OF MARCH 31, 2013
235,488,094    $ 589    $ 4,234    $ 6,856    $ (962 ) $ (61 ) $ (9 ) $ 10,647
Net income
153    153
Common stock dividend to parent
(182 ) (182 )
Other comprehensive income
—    —
BALANCE AS OF JUNE 30, 2013
$ 235,488,094    $ 589    $ 4,234    $ 6,827    $ (962 ) $ (61 ) $ (9 ) $ 10,618
Net income
401    401
Common stock dividend to parent
(181 ) (181 )
Other comprehensive income
—    —
BALANCE AS OF SEPTEMBER 30, 2013
$ 235,488,094    $ 589    $ 4,234    $ 7,047    $ (962 ) $ (61 ) $ (9 ) $ 10,838


	Common Stock				Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
*(Millions of Dollars/Except Share Data)*	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total

BALANCE AS OF DECEMBER 31, 2012		235,488,094	$	589	$	4,234	$	6,761		$	(962	)	$	(61	)	$	(9	)	$	10,552
Net income								277												277
Common stock dividend to parent								(182	)											(182	)
Other comprehensive income																	—			—
BALANCE AS OF MARCH 31, 2013		235,488,094	$	589	$	4,234	$	6,856		$	(962	)	$	(61	)	$	(9	)	$	10,647
BALANCE AS OF DECEMBER 31, 2013		235,488,094	$	589	$	4,234	$	7,053		$	(962	)	$	(61	)	$	(6	)	$	10,847
Net income								334												334
Common stock dividend to parent								(178	)											(178	)
Other comprehensive income																	1			1
BALANCE AS OF MARCH 31, 2014		235,488,094	$	589	$	4,234	$	7,209		$	(962	)	$	(61	)	$	(5	)	$	11,004

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


					17

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to CECONY and O&R.

As used in these notes, the term “Companies” refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, ~~2012 and their separate unaudited financial statements (including~~2013. Certain prior period amounts have been reclassified to conform to the ~~combined notes thereto) included in Part I, Item 1 of their combined Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2013 and June 30, 2013.~~current period presentation.

Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a company which sells to retail ~~energy services company that sells~~customers electricity purchased in wholesale markets and enters into related hedging transactions and also ~~offers~~provides energy-related ~~services;~~products and services to retail customers; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale ~~energy services company;~~customers; and Consolidated Edison Development, Inc. (Con Edison Development), a company that ~~develops and~~ participates in infrastructure projects.


18

Note A — Summary of Significant Accounting Policies

~~Reclassifications and Revisions~~

~~Prior period amounts have been reclassified where necessary to conform to the current period presentation.~~

Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013, incorrectly reduced net cash flows from financing activities and increased net cash flows from operating activities by an amount equal to the $108 million of net cash proceeds from the termination of the 1999 LILO transaction. A revision will be made on Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013 when the company files its Form 10-Q for the quarterly period ended June 30, 2014. The company does not deem this revision material to its consolidated financial statements for the six months ended June 30, 2013.

Earnings Per Common Share

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
*(Millions of Dollars, except per share amounts/Shares in Millions)*	2013		2012		2013		2012		2014		2013
Net income for common stock	$	464	$	440	$	828	$	931	$	361	$	192
Weighted average common shares outstanding – basic		292.9		292.9		292.9		292.9		292.9		292.9
Add: Incremental shares attributable to effect of potentially dilutive securities		1.4		1.7		1.4		1.7		1.2		1.3
Adjusted weighted average common shares outstanding – diluted		294.3		294.6		294.3		294.6		294.1		294.2
Net income for common stock per common share – basic	$	1.58	$	1.50	$	2.83	$	3.18
Net income for common stock per common share – diluted	$	1.58	$	1.49	$	2.81	$	3.16
Net Income for common stock per common share – basic									$	1.23	$	0.66
Net Income for common stock per common share – diluted									$	1.23	$	0.65

The computation of diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2013 and 2012~~March 31, 2014 excludes immaterial amounts of performance share awards which were not included because of their anti-dilutive effect. No such exclusions were required for the computation of diluted EPS for the three months ended March 31, 2013.

Changes in Accumulated Other Comprehensive Income by Component

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013, changes to accumulated other comprehensive income (OCI) for Con Edison and CECONY are as follows:

(Millions of Dollars) Con Edison CECONY
Accumulated OCI, net of taxes, at December 31, 2012
$ (53 ) $ (9 )
OCI before reclassifications, net of tax of $1 and $- for Con Edison and CECONY, respectively
1    —
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $- for Con Edison and CECONY, respectively (a)(b)
2    —
Total OCI, net of taxes, at March 31, 2013
$ 3    $ —
Accumulated OCI, net of taxes, at March 31, 2013 (b)
$ (50 ) $ (9 )
OCI before reclassifications
—    —
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $- for Con Edison and CECONY, respectively (a)(b)
2    —
Total OCI, net of taxes, at June 30, 2013
$ 2    $ —
Accumulated OCI, net of taxes, at June 30, 2013 (b)
$ (48 ) $ (9 )
OCI before reclassifications
—    —
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $- for Con Edison and CECONY, respectively (a)(b)
2    —
Total OCI, net of taxes, at September 30, 2013
$ 2    $ —
Accumulated OCI, net of taxes, at September 30, 2013 (b)
$ (46 ) $ (9 )


	Three Months Ended March 31,
	Con Edison						CECONY
*(Millions of Dollars)*	2014			2013			2014			2013
Beginning balance, accumulated OCI, net of taxes	$	(25	)	$	(53	)	$	(6	)	$	(9	)
OCI before reclassifications, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY, respectively		2			1			—			—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY^(a)(b)		2			2			1			—
Current period total OCI, net of taxes	$	4		$	3		$	1		$	—
Ending balance, accumulated OCI, net of taxes^(b)	$	(21	)	$	(50	)	$	(5	)	$	(9	)

(a)

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

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


					19

Note B — Regulatory Matters

~~Rate Agreements~~

~~CECONY – Electric, Gas and Steam~~

In January 2013, CECONY filed requests for electric, gas and steam rate changes, effective January 1, 2014. The company requested electric and gas rate increases of $375 million and $25 million, respectively, and a steam rate decrease of $5 million, reflecting, among other things, a return on common equity of 10.35 percent and a common equity ratio of approximately 50 percent. In August 2013, the New York State Public Service Commission (NYSPSC) staff submitted its initial briefs which support decreases in the company’s electric, gas and steam rates of $146 million, $95 million and $10 million, respectively, reflecting, among other things, a return on common equity of 8.7 percent and a common equity ratio of 48 percent. In September 2013, the company submitted its reply briefs supporting increases in its electric, gas and steam rates of $418 million, $27 million and $8 million, respectively, reflecting, among other things, a return on common equity of 10.1 percent and a common equity ratio of approximately 50 percent. In October 2013, the NYSPSC’s Chief Administrative Law Judge appointed a settlement judge to assist in settlement discussions among the parties in these rate proceedings. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. Also, in October 2013, the company agreed to extend by one month the date by which the NYSPSC is required to issue a decision on the company’s rate requests, subject to a “make whole” provision that would keep the company and its customers in the same position they would have been absent the extension.

Other Regulatory Matters

In February 2009, the ~~NYSPSC~~New York State Public Service Commission (NYSPSC) commenced a proceeding to examine the prudence of certain CECONY expenditures following the arrests of employees for accepting illegal payments from a construction contractor. Subsequently, additional employees were arrested for accepting illegal payments from materials suppliers and an engineering firm. The arrested employees were terminated by the company and have pled guilty or been convicted. Pursuant to NYSPSC orders, a portion of the company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At ~~September 30, 2013,~~March 31, 2014, the company had collected an estimated ~~$1,318~~$1,462 million from customers subject to potential refund in connection with this proceeding. In January 2013, a NYSPSC consultant reported its estimate, with which the company does not agree, of $208 million of overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures


20

during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSC’s Chief Administrative Law Judge appointed a settlement judge to assist the parties. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At ~~September 30, 2013,~~March 31, 2014, the company had a ~~$16~~$38 million regulatory liability ~~for refund~~relating to ~~customers of amounts~~this matter. Included in the regulatory liability was $16 million the company recovered from vendors, arrested employees and insurers relating to this matter. ~~The~~Pursuant to the current rate plans, the company is ~~unable~~applying $15 million of these recovered amounts for the benefit of customers to ~~estimate the~~offset a like amount ~~if any, by which any refund required by the NYSPSC may exceed this~~of regulatory ~~liability.~~assets. The company currently estimates that any ~~refund required by~~additional amount the NYSPSC requires the company to refund to customers could range in amount from ~~the $16~~$25 million ~~regulatory liability~~ up to an amount based on the NYSPSC consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of ~~September 30, 2013,~~March 31, 2014, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of ~~$471~~$490 million and ~~$92~~$93 million, respectively (including capital expenditures of ~~$143~~$149 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory asset under the Utilities’ electric rate plans. See “Regulatory Assets and ~~Liabilities,”~~Liabilities” below. ~~The Utilities’~~CECONY’s current electric rate plan includes collection from customers of deferred storm costs (including for Superstorm Sandy), subject to refund following NYSPSC review of the costs. O&R expects to request recovery of deferred storm costs for its New York electric operations, which are also subject to NYSPSC review, when it next files with the NYSPSC for a new electric rate plans include provisions for revenue decoupling, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. The provisions of the Utilities’ New York electric plans that impose penalties for operating performance provide for exceptions for major storms and catastrophic events beyond the control of the companies, including natural disasters such as hurricanes and floods. The NYSPSC is investigating, and the New York State Attorney General investigated, the preparation and performance of the Utilities in connection with Superstorm Sandy and other major storms.

In June 2013, a commission appointed by the Governor of New York issued its final report on utility storm preparation and response. The commission identified deficiencies in the performance of the Utilities and other New York utilities and made recommendations regarding, among other things, preparation and response to flooding; estimation of customer restoration times; reliability of website outage maps; coordination with local governments and providers of other utility services; availability and allocation of staffing and other resources (including the utility industry’s mutual aid process); and communications with affected communities and local officials. The commission’s report also addressed the Long Island Power Authority, energy efficiency programs, utility infrastructure investment and regulatory deficiencies.

plan. In March 2013, the ~~New Jersey Board of Public Utilities~~NJBPU established a proceeding to review the prudency of costs incurred by New Jersey utilities ~~including Rockland Electric Company (RECO, an O&R subsidiary),~~ in response to major storm events in 2011 and 2012. ~~At September 30,~~In November 2013, RECO ~~had $28 million~~filed an electric rate request with the NJBPU which includes a proposal for recovery over a three-year period of its deferred storm costs of $27 million. In May 2014, RECO, the NJBPU staff and the New Jersey Division of Rate Counsel entered into a stipulation of settlement regarding RECO’s deferred storm costs. The stipulation, which is subject to NJBPU approval, provides that RECO’s deferred storm costs are deemed reasonable, prudent and eligible for recovery asover a ~~regulatory asset~~period to be determined in RECO’s electric rate proceeding.


20

Regulatory Assets and ~~had incurred $6 million~~Liabilities

Regulatory assets and liabilities at March 31, 2014 and December 31, 2013 were comprised of ~~capital expenditures related to~~ the ~~storms.~~following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2014		2013		2014		2013
Regulatory assets
Unrecognized pension and other postretirement costs		$2,591		$2,730		$2,478		$2,610
Future income tax		2,183		2,145		2,070		2,030
Environmental remediation costs		921		938		814		830
Deferred storm costs		411		441		307		334
Revenue taxes		216		207		204		196
Pension and other postretirement benefits deferrals		191		237		163		211
Surcharge for New York State assessment		144		78		136		74
Net electric deferrals		78		83		78		83
Unamortized loss on reacquired debt		63		65		60		62
O&R transition bond charges		31		33		—		—
Preferred stock redemption		28		28		28		28
Property tax reconciliation		25		22		—		—
Workers’ compensation		12		12		12		12
Deferred derivative losses – noncurrent		6		8		5		7
Other		182		174		167		162
Regulatory assets – noncurrent		7,082		7,201		6,522		6,639
Deferred derivative losses – current		7		25		5		22
Recoverable energy costs – current		1		4		—		4
Regulatory assets – current		8		29		5		26
Total Regulatory Assets		$7,090		$7,230		$6,527		$6,665
Regulatory liabilities
Allowance for cost of removal less salvage		$ 558		$ 540		$ 466		$ 453
Property tax reconciliation		299		322		299		322
Property tax refunds		119		130		119		130
Long-term interest rate reconciliation		99		105		99		105
Carrying charges on repair allowance and bonus depreciation		81		88		80		87
New York State income tax rate change		66		—		62		—
Net unbilled revenue deferrals		61		133		61		133
World Trade Center settlement proceeds		57		62		57		62
Other postretirement benefit deferrals		51		50		47		50
2014 rate plan base rate revenue deferral		50		—		50		—
Prudence proceeding		38		40		38		40
Unrecognized other postretirement benefits costs		32		—		23		—
Carrying charges on T&D net plant – electric and steam		27		28		21		20
Electric excess earnings		22		22		18		18
Other		240		208		207		178
Regulatory liabilities – noncurrent		1,800		1,728		1,647		1,598
Refundable energy costs – current		160		100		128		66
Deferred derivative gains – current		44		14		36		11
Revenue decoupling mechanism		23		34		19		30
Future income tax		16		—		16		—
Regulatory liabilities – current		243		148		199		107
Total Regulatory Liabilities		$2,043		$1,876		$1,846		$1,705


					21

~~Regulatory Assets and Liabilities~~

~~Regulatory assets and liabilities at September 30, 2013 and December 31, 2012 were comprised of the following items:~~

   Con Edison CECONY
(Millions of Dollars) 2013 2012 2013 2012
Regulatory assets

Unrecognized pension and other postretirement costs
$5,011    $5,677    $4,779    $5,407
Future income tax
2,035    1,922    1,929    1,831
Environmental remediation costs
704    730    591    615
Deferred storm costs
451    432    340    309
Pension and other postretirement benefits deferrals
229    183    201    154
Revenue taxes
191    176    182    170
Surcharge for New York State assessment
119    73    113    68
Net electric deferrals
88    102    88    102
Unamortized loss on reacquired debt
67    74    64    70
Deferred derivative losses – long-term
34    40    13    20
O&R transition bond charges
34    39    —    —
Preferred stock redemption
28    29    28    29
Property tax reconciliation
20    16    —    —
Workers’ compensation
16    19    16    19
Other
163    193    153    178
Regulatory assets – long-term
9,190    9,705    8,497    8,972
Deferred derivative losses – current
45    69    42    60
Recoverable energy costs – current
1    5    —    —
Regulatory assets – current
46    74    42    60
Total Regulatory Assets
$9,236    $9,779    $8,539    $9,032
Regulatory liabilities

Allowance for cost of removal less salvage
$   522    $   503    $   436    $   420
Property tax reconciliation
290    187    290    187
Property tax refunds
130    7    129    6
Net unbilled revenue deferrals
104    136    104    136
Long-term interest rate reconciliation
94    62    94    62
World Trade Center settlement proceeds
62    62    62    62
Carrying charges on T&D net plant – electric and steam
30    31    20    13
Expenditure prudence proceeding
16    14    16    14
Other
309    200    280    177
Regulatory liabilities – long-term
1,557    1,202    1,431    1,077
Refundable energy costs – current
64    82    36    48
Revenue decoupling mechanism
51    72    49    68
Deferred derivative gains – current
2    —    1    —
Electric surcharge offset
—    29    —    29
Regulatory liabilities – current
117    183    86    145
Total Regulatory Liabilities
$1,674    $1,385    $1,517    $1,222

“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 Utilities. See “Other Regulatory Matters,” above.


22

Note C — Capitalization

In February ~~2013, CECONY issued $700 million aggregate principal amount of 3.95 percent 30-year debentures and redeemed at maturity $500 million of 4.875 percent 10-year debentures. In June 2013,~~2014, CECONY redeemed at maturity $200 million of ~~3.85~~4.70 percent 10-year debentures. In ~~April 2013, a Con Edison Development subsidiary~~March 2014, CECONY issued ~~$219~~$850 million aggregate principal amount of ~~4.78~~4.45 percent ~~senior notes secured by the company’s California solar energy projects. The notes have a weighted average life of 15 years and final maturity of 2037.~~30-year debentures.

The carrying amounts and fair values of long-term debt are:


*(Millions of Dollars)*	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
Long-Term Debt (including current portion)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Con Edison		$10,976		$12,213		$10,768		$12,935	$	11,623	$	13,000	$	10,974	$	12,082
CECONY		$ 9,841		$10,925		$ 9,845		$11,751	$	10,491	$	11,692	$	9,841	$	10,797

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, ~~$11,577~~$12,364 million and $636 million of the fair value of long-term debt at ~~September 30, 2013~~March 31, 2014 are classified as Level 2 and Level 3, respectively. For CECONY, ~~$10,289~~$11,056 million and $636 million of the fair value of long-term debt at ~~September 30, 2013~~March 31, 2014 are classified as Level 2 and Level 3, respectively (see Note L)M). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing

At ~~September 30, 2013,~~March 31, 2014, Con Edison had ~~$1,220~~$830 million of commercial paper outstanding of which ~~$1,042~~$669 million was outstanding under CECONY’s program. The weighted average interest rate was ~~0.3~~0.2 percent for both Con Edison and CECONY. At December 31, ~~2012,~~2013, Con Edison had ~~$539~~$1,451 million of commercial paper outstanding of which ~~$421~~$1,210 million was outstanding under CECONY’s program. The weighted average interest rate was ~~0.3~~0.2 percent for both Con Edison and CECONY.

At ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, no loans were outstanding under the Companies’ credit agreement and ~~$29~~$56 million (including $11 million for CECONY) and ~~$131~~$26 million (including ~~$121~~$11 million for CECONY) of letters of credit were outstanding, respectively, under the credit agreement. In 2013, the termination date under the credit agreement was extended from October 2016 to October 2017 with respect to lenders with aggregate commitments under the credit agreement of approximately $2.1 billion.


22					23

Note E — Pension Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ were as follows:


	For the Three Months Ended September 30,
	Con Edison						CECONY						Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012			2014			2013			2014			2013
Service cost – including administrative expenses		$ 67			$ 59			$ 62			$ 55			$ 57			$ 67			$ 53			$ 62
Interest cost on projected benefit obligation		134			137			126			128			143			134			134			126
Expected return on plan assets		(187	)		(176	)		(178	)		(168	)		(208	)		(187	)		(197	)		(178	)
Recognition of net actuarial loss		208			177			197			168			154			208			146			197
Recognition of prior service costs		1			2			1			2			1			1			1			1
NET PERIODIC BENEFIT COST		$ 223			$ 199			$ 208			$ 185			$ 147			$ 223			$ 137			$ 208
Amortization of regulatory asset		1			—			1			—
TOTAL PERIODIC BENEFIT COST		$ 224			$ 199			$ 209			$ 185
Cost capitalized		(86	)		(64	)		(78	)		(60	)		(51	)		(82	)		(49	)		(79	)
Reconciliation to rate level		(31	)		—			(34	)		(1	)		26			11			23			13
Cost charged to operating expenses		$ 107			$ 135			$ 97			$ 124			$ 122			$ 152			$ 111			$ 142

   For the Nine Months Ended September 30,
   Con Edison CECONY
(Millions of Dollars) 2013 2012 2013 2012
Service cost – including administrative expenses
$ 200    $ 177    $ 186    $ 165
Interest cost on projected benefit obligation
403    410    377    385
Expected return on plan assets
(563 ) (528 ) (534 ) (503 )
Recognition of net actuarial loss
624    531    591    503
Recognition of prior service costs
4    6    3    4
NET PERIODIC BENEFIT COST
$ 668    $ 596    $ 623    $ 554
Amortization of regulatory asset
2    1    2    1
TOTAL PERIODIC BENEFIT COST
$ 670    $ 597    $ 625    $ 555
Cost capitalized
(256 ) (200 ) (241 ) (186 )
Reconciliation to rate level
(55 ) (37 ) (56 ) (36 )
Cost charged to operating expenses
$ 359    $ 360    $ 328    $ 333

Expected Contributions

~~The~~Based on estimates as of March 31, 2014, the Companies ~~made~~expect to make contributions to the pension plan during ~~2013~~2014 of ~~$867~~$564 million (of which ~~$810~~$524 million ~~was~~is to be contributed by CECONY). The Companies’ policy is to fund their accounting cost to the extent tax deductible. During the first ~~nine months~~quarter of ~~2013,~~2014, CECONY ~~also funded $11~~contributed $200 million to the pension plan. The Companies expect to fund $13 million for the non-qualified supplemental ~~plans.~~plans in 2014.

Note F — Other Postretirement Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ were as follows:


	For the Three Months Ended September 30,
	Con Edison						CECONY						Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012			2014			2013			2014			2013
Service cost		$ 6			$ 6			$ 5			$ 5		$	5		$	6		$	4		$	5
Interest cost on accumulated other postretirement benefit obligation		13			18			12			16			15			14			13			12
Expected return on plan assets		(19	)		(21	)		(17	)		(19	)		(19	)		(19	)		(17	)		(17	)
Recognition of net actuarial loss		16			24			14			22			14			16			13			14
Recognition of prior service cost		(7	)		(5	)		(6	)		(4	)		(5	)		(7	)		(4	)		(6	)
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 9			$ 22			$ 8			$ 20		$	10		$	10		$	9		$	8
Cost capitalized		(3	)		(8	)		(3	)		(7	)		(4	)		(3	)		(3	)		(2	)
Reconciliation to rate level		14			3			12			3			3			12			—			11
Cost charged to operating expenses		$ 20			$ 17			$ 17			$ 16		$	9		$	19		$	6		$	17


24					23

   For the Nine Months Ended September 30,
   Con Edison CECONY
(Millions of Dollars) 2013 2012 2013 2012
Service cost
$ 18    $  20    $ 14    $ 15
Interest cost on accumulated other postretirement benefit obligation
40    55    34    48
Expected return on plan assets
(58 ) (64 ) (51 ) (56 )
Recognition of net actuarial loss
48    73    43    65
Recognition of prior service cost
(20 ) (16 ) (17 ) (13 )
Recognition of transition obligation
—    1    —    1
NET PERIODIC POSTRETIREMENT BENEFIT COST
$ 28    $  69    $ 23    $ 60
Cost capitalized
(10 ) (24 ) (9 ) (20 )
Reconciliation to rate level
43    15    37    12
Cost charged to operating expenses
$ 61    $  60    $ 51    $ 52

Expected Contributions

Based on estimates as of March 31, 2014, Con Edison ~~made~~expects to make a contribution of $9$7 million, nearly all of which is for CECONY, to the other postretirement benefit plans in ~~2013.~~2014.

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


					25

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 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were as follows:


	Con Edison				CECONY				Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012		2014		2013		2014		2013
Accrued Liabilities:
Manufactured gas plant sites		$439		$462		$332		$351		$663		$665		$560		$562
Other Superfund Sites		73		83		71		82		78		84		77		82
Total		$512		$545		$403		$433		$741		$749		$637		$644
Regulatory assets		$704		$730		$591		$615		$921		$938		$814		$830

Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available, the Utilities expect that additional liability may be accrued, the amount of which is not presently determinable but may be material. Under their current rate ~~agreements,~~plans, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.


24

Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ were as follows:

   For the Three Months Ended September 30,
   Con Edison CECONY
(Millions of Dollars) 2013 2012 2013 2012
Remediation costs incurred
$10    $3    $10    $1
Insurance recoveries received
—    —    —    —


	For the Nine Months Ended September 30,
	Con Edison				CECONY					Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012			2014		2013		2014		2013
Remediation costs incurred		$35		$18		$30		$15			$9		$10		$8		$7
Insurance recoveries received		—		—		—		—
Insurance recoveries received*											5		—		5		—
* Reduced amount deferred for recovery from customers									* Reduced amount deferred for recovery from customers

In ~~2010,~~2013, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related


26

environmental contaminants could range up to ~~$1.9~~$2.4 billion. In ~~2010,~~2013, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to ~~$200~~$167 million. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In ~~2010,~~2013, Con Edison and CECONY estimated that ~~its~~their aggregate undiscounted potential ~~liability~~liabilities for these suits and additional suits that may be brought over the next 15 years ~~is $10 million.~~were $8 million and $7 million, respectively. The ~~estimate was~~estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate ~~agreements,~~plans, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were as follows:


	Con Edison				CECONY				Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012		2014		2013		2014		2013
Accrued liability – asbestos suits		$10		$10		$10		$10	$	8	$	8	$	7	$	7
Regulatory assets – asbestos suits		$10		$10		$10		$10	$	8	$	8	$	7	$	7
Accrued liability – workers’ compensation		$91		$94		$86		$89	$	87	$	87	$	82	$	82
Regulatory assets – workers’ compensation		$16		$19		$16		$19	$	12	$	12	$	12	$	12

Note H —– Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud


					25

containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 90 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business


					27

interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs to satisfy its liability to others in connection with the suits. At ~~September 30, 2013,~~March 31, 2014, the company ~~has~~had accrued its estimated liability for the suits of $50 million and an insurance receivable in the same amount.

~~Lease In/Lease Out Transactions~~Manhattan Explosion and Fire

~~In each of 1997~~On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116^th and ~~1999, Con Edison Development entered into transactions~~117^th Street in ~~which it leased property~~Manhattan were destroyed by an explosion and ~~then immediately subleased the properties back~~fire. CECONY had delivered gas to the ~~lessor (termed “Lease In/Lease Out,” or LILO transactions)~~buildings through service lines from a distribution main located below ground on Park Avenue. Eight people died and more than 48 people were injured. Additional buildings were also damaged. The National Transportation Safety Board is investigating. The parties to the investigation include the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which is also conducting an investigation). Several suits are pending against the company seeking generally unspecified damages for personal injury and property damage. The ~~transactions respectively involved electric generating~~company has notified its insurers of the incident and ~~gas distribution facilities~~believes that the policies in force at the ~~Netherlands, with a total investment~~time of ~~$259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by~~ the ~~underlying assets. In accordance with the accounting rules for leases, Con Edison accounted for the two LILO transactions as leveraged leases. Accordingly,~~incident will cover the company’s ~~investment~~costs, in ~~these leases, net~~excess of ~~non-recourse debt, was carried as~~ a ~~single~~required retention (the amount ~~in Con Edison’s consolidated balance sheet and income was recognized pursuant~~of which is not material), to ~~a method that incorporated a level rate of return~~satisfy any liability it may have for ~~those years when net investment in the lease was positive.~~

~~On audit of Con Edison’s tax return for 1997, the Internal Revenue Service (IRS) disallowed tax losses~~damages in connection with the ~~1997 LILO transaction and assessed~~incident. The company is unable to estimate the ~~company a $0.3 million income tax deficiency. On audits~~amount or range of Con Edison’s 1998 through 2011 tax returns, the IRS disallowed $574 million of tax losses taken with respect to both LILO transactions. In December 2005, Con Edison paid the $0.3 million deficiency asserted by the IRS for the tax year 1997 with respectits possible loss related to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of tax and interest. A trial was completed in November 2007. In October 2009, the court issued a decision in favor of the company concluding that the 1997 LILO transaction was, in substance, a true lease that possessed economic substance, the loans relating to the lease constituted bona fide indebtedness, and the deductions for the 1997 LILO transactions claimed by the company in its 1997 federal income tax return are allowable. In January 2013, the United States Court of Appeals for the Federal Circuit reversed the October 2009 trial court decision and disallowed the tax losses claimed by the company relating to the 1997 LILO transaction. In March 2013, the Court of Appeals denied the company’s request to grant rehearing~~en banc~~ ~~of the January 2013 decision. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions.~~

~~As a result of the January 2013 Court of Appeals decision, in the three months ended~~incident. At March 31, ~~2013, Con Edison recorded an after-tax charge of $150 million to reflect, as required by the accounting rules for leveraged lease transactions, the recalculation of the~~


28

accounting effect of the LILO transactions based on the revised after-tax cash flows projected from the inception of the leveraged leases as well as the interest on the potential tax liability resulting from the disallowance of federal and state income tax losses with respect to the LILO transactions (see “Uncertain Tax Positions” in Note I). In June 2013, the 1999 LILO transaction was terminated, as a result of which the company realized a $29 million gain (after-tax) and received net cash proceeds of $108 million. In August 2013, the 1997 LILO transaction was terminated, resulting in a $26 million gain (after-tax) and net cash proceeds of $92 million. The effect on Con Edison’s consolidated income statement is as follows:

(Millions of Dollars) For the Three
Months Ended
September 30, 2013
For the Nine
Months Ended
September 30, 2013

Increase/(decrease) to non-utility operating revenues
$ 44    $ (27 )
(Increase)/decrease to other interest expense
—    (131 )
Income tax benefit/(expense)
(18 ) 63
Total increase/(decrease) in net income
$ 26    $ (95 )

~~The transactions did not impact earnings in 2012.~~

~~At September 30, 2013,~~2014, the company had terminated its LILO transactions and no longer had an investment recorded for these leases in its consolidated balance sheet. At December 31, 2012, the company’s net investment in the LILO transactions was $(76) million, comprised ofnot accrued a ~~$228 million gross investment less $304 million of deferred tax liabilities.~~

~~In January 2013, to defray interest charges, the company deposited $447 million with federal and state tax agencies relating primarily to the potential tax~~ liability from these LILO transactions in past tax years and interest thereon. In June 2013, at the company’s request, the IRS returned $95 million of the deposit. In August 2013, an additional $30 million of the deposit was returned from the IRS at the company’s request. In the third quarter of 2013, the IRS completed its audits for the tax years 1998 through 2011 and the company expects to apply a portion of the remaining deposited amounts against its federal tax liability during the fourth quarter of 2013. The company is currently amending its state tax returns for all years covered by the LILOs, and expects that the balance of the deposit will be applied to satisfy its related state tax liability.incident.

Other Contingencies

See “Other Regulatory Matters” in Note ~~B and “Uncertain Tax Positions” in Note I.~~B.

Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled ~~$1,272~~$1,500 million and ~~$859~~$1,331 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively.


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A summary, by type and term, of Con Edison’s total guarantees at ~~September 30, 2013~~March 31, 2014 is as follows:


Guarantee Type	0 – 3 years		4 – 10 years		> 10 years		Total		0 – 3 years		4 – 10 years		> 10 years		Total
	*(Millions of Dollars)*								*(Millions of Dollars)*
Energy transactions	$	705	$	52	$	25	$	782	$	785	$	35	$	68	$	888
Solar energy projects		443		—		4		447		568		13		—		581
Intra-company guarantees		16		—		—		16
Other guarantees		27		—		—		27
Other										31		—		—		31
Total	$	1,191	$	52	$	29	$	1,272	$	1,384	$	48	$	68	$	1,500

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

Solar Energy Projects — — Con Edison and Con Edison Development guarantee payments associated with the investment in solar energy ~~generation~~ facilities on behalf


26

of their wholly-owned subsidiaries. In addition, Con Edison Development has entered into ~~a guarantee~~two guarantees ($80 million ~~maximum)~~maximum and $208 million maximum, respectively) on behalf of ~~an entity~~two entities in which it has a 50 percent interest ~~(see Note M)~~ in connection with the construction of solar energy ~~generation~~ facilities. Con Edison Development also provided $4$3 million in guarantees to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar energy facilities performed by its subsidiaries.

~~Intra-company Guarantees~~ ~~— Con Edison guarantees electricity sales made by Con Edison Energy and Con Edison Solutions to O&R and CECONY.~~

Other ~~Guarantees~~ — ~~Con Edison and Con Edison Development also guarantee the following:~~

~~$2 million relates~~Other guarantees primarily relate to guarantees issued by Con Edison to CECONY covering a former Con Edison subsidiary’s lease payment to use CECONY’s conduit system in accordance with a tariff approved by the NYSPSC and a guarantee issued by Con Edison to a landlord to guarantee the former subsidiary’s obligations under a building lease. The former subsidiary is obligated to reimburse Con Edison for any payments made under these guarantees. This obligation is fully secured by letters of credit;

~~$25 million for~~ guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects performed by Con Edison ~~Solutions; and~~

Solutions ($25 million). In addition, Con Edison ~~on behalf of Con Edison Solutions, as a retail electric provider,~~ issued a guarantee to the Public Utility Commission of Texas ~~with no specified limitation on the amount guaranteed,~~ covering ~~the payment of all~~ obligations of Con Edison Solutions as a retail electric provider. Con Edison’s estimate of the maximum potential obligation for this guarantee is $5 million as of ~~September 30, 2013.~~March 31, 2014.


30

Note I ~~— Income Tax~~– Lease In/Lease Out Transactions

As a result of the January 2013 Court of Appeals decision, in March 2013, Con Edison recorded an after-tax charge of $150 million to reflect, as required by the accounting rules for leveraged lease transactions, the recalculation of the accounting effect of the LILO transactions based on the revised after-tax cash flows projected from the inception of the leveraged leases as well as the interest on the potential tax liability resulting from the disallowance of federal and state income tax losses with respect to the LILO transactions. In the first quarter of 2014, the interest accrued on the liability was reduced by $13 million ($7 million, net of tax). See “Uncertain Tax Positions” in Note J.

The effect of the LILO transactions on Con Edison’s consolidated income ~~tax expense decreased to $250 million~~statement for the three months ended ~~September 30,~~as of March 31, 2014 and 2013 ~~from $261~~were as follows:


*(Millions of Dollars)*	For the Three Months Ended March 31,
*(Millions of Dollars)*	2014			2013
Increase/(decrease) to non-utility operating revenues		$—			$(121	)
(Increase)/decrease to other interest expense		13			(131	)
Income tax benefit/(expense)		(6	)		102
Total increase/(decrease) in net income		$7			$(150	)

In January 2013, to defray interest charges, the company deposited $447 million ~~for the three months ended September 30, 2012. The effective~~with federal and state tax rates for the three months ended September 30, 2013 and 2012 were 35 percent and 37 percent, respectively. The decrease in the effective tax rate in 2013 is due primarily to reductions in liabilities for uncertain tax positions related to the completion of the IRS audits in the third quarter of 2013 (see “Uncertain Tax Positions,” below) and favorable tax adjustments recorded in conjunction with filing Con Edison’s 2012 consolidated federal tax return in September. The favorable tax adjustments are primarily due to higher flow-through federal income tax benefits related to plant and higher renewable energy tax credits.

Con Edison’s income tax expense decreased to $373 million for the nine months ended September 30, 2013, from $501 million for the nine months ended September 30, 2012. The effective tax rates for the nine months ended September 30, 2013 and 2012 were 31 percent and 35 percent, respectively. The decrease in the effective tax rate in 2013 is dueagencies relating primarily to the ~~favorable~~potential tax ~~adjustments discussed above~~liability from the LILO transactions in past tax years and interest thereon. During 2013, $125 million of the deposit was returned from the IRS at the company’s request. Also in 2013, the deposit balance was reduced by an additional $48 million, due to a $10 million refund from the IRS and the ~~impact~~application of ~~comparable favorable reconciling items on reduced income before income~~$38 million toward the settlement of tax ~~expense~~and interest for certain tax years, primarily relating to tax liability from the LILO transactions. In the first quarter of 2014, Con Edison applied the remainder of the deposit against its federal and state tax liabilities, including interest. See “Uncertain Tax Positions” in ~~the 2013 period compared with the 2012 period. Additionally, in~~Note J.

Note J — Income Tax

In the first quarter of 2013, the IRS accepted on audit ~~the company’s~~Con Edison’s claim for manufacturing tax deductions. ~~This deduction, plus higher state income taxes in 2012, also resulted in a reduction in the 2013~~Accordingly, Con Edison’s effective tax ~~rate.~~

~~CECONY’s~~rate was favorably impacted by $15 million. In addition, as a result of interest expense on the LILO disallowances and reduction to non-utility operating revenues (see Note I), income before income tax expense ~~decreased to $222 million~~for the first quarter of 2013 was significantly lower than the first quarter of 2014. Other recurring tax rate reconciling items in the first quarter of 2014 and 2013 are comparable. However, as a result of lower income before income tax expense in 2013, Con Edison’s effective tax rate was 23 percent for the three months ended ~~September 30,~~March 31, 2013, ~~from $227 million~~compared to 35 percent for the three months ended September 30, 2012. The effective tax rates for the three months ended September 30, 2013 and 2012 were 36 percent and 37 percent, respectively. CECONY’s income tax expense decreased to $431 million for the nine months ended September 30, 2013, from $436 million for the nine months ended September 30, 2012. The effective tax rates for the nine months ended September 30, 2013 and 2012 were 34 percent and 35 percent, respectively. The decreasessame period in the effective tax rates for the three and nine months ended September 30, 2013, are due primarily to higher flow-through federal income tax benefits ($7 million) reflected in CECONY’s federal tax return filed in September.

In September 2013, the IRS issued final regulations that provide guidance on the appropriate tax treatment of costs incurred to acquire, produce or improve tangible property. The new regulations, effective beginning in 2014, permit an acceleration of tax deductions for certain materials and supplies recorded as inventory for financial accounting purposes. The application of these regulations is not expected to have a material impact on the Companies’ financial position, results of operations or liquidity.2014.


					3127

On March 31, 2014, tax legislation was enacted in the State of New York that reduces the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $77 million ($72 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $66 million ($62 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was immaterial and there was no impact on CECONY’s effective tax rate for the three months ended March 31, 2014.

Uncertain Tax Positions

During the first quarter of 2013, the IRS accepted Con Edison’s deductions for repair costs to utility plant (the “repair allowance deductions”). As a result of this settlement, Con Edison and CECONY reduced their estimated liabilities for prior year uncertain tax positions by $72 million and $66 million, respectively, with a corresponding increase to accumulated deferred income tax liabilities. In addition, as a result of the January 2013 Court of Appeals decision (see ~~“Lease In/Lease Out Transactions” in~~ Note H)I), Con Edison increased its estimated prior year liabilities for federal and state uncertain tax positions by ~~$238~~$249 million in the first quarter of 2013, with a corresponding reduction to accumulated deferred income tax liabilities. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions, as a result of which the company decreased its estimated prior year liabilities for federal and state uncertain tax positions by $238 million in the second quarter of 2013, with a corresponding increase to its current income tax liability. These changes to the Companies’ estimated liabilities for uncertain tax positions had no impact on income tax expense ~~for~~in the ~~nine months ended September 30, 2013.~~

~~In the third~~first quarter of ~~2013,~~2013. As a result of positions taken on the ~~IRS completed~~various amended state tax returns filed in the first quarter of 2014, Con Edison increased its audits for the tax years 1998 through 2011 and the Companies recognized approximately $13 million of income tax benefits ($7 million for CECONY), including $6 million that favorably affected Con Edison’s effective tax rate for the three and nine months ended September 30, 2013. There were no material changes to the Companies’ estimated liabilities for uncertain tax positions ~~during~~by $22 million. The amended state tax returns contain uncertain tax positions unique to the ~~nine months ended September 30, 2012.~~states, and the returns remain open for examination. At ~~September 30, 2013,~~March 31, 2014, the estimated ~~liabilities~~liability for uncertain tax positions for Con Edison ~~were $8~~was $31 million and ~~an immaterial amount~~was reflected as a noncurrent liability on its consolidated balance sheet. CECONY had no liabilities for ~~CECONY.~~uncertain tax positions.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the first quarter of 2014, Con Edison recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in its consolidated income statements. In the first quarter of 2013, Con Edison recognized $126 million of interest expense ($131 million related to the LILO transactions, less a reduction of $5 million in accrued interest expense primarily associated with repair allowance deductions). In the third quarter of 2013, the Companies’ reversed $5 million ($3 million for CECONY) in accrued interest expense associated with reducing the Companies’ estimated liabilities for uncertain tax positions. The Companies’ accrued interest on uncertain tax positions at September 30, 2013At March 31, 2014 and December 31, ~~2012 was immaterial.~~

~~The Companies reasonably expect to resolve~~2013, Con Edison recognized an immaterial amount of ~~their uncertain~~accrued interest on its consolidated balance sheets.

As of March 31, 2014, Con Edison reasonably expects to resolve approximately $13 million ($8 million, net of federal taxes) of its uncertainties related to certain tax ~~positions with the IRS~~matters within the next twelve months, ~~and accordingly,~~of which the entire amount, if recognized, would affect Con ~~Edison has reflected its estimated liability for uncertain~~Edison’s effective tax ~~positions as noncurrent liabilities on its consolidated balance sheet. At September 30, 2013, the~~rate. The total amount of unrecognized tax benefits, ~~that,~~ if recognized, that would affect ~~the Companies’~~Con Edison’s effective tax rate is $5$31 million ~~for Con Edison and an immaterial amount for CECONY.~~($20 million, net of federal taxes).


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Note ~~J —~~K – Financial Information by Business Segment

The financial data for the business segments are as follows:

   For the Three Months Ended September 30,

Operating
revenues
Inter-segment
revenues Depreciation and
amortization
Operating
income

(Millions of Dollars) 2013 2012 2013 2012 2013 2012 2013 2012
CECONY

Electric
$ 2,622    $ 2,611    $ 4    $ 4    $ 188    $ 179    $ 811    $ 812
Gas
199    189    1    1    33    31    (24 ) (21 )
Steam
72    68    22    20    16    15    (35 ) (37 )
Consolidation adjustments
—    —    (27 ) (25 ) —    —    —    —
Total CECONY
$ 2,893    $ 2,868    $ —    $ —    $ 237    $ 225    $ 752    $ 754
O&R

Electric
$ 200    $ 199    $ —    $ —    $ 10    $ 10    $ 46    $ 50
Gas
26    27    —    —    4    3    (7 ) (6 )
Total O&R
$ 226    $ 226    $ —    $ —    $ 14    $ 13    $ 39    $ 44
Competitive energy businesses
$ 365    $ 344    $ —    $ 2    $ 6    $ 2    $ 63    $ 53
Other*
—    —    —    (2 ) 1    —    1    —
Total Con Edison
$ 3,484    $ 3,438    $ —    $ —    $ 258    $ 240    $ 855    $ 851

*	~~Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.~~


	For the Nine Months Ended September 30,																					For the Three Months Ended March 31,
	Operating revenues						Inter-segment revenues						Depreciation and amortization				Operating income					Operating revenues					Inter-segment revenues						Depreciation and amortization				Operating income
*(Millions of Dollars)*	2013			2012			2013			2012			2013		2012		2013		2012			2014		2013			2014			2013			2014		2013		2014		2013
CECONY
Electric	$	6,309		$	6,307		$	12		$	11		$	559	$	527	$	1,307	$	1,383		$	2,074	$	1,814		$	4		$	4		$	189	$	185	$	257	$	189
Gas		1,190			1,017			4			4			97		89		272		255			789		660			1			1			32		32		233		242
Steam		522			414			60			58			49		48		80		40			341		332			20			19			19		16		153		129
Consolidation adjustments		—			—			(76	)		(73	)		—		—		—		—			—		—			(25	)		(24	)		—		—		—		—
Total CECONY	$	8,021		$	7,738		$	—		$	—		$	705	$	664	$	1,659	$	1,678		$	3,204	$	2,806		$	—		$	—		$	240	$	233	$	643	$	560
O&R
Electric	$	492		$	457		$	—		$	—		$	31	$	28	$	81	$	74		$	163	$	145		$	—		$	—		$	10	$	10	$	12	$	20
Gas		143			144			—			—			11		11		20		26			93		82			—			—			4		4		27		27
Total O&R	$	635		$	601		$	—		$	—		$	42	$	39	$	101	$	100		$	256	$	227		$	—		$	—		$	14	$	14	$	39	$	47
Competitive energy businesses	$	834		$	954		$	4		$	6		$	16	$	6	$	7	$	111		$	329	$	152		$	3		$	2		$	7	$	4	$	2	$	(82	)
Other*		(3	)		(6	)		(4	)		(6	)		1		—		—		(3	)		—		(1	)		(3	)		(2	)		—		—		1		1
Total Con Edison	$	9,487		$	9,287		$	—		$	—		$	764	$	709	$	1,767	$	1,886		$	3,789	$	3,184		$	—		$	—		$	261	$	251	$	685	$	526

*	Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

Note KL – Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts.

Effective January 1, 2013, the Companies adopted Accounting Standards Updates (ASUs) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The


					33

amendments require the Companies to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement.

The Companies enter into master agreements for their commodity derivatives. These agreements typically provide for setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other 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.


					29

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at ~~September 30, 2013~~March 31, 2014 were:


*(Millions of Dollars)*	*(Millions of Dollars)*																	*(Millions of Dollars)*
Commodity Derivatives		Gross Amounts of Recognized Assets/(Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/(Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount				Gross Amounts of Recognized Assets/(Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/(Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
											Financial instruments		Cash collateral received															Financial instruments		Cash collateral received
Con Edison
Derivative assets		$	80		$	(52	)	$	28	(a)	$	—	$	—	$	28	(a)		$	232		$	(94	)	$	138	(a)	$	—	$	—	$	138	(a)
Derivative liabilities			(124	)		74			(50	)		—		—		(50	)			(95	)		89			(6	)		—		—		(6	)
Net derivative assets/(liabilities)		$	(44	)	$	22		$	(22	)(a)	$	—	$	—	$	(22	)(a)		$	137		$	(5	)	$	132	(a)	$	—	$	—	$	132	(a)
CECONY
Derivative assets		$	27		$	(18	)	$	9	(a)	$	—	$	—	$	9	(a)		$	83		$	(34	)	$	49	(a)	$	—	$	—	$	49	(a)
Derivative liabilities			(58	)		33			(25	)		—		—		(25	)			(36	)		33			(3	)		—		—		(3	)
Net derivative assets/(liabilities)		$	(31	)	$	15		$	(16	)(a)	$	—	$	—	$	(16	)(a)		$	47		$	(1	)	$	46	(a)	$	—	$	—	$	46	(a)

(a)

At ~~September 30, 2013,~~March 31, 2014, Con Edison and CECONY had margin deposits of ~~$34~~$25 million and $14 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.


34

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, ~~2012~~2013 were:


*(Millions of Dollars)*
Commodity Derivatives	Gross Amounts of Recognized Assets/ (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount			Gross Amounts of Recognized Assets/(Liabilities)		Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/(Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
										Financial instruments		Cash collateral received													Financial instruments		Cash collateral received
Con Edison
Derivative assets	$	86		$	(57	)	$	29	(a)	$	—	$	—	$	29	(a)	$	166	$	(101)		$	65	(a)	$	—	$	—	$	65	(a)
Derivative liabilities		(176	)		104			(72	)		—		—		(72	)		(113)		98			(15	)		—		—		(15	)
Net derivative assets/(liabilities)	$	(90	)	$	47		$	(43	)(a)	$	—	$	—	$	(43	)(a)	$	53	$	(3	)	$	50	(a)	$	—	$	—	$	50	(a)
CECONY
Derivative assets	$	27		$	(15	)	$	12	(a)	$	—	$	—	$	12	(a)	$	41	$	(32)		$	9	(a)	$	—	$	—	$	9	(a)
Derivative liabilities		(83	)		44			(39	)		—		—		(39	)		(51)		37			(14	)		—		—		(14	)
Net derivative assets/(liabilities)	$	(56	)	$	29		$	(27	)(a)	$	—	$	—	$	(27	)(a)	$	(10)	$	5		$	(5	)(a)	$	—	$	—	$	(5	)(a)

(a)

At December 31, ~~2012,~~2013, Con Edison and CECONY had margin deposits of ~~$37~~$17 million and ~~$18~~$16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents


30

unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff.

At ~~September 30, 2013,~~March 31, 2014, Con Edison and CECONY had ~~$110~~$236 million and ~~$14~~$48 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of ~~$42~~$96 million with independent system operators, ~~$37~~$78 million with commodity exchange brokers, ~~$30~~$60 million with investment-grade counterparties and $1$2 million with non-investment ~~grade or~~ grade/non-rated counterparties. CECONY’s ~~entire~~ net credit exposure ~~was~~consisted of $28 million with commodity exchange ~~brokers.~~brokers and $20 million with investment-grade counterparties.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

The fair values of the Companies’ commodity derivatives at ~~September 30, 2013~~March 31, 2014 were:


*(Millions of Dollars)*		Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY				Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets	Derivative Assets								Derivative Assets
Current		Other current assets	$	55		$	18			Other current assets	$	193		$	65
Long-term		Other deferred charges and noncurrent assets		25			9			Other deferred charges and noncurrent assets		39			18
Total derivative assets	Total derivative assets		$	80		$	27		Total derivative assets		$	232		$	83
Impact of netting	Impact of netting			(18	)		(4	)	Impact of netting			(69	)		(20	)
Net derivative assets	Net derivative assets		$	62		$	23		Net derivative assets		$	163		$	63
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Current		Fair value of derivative liabilities	$	71		$	40			Fair value of derivative liabilities	$	68		$	21
Long-term		Fair value of derivative liabilities		53			18			Fair value of derivative liabilities		27			15
Total derivative liabilities	Total derivative liabilities		$	124		$	58		Total derivative liabilities		$	95		$	36
Impact of netting	Impact of netting			(74	)		(33	)	Impact of netting			(89	)		(33	)
Net derivative liabilities	Net derivative liabilities		$	50		$	25		Net derivative liabilities		$	6		$	3

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.


					35

The fair values of the Companies’ commodity derivatives at December 31, ~~2012~~2013 were:


*(Millions of Dollars)*		Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY				Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets	Derivative Assets								Derivative Assets
Current		Other current assets	$	64		$	18			Other current assets	$	134		$	27
Long-term		Other deferred charges and noncurrent assets		22			9			Other deferred charges and noncurrent assets		32			14
Total derivative assets	Total derivative assets		$	86		$	27		Total derivative assets		$	166		$	41
Impact of netting	Impact of netting			(20	)		3		Impact of netting			(84	)		(16	)
Net derivative assets	Net derivative assets		$	66		$	30		Net derivative assets		$	82		$	25
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Current		Fair value of derivative liabilities	$	122		$	58			Fair value of derivative liabilities	$	82		$	32
Long-term		Fair value of derivative liabilities		54			25			Fair value of derivative liabilities		31			19
Total derivative liabilities	Total derivative liabilities		$	176		$	83		Total derivative liabilities		$	113		$	51
Impact of netting	Impact of netting			(104	)		(44	)	Impact of netting			(98	)		(37	)
Net derivative liabilities	Net derivative liabilities		$	72		$	39		Net derivative liabilities		$	15		$	14

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. 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,


					31

gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

The following ~~tables present~~table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three ~~and nine~~ months ended ~~September 30, 2013:~~March 31, 2014:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended September 30, 2013
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended March 31, 2014									Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended March 31, 2014
*(Millions of Dollars)*		Balance Sheet Location	Con Edison			CECONY				Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:	Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:								Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current		Deferred derivative gains	$	—		$	—			Deferred derivative gains	$	30		$	25
Long-term		Deferred derivative gains		—			—			Deferred derivative gains		4			4
Total deferred gains/(losses)			$	—		$	—				$	34		$	29
Current		Deferred derivative losses	$	11		$	9			Deferred derivative losses	$	17		$	17
Current		Recoverable energy costs		(19	)		(17	)		Recoverable energy costs		94			77
Long-term		Deferred derivative losses		6			7			Deferred derivative losses		2			2
Total deferred gains/(losses)			$	(2	)	$	(1	)			$	113		$	96
Net deferred gains/(losses)			$	(2	)	$	(1	)			$	147		$	125
		Income Statement Location								Income Statement Location
Pre-tax gain/(loss) recognized in income
		Purchased power expense	$	3	(b)	$	—			Purchased power expense	$	175	(b)	$	—
		Gas purchased for resale		(6	)		—			Gas purchased for resale		(14	)		—
		Non-utility revenue		7			—			Non-utility revenue		(24	)(b)		—
Total pre-tax gain/(loss) recognized in income			$	4		$	—				$	137		$	—

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b)	For the three months ended ~~September 30, 2013,~~March 31, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax gain of ~~$6 million.~~


36

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)
Deferred or Recognized in Income for the Nine Months Ended September 30, 2013

(Millions of Dollars) Balance Sheet Location Con
Edison CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

Current
Deferred derivative gains $     1    $     1
Long-term
Deferred derivative gains —    —
Total deferred gains/(losses)
$     1    $     1
Current
Deferred derivative losses $   24    $   19
Current
Recoverable energy costs (22 ) (19 )
Long-term
Deferred derivative losses 3    7
Total deferred gains/(losses)
$     5    $     7
Net deferred gains/(losses)
$     6    $     8
Income Statement Location
Pre-tax gain/(loss) recognized in income

Purchased power expense $   32 (b) $    —
Gas purchased for resale (17 ) —
Non-utility revenue 8    —
Total pre-tax gain/(loss) recognized in income
$   23    $    —

~~(a)~~

Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

~~(b)~~

~~For the nine months ended September 30, 2013, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $22~~$20 million.


Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended September 30, 2012
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended March 31, 2013									Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended March 31, 2013
*(Millions of Dollars)*		Balance Sheet Location	Con Edison			CECONY				Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:	Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:								Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current		Deferred derivative gains		$ 5			$ 5			Deferred derivative gains	$	9		$	8
Long-term		Deferred derivative gains		1			1			Regulatory liabilities		2			1
Total deferred gains/(losses)				$ 6			$ 6				$	11		$	9
Current		Deferred derivative losses		$ 51			$ 42			Deferred derivative losses	$	38		$	32
Current		Recoverable energy costs		(60	)		(52	)		Recoverable energy costs		11			10
Long-term		Deferred derivative losses		22			20			Deferred derivative losses		7			6
Total deferred gains/(losses)				$ 13			$ 10				$	56		$	48
Net deferred gains/(losses)				$ 19			$ 16				$	67		$	57
		Income Statement Location								Income Statement Location
Pre-tax gain/(loss) recognized in income
		Purchased power expense		$ 9	(b)		$ —			Purchased power expense	$	67	(b)	$	—
		Gas purchased for resale		—			—			Gas purchased for resale		(4	)		—
		Non-utility revenue		1			—			Non-utility revenue		(1	)(b)		—
Total pre-tax gain/(loss) recognized in income				$ 10			$ —				$	62		$	—

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b)	For the three months ended ~~September 30, 2012,~~March 31, 2013, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax gain of ~~$30 million.~~$1 million and $45 million, respectively.


32					37

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)
Deferred or Recognized in Income for the Nine Months Ended September 30, 2012

(Millions of Dollars) Balance Sheet Location Con
Edison CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

Current
Deferred derivative gains $     5    $     5
Long-term
Deferred derivative gains 1    1
Total deferred gains/(losses)
$     6    $     6
Current
Deferred derivative losses $   89    $   78
Current
Recoverable energy costs (187 ) (164 )
Long-term
Deferred derivative losses 13    19
Total deferred gains/(losses)
$  (85 ) $  (67 )
Net deferred gains/(losses)
$  (79 ) $  (61 )
Income Statement Location
Pre-tax gain/(loss) recognized in income

Purchased power expense $  (49 )(b) $    —
Gas purchased for resale (2 ) —
Non-utility revenue (11 )(b) —
Total pre-tax gain/(loss) recognized in income
$  (62 ) $    —

~~(a)~~

~~(b)~~

~~For the nine months ended September 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax gain/(loss) of $(13) million and $75 million, respectively.~~

As of ~~September 30, 2013,~~March 31, 2014, Con Edison had ~~1,187~~1,165 contracts, including ~~628~~538 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:


	Electric Derivatives								Gas Derivatives						Electric Derivatives								Gas Derivatives
	Number of Energy Contracts (a)		MWHs (b)		Number of Capacity Contracts (a)		MWs (b)		Number of Contracts (a)		Dths (b)		Total Number Of Contracts (a)		Number of Energy Contracts (a)		MWHs (b)		Number of Capacity Contracts (a)		MWs (b)		Number of Contracts (a)		Dths (b)		Total Number Of Contracts (a)
Con Edison		470		13,643,994		83		11,625		634		79,090,035		1,187		548		14,882,496		67		6,442		550		70,343,157		1,165
CECONY		82		3,127,600		4		1,200		542		75,470,000		628		87		3,198,875		4		1,200		447		64,560,000		538

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b)	Volumes are reported net of long and short positions.

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

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 the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.


38

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at ~~September 30, 2013,~~March 31, 2014, 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 were:


*(Millions of Dollars)*	Con Edison (a)			CECONY (a)			Con Edison (a)			CECONY (a)
Aggregate fair value – net liabilities		$31			$25		$	2		$	1
Collateral posted		$ —			$ —		$	—		$	—
Additional collateral (b) (downgrade one level from current ratings)		$ —			$ —
Additional collateral (b) (downgrade to below investment grade from current ratings)		$42	(c)		$29	(c)
Additional collateral(b) (downgrade one level from current ratings)							$	2		$	—
Additional collateral(b) (downgrade to below investment grade from current ratings)							$	4	(c)	$	2	(c)

(a)

Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at ~~September 30, 2013,~~March 31, 2014, would have amounted to an estimated ~~$35 million and $14~~$29 million for Con Edison, ~~and CECONY, respectively.~~including $7 million for CECONY. 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 of setoff.

(c)

Derivative instruments that are net assets have been excluded from the table. At ~~September 30, 2013,~~March 31, 2014, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of ~~$37 million.~~$64 million, including $1 million for CECONY.

Interest Rate Swap

O&R has an interest rate swap, which terminates in October 2014, pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at ~~September 30, 2013~~March 31, 2014 was an unrealized loss of $3$2 million, which has been included in Con Edison’s consolidated balance sheet as a ~~noncurrent~~current liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 was ~~$1 million and $3 million, respectively.~~immaterial. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.

Note LM — Fair Value Measurements

The accounting rules for fair value measurements and disclosures define fair value as the price that would be


					33

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.


					39

The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:

Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.

Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors, and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.

Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.


4034

Assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2013~~March 31, 2014 are summarized below.


	Level 1				Level 2				Level 3				Netting Adjustments(d)				Total				Level 1				Level 2				Level 3				Netting Adjustments (d)						Total
*(Millions of Dollars)*	Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison			CECONY			Con Edison		CECONY
Derivative assets:
Commodity (a)(e)	$	1	$	1	$	52	$	6	$	9	$	8	$	—	$	8	$	62	$	23
Commodity (a)(e)(f)																					$	8	$	7	$	175	$	46	$	25	$	13	$	(45	)	$	(3	)	$	163	$	63
Other assets ~~(e)~~(f)		129		122		108		98		—		—		—		—		237		220		142		135		115		105		—		—		—			—			257		240
Total	$	130	$	123	$	160	$	104	$	9	$	8	$	—	$	8	$	299	$	243	$	150	$	142	$	290	$	151	$	25	$	13	$	(45	)	$	(3	)	$	420	$	303
Derivative liabilities:
Commodity (a)(e)	$	9	$	9	$	74	$	37	$	23	$	—	$	(56)	$	(21)	$	50	$	25
Commodity (a)(e)(f)																					$	3	$	3	$	67	$	16	$	1	$	—	$	(65)		$	(16)		$	6	$	3
Interest rate contract ~~(e)~~(f)		—		—		3		—		—		—		—		—		3		—		—		—		2		—		—		—		—			—			2		—
Total	$	9	$	9	$	77	$	37	$	23	$	—	$	(56)	$	(21)	$	53	$	25	$	3	$	3	$	69	$	16	$	1	$	—	$	(65)		$	(16)		$	8	$	3

(a)	A portion of the commodity derivatives categorized in Level 3 is valued using an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note K.L.

(b)	See Note K.L.

(c)	Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.

(d)	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.

(e)	The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period. There were no transfers between levels 1, 2, and 3 for the ~~nine~~three months ended ~~September 30, 2013.~~March 31, 2014.

(f)

Level 2 assets and liabilities include investments held in the deferred compensation plan and/ornon-qualified retirement plans, interest rate swap, orexchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, and certain over-the-counter derivative instruments for electricity 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.

Assets and liabilities measured at fair value on a recurring basis as of December 31, ~~2012~~2013 are summarized below.


	Level 1				Level 2				Level 3				Netting Adjustments(d)						Total				Level 1				Level 2				Level 3				Netting Adjustments (d)				Total
*(Millions of Dollars)*	Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison			CECONY			Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY		Con Edison		CECONY
Derivative assets:
Commodity (a)(e)	$	—	$	—	$	43	$	8	$	33	$	10		$(10	)		$12		$	66	$	30
Commodity (a)(e)(f)																							$	3	$	3	$	130	$	13	$	11	$	6		$(62)		$3	$	82	$	25
Other assets (c)(e)(f)		106		99		107		98		—		—		—			—			213		197		141		134		113		103		—		—		—		—		254		237
Total	$	106	$	99	$	150	$	106	$	33	$	10		$(10	)		$12		$	279	$	227	$	144	$	137	$	243	$	116	$	11	$	6		$(62)		$3	$	336	$	262
Derivative liabilities:
Commodity (a)(e)(h)	$	12	$	12	$	116	$	62	$	38	$	—		$(94	)		$(35	)	$	72	$	39
Commodity (a)(e)(f)																							$	5	$	5	$	84	$	27	$	2	$	—		$(76)		$(18)	$	15	$	14
Interest rate contract ~~(g)~~(f)		—		—		6		—		—		—		—			—			6		—		—		—		2		—		—		—		—		—		2		—
Total	$	12	$	12	$	122	$	62	$	38	$	—		$(94	)		$(35	)	$	78	$	39	$	5	$	5	$	86	$	27	$	2	$	—		$(76)		$(18)	$	17	$	14

(a)

A ~~significant~~ portion of the commodity ~~derivative contracts~~derivatives categorized in Level 3 is valued using ~~either an industry acceptable model or~~ an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note K.L.

(b)	See Note K.L.

(c)	Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.

(d)	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.

(e)	The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period. There were no transfers between levels 1, 2, and 3 for the year ended December 31, 2013.

(f)

~~On March 31, 2012, other assets of $105 million for Con Edison and $95 million for CECONY were transferred from Level 3 to~~ Level 2 ~~because of reassessment of the levels~~assets and liabilities include investments held in the ~~fair value hierarchy within which certain inputs fall as of March 31, 2012.~~

~~(g)~~

~~On March 31, 2012,~~deferred compensation plan and/or non-qualified retirement plans, interest rate ~~contract of $8 million was transferred from~~swap, or exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level ~~3 to~~1, and certain over-the-counter derivative instruments for electricity and natural gas. Derivative instruments classified as Level 2 ~~because of reassessment of the levels~~are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in ~~the fair~~liquid markets, time value, ~~hierarchy within which certain inputs fall.~~

~~(h)~~

~~During 2012, Con Edison transferred commodity derivative contract liabilities of $2 million from Level 1 to Level 2, $9 million from Level 2 to Level 1, $2 million from Level 2 to Level 3,~~ and ~~$11 million from Level 3 to Level 2 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.~~volatility factors.

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


					4135

Fair Value of

Level 3 at
September 30, 2013

(Millions of Dollars)

Valuation

Techniques

Unobservable Inputs

Range

Fair Value of Level
3 at
March 31, 2014

(Millions of Dollars)

Valuation

Techniques

Unobservable Inputs

Range

Con Edison—Commodity

Electricity

)

Discounted Cash Flow

Forward energy prices (a)

$24-$99 per MWH

Discounted Cash Flow

Forward energy prices (a)

$28.00-$137.00 per MWH

Standard Offer Capacity Agreements

(17

)

Discounted Cash Flow

Forward capacity prices (a)

Present value factor (a)

$119-$248 MW -day

2.64%

Discounted Cash Flow

Forward capacity prices (a)

$10.00 per kW-month

Transmission Congestion Contracts / Financial Transmission Rights

Discounted Cash Flow

Discount to adjust auction prices for inter-zonal forward price curves (b)

(5.8)%-42.4%

Discounted Cash Flow

Discount to adjust auction prices for inter-zonal forward price curves (b)

(5.8)%-50.6%

Discount to adjust auction prices for historical monthly realized settlements (b)

(102.4)%-49.2%

Discount to adjust auction prices for historical monthly realized settlements (b)

(236.2)%-49.1%

Inter-zonal forward price curves adjusted for historical zonal losses (b)

$1.56-$2.16

Transmission Congestion Contracts / Financial Transmission Rights

Inter-zonal forward price curves adjusted for historical zonal losses (b)

$(0.99)-td2.00 per MWH

(14

)

CECONY—Commodity

Transmission Congestion Contracts

Discounted Cash Flow

Discount to adjust auction prices for inter-zonal forward price curves (b)

(5.8)%-42.4%

Discounted Cash Flow

Discount to adjust auction prices for inter-zonal forward price curves (b)

(5.8)%-50.6%

Discount to adjust auction prices for historical monthly realized settlements (b)

(102.4)%-49.2%

Discount to adjust auction prices for historical monthly realized settlements (b)

(236.2)%-49.1%

(a)	Generally, increases/(decreases) in this input in isolation would result in a higher/(lower) fair value measurement.

(b)	Generally, increases/(decreases) in this input in isolation would result in a lower/(higher) fair value measurement.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ and classified as Level 3 in the fair value hierarchy:

   For Three Months Ended September 30, 2013

Total Gains/(Losses)—
Realized and Unrealized

(Millions of Dollars) Beginning
Balance as of
July 1, 2013 Included in
Earnings Included in
Regulatory Assets
and Liabilities Purchases Issuances Sales Settlements Transfer
In/Out of
Level 3
Ending
Balance as of
September 30,
2013

Con Edison

Derivatives:

Commodity
$ (6 ) $ (3 ) $ (2)    $ 5    $ —    $ —    $ (8)    $ —    $ (14 )
CECONY

Derivatives:

Commodity
$ 8    $ 2    $ (1)    $ 5    $ —    $ —    $ (6)    $ —    $ 8


	For the Three Months Ended March 31, 2014
			Total Gains/(Losses)— Realized and Unrealized
*(Millions of Dollars)*	Beginning Balance as of January 1, 2014		Included in Earnings		Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3		Ending Balance as of March 31, 2014
Con Edison
Derivatives:
Commodity	$	9	$	50	$	4	$	8	$	—	$	—	$	(47)	$	—	$	24
CECONY
Derivatives:
Commodity	$	6	$	11	$	4	$	7	$	—	$	—	$	(15)	$	—	$	13


42

   For Nine Months Ended September 30, 2013

Total Gains/(Losses)—
Realized and Unrealized

(Millions of Dollars) Beginning
Balance as of
January 1, 2013 Included in
Earnings Included in
Regulatory Assets
and Liabilities Purchases Issuances Sales Settlements Transfer
In/Out of
Level 3
Ending
Balance as of
September 30,
2013

Con Edison

Derivatives:

Commodity
$ (5 ) $ 5    $ 1    $ 12    $ —    $ —    $ (27)    $ —    $ (14 )
CECONY

Derivatives:

Commodity
$ 10    $ 9    $ —    $ 10    $ —    $ —    $ (21)    $ —    $ 8

   For the Three Months Ended September 30, 2012

Total Gains/(Losses)—
Realized and Unrealized

(Millions of Dollars) Beginning
Balance as of
July 1, 2012 Included in
Earnings Included in
Regulatory Assets
and Liabilities Purchases Issuances Sales Settlements Transfer
In/Out of
Level 3
Ending
Balance as of
September 30,
2012

Con Edison

Derivatives:

Commodity
$ (61)    $ (15)    $ 19    $ 7    $ —    $ —    $ 25    $ 22    $ (3 )
CECONY

Derivatives:

Commodity
$ (10)    $ (9)    $ 8    $ 7    $ —    $ —    $ 5    $ 11    $ 12

   For the Nine Months Ended September 30, 2012

Total Gains/(Losses)—
Realized and Unrealized

(Millions of Dollars) Beginning
Balance as of
January 1, 2012 Included in
Earnings Included in
Regulatory Assets
and Liabilities Purchases Issuances Sales Settlements Transfer
In/Out of
Level 3
Ending
Balance as of
September 30,
2012

Con Edison

Derivatives:

Commodity
$ (62 ) $ (97 ) $ 11    $ 18    $ —    $ —    $ 106    $ 21    $ (3 )
Interest rate contract
(8 ) (1 ) —    —    —    —    1    8 (b) —
Other assets(a)
99    3    3    —    —    —    —    (105 )(b) —
Total
$ 29    $ (95 ) $ 14    $ 18    $ —    $ —    $ 107    $ (76 ) $ (3 )
CECONY

Derivatives:

Commodity
$ (7 ) $ (25 ) $ 8    $ 15    $ —    $ —    $ 12    $ 9 (b) $ 12
Other assets(a)
90    3    2    —    —    —    —    (95 )(b) —
Total
$ 83    $ (22 ) $ 10    $ 15    $ —    $ —    $ 12    $ (86 ) $ 12

~~(a)~~

~~Amounts included in earnings are reported in investment and other income on the consolidated income statement.~~

~~(b)~~

~~Other assets and interest rate contract were transferred as of March 31, 2012.~~


	For the Three Months Ended March 31, 2013
			Total Gains/(Losses)— Realized and Unrealized
*(Millions of Dollars)*	Beginning Balance as of January 1, 2013		Included in Earnings		Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3		Ending Balance as of March 31,2013
Con Edison
Derivatives:
Commodity	$	(5)	$	31	$	5	$	4	$	—	$	—	$	(21)	$	—	$	14
CECONY
Derivatives:
Commodity	$	10	$	10	$	1	$	4	$	—	$	—	$	(14)	$	—	$	11

For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state


					43

public utilities commissions. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.


36

For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial and ~~$2 million loss)~~immaterial) and purchased power costs ($439 million ~~loss~~gain and $2$19 million gain) on the consolidated income statement for the three months ended ~~September 30,~~March 31, 2014 and 2013, and 2012, respectively. Realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($2 million loss and $11 million loss) and purchased power costs (immaterial and $42 million loss) on the consolidated income statement for the nine months ended September 30, 2013 and 2012, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ is included in non-utility revenues (immaterial and ~~$2 million loss)~~immaterial) and purchased power costs ($58 million ~~loss~~gain and $16 million gain) on the consolidated income statement for the three months ended ~~September 30,~~March 31, 2014 and 2013, and 2012, respectively. For the nine months ended September 30, 2013 and 2012, the change in fair value relating to Level 3 commodity derivative assets and liabilities is included in non-utility revenues ($2 million loss and $11 million loss) and purchased power costs ($3 million loss and $40 million gain) on the consolidated income statement, respectively.

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 ~~September 30, 2013,~~March 31, 2014, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations. To assess nonperformance risk, the Companies considered information such as collateral requirements, master netting arrangements, letters of credit and parent company guarantees, and applied a historical default probability based on current credit ratings and a market-based method by using the counterparty (for an asset) or the Companies’ (for a liability) credit default swaps rates.

Note MN — Variable Interest Entities

~~Con Edison has variable interests in Copper Mountain Solar 2 Holdings, LLC (CMS 2) and Mesquite Solar 1 Holdings, LLC (MS 1), non-consolidated entities in which~~In March 2014, Con Edison Development purchased a 50 percent membership interest in ~~July and September 2013, respectively.~~Copper Mountain Solar 3 Holdings, LLC (CMS 3). As a result, Con Edison has a variable interest in CMS 23, which is a non-consolidated entity. CMS 3 owns a project company that is developing a ~~150 MW (AC) solar energy project (with 92 MW currently in service) in Nevada. MS 1 owns a project company that owns a 150~~250 MW (AC) solar energy project in ~~Arizona.~~Nevada. Electricity generated by the ~~projects~~project is to be sold to ~~Pacific Gas and Electric Company~~the Southern California Public Power Authority pursuant to a long-term power purchase ~~agreements.~~agreement. Con Edison is not the primary beneficiary ~~of these variable interest entities~~ since the power to direct the activities that most significantly impact the economics of CMS ~~2 and MS 1~~3 is shared equally between Con Edison Development and a third party.


44

At ~~September 30, 2013,~~March 31, 2014, Con Edison’s consolidated balance sheet includes ~~$76 million and $104~~$80 million in investments (including earnings) related to CMS ~~2 and MS 1, respectively,~~3, which assessed in accordance with the accounting rules for variable interest entities, is Con Edison’s current maximum exposure to loss in the ~~entities.~~entity. In addition, Con Edison and Con Edison Development have issued certain guarantees to third parties in connection with ~~the~~ CMS ~~2 and MS 1 projects.~~3. See “Guarantees” in Note H.

~~Note N — Asset Retirement Obligations~~

~~The Companies account for retirement obligations on their assets in accordance with the accounting rules for asset retirement obligations.~~

The Companies recorded asset retirement obligations associated with the removal of asbestos and asbestos-containing material in their buildings (other than generating station and substation building structures themselves), electric equipment, and steam and gas distribution systems. The Companies also recorded asset retirement obligations relating to gas pipelines abandoned in place. The estimates of future liabilities were developed using historical information, and where available, quoted prices from outside contractors.

The Companies did not record an asset retirement obligation for the removal of asbestos associated with the generating station and substation building structures themselves. 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.

The accrued liability for asset retirement obligations and the regulatory liabilities for allowance for cost of removal less salvage for the Companies at September 30, 2013 and December 31, 2012 were as follows:

   Con Edison CECONY
(Millions of Dollars) 2013 2012 2013 2012
Accrued liability — asset retirement obligations
$164    $159    $163    $158
Regulatory liabilities — allowance for cost of removal less salvage
$522    $503    $436    $420

~~Note O — New Financial Accounting Standards~~

In December 2011 and January 2013, the Financial Accounting Standards Board (FASB) issued amendments to address and clarify the scope of the balance sheet off-setting disclosure guidance within Accounting Standards Codification (ASC) 210, “Balance Sheet.” ASU No. 2011-11 and ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” provide guidance that requires a reporting


					45

entity to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement. ASU No. 2013-01 clarifies that financial instruments subject to the disclosure guidance are (1) derivatives accounted for in accordance with ASC 815, Derivatives and Hedging, (2) repurchase agreements and reverse purchase agreements and (3) securities borrowing and securities lending transactions that are either offset in accordance with ASC Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. A reporting entity electing gross presentation of such assets and liabilities in its balance sheet will still be subject to the same disclosure requirements. Both ASUs are applicable for fiscal years beginning on or after January 1, 2013, interim periods within those fiscal years, and retrospectively for all comparative periods presented. The application of this guidance does not have a material impact on the Companies’ financial position, results of operations and liquidity. See Note K.

In February 2013, the FASB issued amendments to improve the reporting of reclassifications out of accumulated OCI through ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments require an entity to provide information either on the face of the financial statements or in a single footnote on significant amounts reclassified out of accumulated OCI and the related income statement line items to the extent an amount is reclassified in its entirety to net income under U.S. GAAP. For significant items not reclassified to net income in their entirety, an entity is required to cross-reference to other disclosures that provide additional information. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The application of this guidance does not have a material impact on the Companies’ financial position, results of operations and liquidity. See Note A.

In July 2013, the FASB issued ASU No. 2013-10, “Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force).” The new guidance permits designating the Federal Funds Effective Swap Rate as a benchmark interest rate for hedge accounting. Previously, only the U.S. Treasury and LIBOR rates were allowed under the hedge accounting rules in U.S. GAAP. The new guidance also eliminates the restriction on using different benchmark interest rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The application of this guidance does not have a material impact on the Companies’ financial position, results of operations and liquidity.

~~In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit~~


46

Carryforward Exists (a Consensus of the FASB Emerging Issues Task Force).” The amendments require a liability related to an unrecognized tax benefit to be presented on a net basis with its associated deferred tax asset when utilization of such deferred tax assets is required or expected in the event the uncertain tax position is disallowed. Otherwise, the unrecognized tax benefit will be presented as a liability and will not be netted against deferred tax assets. For public entities, the amendments are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity. See Note I.


					4737

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

This combined management’s discussion and analysis of financial condition and results of operations ~~(MD&A)~~ relates to the consolidated financial statements (the ~~Third~~First Quarter Financial Statements) included in this report of two separate registrants: Con Edison ~~Inc. (Con Edison)~~ and ~~Consolidated Edison Company of New York, Inc. (CECONY). This MD&A~~CECONY and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers to Con Edison and CECONY. CECONY is a subsidiary of Con Edison and, as such, information in this ~~MD&A~~management’s discussion and analysis about CECONY applies to Con Edison.

This MD&A should be read in conjunction with the ~~Third~~First Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, ~~2012 (File Nos. 1-14514 and1-1217,~~ ~~the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies’ combined Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2013 and June 30,~~ 2013 (File Nos. 1-14514 and ~~1-1217)~~1-1217, the Form 10-K).

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

Con Edison, incorporated in New York State in 1997, is a holding company which owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R) and the competitive energy businesses. As used in this report, the term the “Utilities” refers to CECONY and O&R.

LOGO


48

CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The competitive energy businesses sell electricity to retail ~~and wholesale~~ customers, provide ~~certain~~ energy-related products and services, and participate in energy infrastructure projects.

Con Edison’s strategy is to provide reliable energy services, maintain public and employee safety, promote energy efficiency, and develop cost-effective ways of performing its business. Con Edison seeks to be a responsible steward of the environment and enhance its relationships with customers, regulators and members of the communities it serves.


38

CECONY

Electric

CECONY provides electric service to approximately ~~3.3~~3.4 million customers in all of New York City (except a part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.

~~On July 19, 2013, the electric peak demand in CECONY’s service area reached a new record of 13,322 MW, exceeding the previous record of 13,189 MW reached on July 22, 2011.~~

The company estimates that, under design weather conditions, the 2013 service area peak demand was 13,500 MW, whereas the forecasted service area peak demand for 2013 was 13,200 MW. In October 2013, the company estimated its forecast of average annual growth of the peak electric demand in the company’s service area over the next five years at design conditions to be approximately 1.4 percent above the 13,500 MW.

Gas

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

In June 2013, the company decreased its five-year forecast of average annual growth of the peak gas demand in its service area at design conditions from approximately 4.3 percent (for 2013 to 2017) to 3.8 percent (for 2014 to 2018). The decrease reflects, among other things, that the new five-year forecast no longer covers 2013, the first year in which there was a significant increase in oil to gas conversions following changes to New York City regulations that will phase out the use of certain types of heating oil.

Steam

CECONY operates the largest steam distribution system in the United States by producing and delivering approximately ~~20,000~~22,000 MMlbs of steam annually to ~~approximately 1,717~~1,703 customers in parts of Manhattan.


					49

O&R

Electric

O&R and its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and in adjacent areas of northern New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area.

Gas

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

Competitive Energy Businesses

Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses ~~include the sales~~sell to retail customers electricity purchased in wholesale markets and enter into related hedging ~~of electricity to retail and wholesale customers, sales of certain~~transactions, provide energy-related products and services to wholesale and ~~participation~~retail customers, and participate in energy infrastructure projects. At ~~September 30, 2013,~~March 31, 2014, Con Edison’s equity investment in its competitive energy businesses was ~~$466~~$503 million and their assets amounted to ~~$1,277~~$1,419 million.

In March 2014, Con Edison Development agreed to sell a 50 percent membership interest in its wholly-owned subsidiary, CED California Holdings Financing I, LLC (CCH). CCH owns project companies that operate 110 MW of solar energy projects in California. Electricity generated by the projects is sold to Pacific Gas and Electric Company pursuant to long-term power purchase agreements. At March 31, 2014, CCH had approximately $374 million in net property, plant and equipment and $217 million in long-term debt.

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


	Three Months Ended September 30, 2013									Nine Months Ended September 30, 2013										At September 30, 2013				Three months ended March 31, 2014										At March 31, 2014
(Millions of Dollars, except percentages)	Operating Revenues					Net Income for Common Stock				Operating Revenues					Net Income for Common Stock					Assets				Operating Revenues					Net Income for Common Stock					Assets
CECONY		$2,893		83	%		$401	87	%		$8,021		84	%		$831		100	%		$37,375	89	%		$3,204		85	%		$334		93	%		$36,326	90	%
O&R		226		7	%		19	4	%		635		7	%		56		7	%		2,613	6	%		256		7	%		21		6	%		2,569	6	%
Total Utilities		3,119		90	%		420	91	%		8,656		91	%		887		107	%		39,988	95	%		3,460		92	%		355		99	%		38,895	96	%
Con Edison Solutions (a)		287		8	%		6	1	%		769		8	%		7		1	%		282	1	%		295		8	%		(4	)	(1	)%		287	1	%
Con Edison Energy ~~(a)~~		12		—	%		2	—	%		46		1	%		3		—	%		71	—	%		26		—	%		5		1	%		119	—	%
Con Edison Development (b)		67		2	%		32	7	%		23		—	%		(65	)	(8	)%		919	2	%		11		—	%		8		2	%		936	2	%
Other (c)		(1	)	—	%		4	1	%		(7	)	—	%		(4	)	—	%		704	2	%		(3	)	—	%		(3	)	(1	)%		244	1	%
Total Con Edison		$3,484		100	%		$464	100	%		$9,487		100	%		$828		100	%		$41,964	100	%		$3,789		100	%		$361		100	%		$40,481	100	%

(a)

Net income from the competitive energy businesses for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 includes $4$11 million ~~and $12 million, respectively,~~ of net after-tax mark-to-market ~~gains/(losses)~~gains (Con Edison Solutions, ~~$4 million and $13 million and Con Edison Energy, $0 million and $(1)~~$11 million).

(b)

Includes an after-tax ~~gain/(charge)~~benefit of ~~$26~~$7 million ~~and $(95) million relating~~in the three months ended March 31, 2014 due primarily to lower than previously estimated interest on the tax liability from the lease in/lease out (LILO) transactions (see in Note I to the First Quarter Financial Statements).

(c)	Other includes parent company expenses, primarily interest, and consolidation adjustments. See “Results of Operations,” below.


					39

Con Edison’s net income for common stock for the three months ended March 31, 2014 was $361 million or $1.23 a share ($1.23 on a diluted basis) compared with $192 million or $0.66 a share ($0.65 on a diluted basis) for the three months ended March 31, 2013. See “Results of Operations – Summary,” below. For segment financial information, see Note K to the First Quarter Financial Statements and “Results of Operations,” below.

Results of Operations — Summary

Net income for common stock for the three months ended March 31, 2014 and 2013 was as follows:


*(Millions of Dollars)*	2014			2013
CECONY		$334			$277
O&R		21			30
Competitive energy businesses (a)		9			(112	)
Other (b)		(3	)		(3	)
Con Edison		$361			$192

(a)

Includes an after-tax benefit of $7 million in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014, and an after-tax charge of $150 million in the three months ended March 31, 2013 ~~respectively,~~relating to the LILO transactions (see Note I to the First Quarter Financial Statements) and a tax benefit of $15 million resulting from the acceptance by the Internal Revenue Service (IRS) of the company’s claim for manufacturing tax deductions ~~for~~in the ~~nine~~three months ended ~~September 30,~~March 31, 2013 (see ~~Notes H and I~~Note J to the ~~Third Quarter Financial Statements).~~

~~(c)~~

~~Represents inter-company and parent company accounting. See “Results of Operations,” below.~~

Con Edison’s net income for common stock for the three months ended September 30, 2013 was $464 million or $1.58 a share ($1.58 on a diluted basis) compared with $440 million or $1.50 a share ($1.49 on a diluted basis) for the three months ended September 30, 2012. Net income for common stock for the nine months ended September 30, 2013 was $828 million or $2.83 a share ($2.81 on a diluted basis) compared with earnings of $931 million or $3.18 a share ($3.16 on a diluted basis) for the nine months ended September 30, 2012. See “Results of Operations – Summary,” below. For segment financial information, see Note J to the Third Quarter Financial Statements and “Results of Operations,” below.


50

~~Results of Operations — Summary~~

~~Net income for common stock for the three and nine months ended September 30, 2013 and 2012 was as follows:~~

   Three Months
Ended September 30,
Nine Months
Ended September 30,

(Millions of Dollars) 2013 2012 2013 2012
CECONY
$401    $389    $831    $824
O&R
19    24    56    54
Competitive energy businesses (a)
40    31    (55 ) 65
Other (b)
4    (4 ) (4 ) (12 )
Con Edison
$464    $440    $828    $931

~~(a)~~

Includes an after-tax gain/(charge) of $26 million and $(95) million relating to the LILO transactions for the three and nine months ended September 30, 2013, respectively, and a tax benefit of $15 million resulting from the acceptance by the IRS of the company’s claim for manufacturing tax deductions for the nine months ended September 30, 2013 (see Notes H and I to the ThirdFirst Quarter Financial Statements). Also includes $4$11 million and ~~$17~~$26 million of net after-tax mark-to-market gains ~~for~~in the three months ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012, respectively, and $12 million and $35 million of net after-tax mark-to-market gains for the nine months ended September 30, 2013 and 2012,~~ respectively.

(b)	~~Consists of inter-company and~~Other includes parent company ~~accounting.~~expenses, primarily interest, and consolidation adjustments.

The Companies’ results of operations for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, as compared with the ~~2012 periods,~~2013 period reflect changes in the rate plans of Con Edison’s utility subsidiaries, ~~increases~~the weather impact on its steam delivery service, decreases in certain operations and maintenance expenses and increases in depreciation and property taxes, ~~and for~~reflecting primarily the ~~nine months ended September 30, 2013, the weather~~ impact ~~on steam revenues.~~of higher utility plant balances. The results of operations also include the ~~operating results~~impact of the LILO transactions and the net mark-to-market effects of the competitive energy ~~businesses, including net mark-to-market effects.~~businesses.

Operations and maintenance expenses for CECONY primarily reflect ~~primarily higher~~a decrease in pension costs and lower surcharges for assessments and fees that are collected in revenues, ~~from customers and~~offset in part by higher operating costs attributable to ~~weather-related events, offset in part by healthcare costs in the 2013 periods, as compared~~emergency response to ~~2012. Depreciation and property taxes were higher in the 2013 periods reflecting primarily the impact from higher utility plant balances.~~

weather related events.


					51

The following table presents the estimated effect on earnings per share and net income for common stock for the ~~three and nine months ended 2013~~2014 period as compared with the ~~2012~~2013 period, resulting from these and other major factors:

   Three Months Variation Nine Months Variation
   Earnings
per Share Net Income for Common
Stock
(Millions of Dollars) Earnings
per Share Net Income for Common
Stock
(Millions of Dollars)
CECONY (a)

Rate plans (b)
$ (0.02 ) $ (5 ) $ 0.16    $ 48
Weather impact on steam revenues
(0.01 ) (2 ) 0.09    27
Operations and maintenance expenses (b)
0.08    24    (0.07 ) (23 )
Depreciation, property taxes and other tax matters (c)
(0.05 ) (16 ) (0.18 ) (53 )
Other
0.04    11    0.03    8
Total CECONY
0.04    12    0.03    7
O&R
(0.01 ) (5 ) —    2
Competitive energy businesses (d)
0.03    9    (0.41 ) (120 )
Other, including parent company expenses (c)
0.02    8    0.03    8
Total variations
$ 0.08    $ 24    $(0.35 ) $(103 )


	Earnings per Share Variation			Net Income for Common Stock Variation (Millions of Dollars)
CECONY (a)
Rate plans		$0.15			$43
Weather impact on steam revenues		0.04			13
Operations and maintenance expenses		0.03			10
Depreciation and property taxes		(0.05	)		(15	)
Other		0.02			6
Total CECONY		0.19			57
O&R (a)		(0.03	)		(9	)
Competitive energy businesses (b)		0.41			121
Other, including parent company expenses		—			—
Total variations		$0.57			$169

(a)

Under the revenue decoupling mechanisms in ~~CECONY’s~~the Utilities’ New York electric and gas rate plans and the weather-normalization clause applicable to ~~the~~their gas ~~business,~~businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Under ~~CECONY’s~~the rate plans, pension and other postretirement costs and certain other costs are reconciled to amounts reflected in rates for such costs.

(b)

~~The rate plan~~These variations include ~~a decrease in revenues~~an after-tax benefit in the ~~three and nine months ended September 30, 2013, as compared to the 2012 periods when revenues reflected the use~~2014 period of certain regulatory liabilities to offset a temporary surcharge under CECONY’s electric rate plan ($27 million, after-tax, or $0.09 a share). The variations in operations and maintenance expenses include a decrease in pension costs in the three and nine months ended September 30, 2013, as compared to the 2012 periods when certain pension costs that were deferred from earlier periods were recognized under CECONY’s electric rate plan ($20 million, after-tax, or $0.07 a share and $18 million, after-tax, or $0.06 a share, respectively).

~~(c)~~

~~Variations for the three and nine months ended September 30 reflect certain federal income tax benefits and related interest in the 2013 periods for Con Edison (parent company):~~ $7 million or $0.02 a ~~share; CECONY: $9~~share compared to an after-tax charge in the 2013 period of $150 million or ~~$0.03~~$0.51 a ~~share. See Note I to the Third Quarter Financial Statements.~~

~~(d)~~

~~These variations include, for the three months ended September 30, an after-tax gain of $26 million or $0.09 a~~ share ~~in 2013~~ relating to the LILO transactions (see ~~Notes H and~~Note I to the ~~Third~~First Quarter Financial Statements) ~~and reflect after-tax net mark-to-market gains of $4 million or $0.01 a share in 2013 and after-tax net mark-to-market gains of $17 million or $0.06 a share in 2012. These~~. In addition, the variations include ~~for the nine months ended September 30, an after-tax charge of $95 million or $0.32 a share in 2013 relating to the LILO transactions,~~ a tax benefit in the 2013 period of $15 million or $0.05 a share ~~in 2013~~ resulting from the acceptance by the IRS of the company’s claim for manufacturing tax deductions (see ~~Notes H and I~~Note J to the ~~Third~~First Quarter Financial Statements) ~~and reflect~~. The variations also include after-tax net mark-to-market gains of ~~$12~~$11 million or $0.04 a share in ~~2013~~the 2014 period and after-tax net mark-to-market gains of ~~$35~~$26 million or ~~$0.12~~$0.09 a share in ~~2012.~~the 2013 period.


40

See “Results of Operations” below for further discussion and analysis of results of operations.

Liquidity and Capital Resources

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

Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ are summarized as follows:

Con Edison


	Con Edison									CECONY
*(Millions of Dollars)*	2013			2012			Variance			2013			2012			Variance			2014			2013			Variance
Operating activities	$	1,238		$	1,638		$	(400	)	$	1,369		$	1,463		$	(94	)	$	224		$	(84	)	$	308
Investing activities		(1,895	)		(1,867	)		(28	)		(1,753	)		(1,483	)		(270	)		(634	)		(663	)		29
Financing activities		337			(350	)		687			69			(326	)		395			(162	)		485			(647	)
Net change		(320	)		(579	)		259			(315	)		(346	)		31			(572	)		(262	)		(310	)
Balance at beginning of period		394			648			(254	)		353			372			(19	)		674			394			280
Balance at end of period	$	74		$	69		$	5		$	38		$	26		$	12		$	102		$	132		$	(30	)

CECONY


52


*(Millions of Dollars)*	2014			2013			Variance
Operating activities		$11		$	350		$	(339	)
Investing activities		(510	)		(562	)		52
Financing activities		(75	)		(102	)		27
Net change		(574	)		(314	)		(260	)
Balance at beginning of period		633			353			280
Balance at end of period	$	59		$	39		$	20

Cash Flows from Operating Activities

The Utilities’ cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is dependent primarily on factors external to the Utilities, such as growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Under the revenue decoupling mechanisms in CECONY’s electric and gas rate plans and O&R’s 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 not net income. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate ~~agreements.~~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 ~~agreements.~~plans.

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

Net cash flows from operating activities for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 for Con Edison and CECONY were ~~$400~~$308 million higher and ~~$94~~$339 million lower, respectively, than in ~~2012.~~2013. The ~~decrease~~increase in net cash flows for Con Edison reflects ~~a special deposit~~ the ~~company~~deposits made in 2013 with federal and state tax agencies ~~relating~~ primarily related to the LILO ~~transactions. See “Lease In/Lease Out Transactions” in~~transactions (see Note HI to the ~~Third~~First Quarter Financial ~~Statements.~~Statements), offset in part by higher income tax payments ($392 million) in 2014. The decrease in net cash ~~flows is also due to the increased pension contributions~~for CECONY reflects primarily higher income tax payments ($231 million) in 2013 ($91 million for Con Edison and $88 million for CECONY). The Companies contributed $878 million and $787 million (of which $821 million and $733 million was contributed by CECONY) to the pension plan during 2013 and 2012, respectively.2014.


					41

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

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

Cash Flows Used in Investing Activities

Net cash flows used in investing activities for Con Edison and CECONY were ~~$28~~$29 million and ~~$270~~$52 million ~~higher,~~lower, respectively, for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. The changes for Con Edison and CECONY reflect ~~primarily increased~~decreased utility construction expenditures in ~~2013.~~2014. In addition, for Con Edison, the change reflects


					53

increased investments in solar energy projects (see Note N to the First Quarter Financial Statements), offset in part by decreased non-utility construction expenditures ~~offset by the proceeds from the termination of the LILO transactions~~ and ~~the~~ receipt of grants related to solar energy projects. ~~See “Lease In/Lease Out Transactions” in Note H to the Third Quarter Financial Statements.~~

Cash Flows from Financing Activities

Net cash flows from financing activities for Con Edison and CECONY were ~~$687~~$647 million lower and ~~$395~~$27 million higher, respectively, in the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period.

In March 2014, CECONY issued $850 million of 4.45 percent 30-year debentures, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes. In February 2014, CECONY redeemed at maturity $200 million of 4.70 percent 10-year debentures.

In February 2013, CECONY issued $700 million of 3.95 percent 30-year debentures, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes. In February 2013, CECONY redeemed at maturity $500 million of 4.875 percent 10-year debentures. ~~In June 2013, CECONY redeemed at maturity $200 million of 3.85 percent 10-year debentures.~~

In March 2012, CECONY issued $400 million 4.20 percent 30-year debentures, $239 million of the net proceeds from the sale of which were used to redeem all outstanding shares of its $5 Cumulative Preferred Stock and Cumulative Preferred Stock ($100 par value). In July 2012, CECONY redeemed at maturity $300 million of 5.625 percent 10-year debentures.

In April 2013, a Con Edison Development subsidiary issued $219 million aggregate principal amount of 4.78 percent senior notes secured by the company’s California solar energy projects. The notes have a weighted average life of 15 years and final maturity of 2037.

Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ and the average daily balances for the ~~nine~~three months ended ~~September 30,~~2014 and 2013 ~~and 2012~~ for Con Edison and CECONY were as follows:

   2013 2012
(Millions of Dollars, except Weighted Average Yield) Outstanding at
September 30 Daily
average Outstanding at
September 30 Daily
average
Con Edison
$1,220    $901    $340    $116
CECONY
$1,042    $557    $332    $112
Weighted average yield
0.3 % 0.3 % 0.3 % 0.3 %


54


	2014						2013
*(Millions of Dollars, except Weighted Average Yield)*	Outstanding at March 31			Daily average			Outstanding at March 31			Daily average
Con Edison	$	830		$	961		$	1,021		$	889
CECONY	$	669		$	777		$	313		$	188
Weighted average yield		0.2	%		0.2	%		0.3	%		0.3	%

Other Changes in Assets and Liabilities

The following table shows changes in certain assets and liabilities at ~~September 30, 2013,~~March 31, 2014, compared with December 31, ~~2012.~~2013.


	Con Edison			CECONY			Con Edison			CECONY
*(Millions of Dollars)*	2013 vs. 2012 Variance			2013 vs. 2012 Variance			2014 vs. 2013 Variance			2014 vs. 2013 Variance
Assets
Prepayments	$	362		$	347		$	353		$	295
Special deposits		305			21			(324	)		(84	)
Regulatory asset — Unrecognized pension and other postretirement costs		(666	)		(628	)
Regulatory asset — Unrecognized pension costs								(139	)		(132	)
Liabilities
Notes payable	$	681		$	621
Accrued taxes		217			(17	)		(378	)		(11	)
Accrued interest		171			43
Deferred income taxes and investment tax credits		109			436
Pension and retiree benefits		(862	)		(806	)		(225	)		(216	)


42

Prepayments

The increase in prepayments for Con Edison and CECONY reflects ~~the portion allocable to the 2013 fourth quarter of~~primarily CECONY’s ~~July 2013~~January 2014 payment of its New York City semi-annual property ~~taxes.~~taxes, offset by three months of amortization, while the December 2013 balance reflects the full amortization of the previous semi-annual payment.

Special Deposits ~~Accrued Taxes~~ and Accrued ~~Interest~~Taxes

The ~~increases~~decreases in Con Edison’s special deposits and accrued taxes ~~and accrued interest~~ reflect the ~~impact of~~deposits made in 2013 with federal and state tax agencies primarily relating to the LILO transactions. See ~~Notes H and~~Note I to the ~~Third~~First Quarter Financial Statements.

Regulatory Asset for Unrecognized Pension ~~Notes Payable and Other Postretirement~~ Costs and ~~Noncurrent~~ Liability for Pension and Retiree Benefits

The decrease in the regulatory asset for unrecognized pension ~~and other postretirement~~ costs and the ~~noncurrent~~ liability for pension and retiree benefits reflects the final actuarial valuation of the pension and other retiree benefit plans as measured at December 31, ~~2012,~~2013, in accordance with the accounting rules for retirement benefits. The change in the regulatory asset also reflects the year’s amortization of accounting costs. The decrease in the ~~noncurrent~~ liability for pension and retiree benefits ~~and the increase in notes payable reflect~~reflects in part contributions to the plans made by the Utilities in ~~2013.~~2014. See Notes B, E and F to the ~~Third~~First Quarter Financial Statements.

~~Deferred Income Taxes and Investment Tax Credits~~

The increase in the liability for deferred income taxes and investment tax credits reflects the timing of the deduction of expenditures for utility plant which resulted in amounts being collected from customers to pay income taxes in advance of when the income tax payments will be required. For Con Edison, the increase was offset by the reduction in accumulated deferred income tax liabilities corresponding to the increase in accrued taxes with respect to the LILO transactions. See “Uncertain Tax Positions” in Note I to the Third Quarter Financial Statements.


					55

Capital Requirements and Resources

In October 2013, the NYSPSC approved transmission projects and energy efficiency and demand response programs to address concerns associated with potential closure of the nuclear power plants at the Indian Point Energy Center (which is owned by Entergy Corporation subsidiaries). The transmission projects, which also address transmission congestion between upstate and downstate and make available more generation from Staten Island, are scheduled to be placed into service by 2016. CECONY is to develop two of the transmission projects. The aggregate estimated cost of the CECONY projects, which has not been included in CECONY’s reported estimates of its construction expenditures, is $371 million. The projects are expected to be transferred to the proposed New York Transco that is to be owned by affiliates of the owners of transmission facilities in New York (including the Utilities). The NYSPSC also endorsed the method by which the costs and benefits associated with the projects will be allocated among load serving entities and filed with the Federal Energy Regulatory Commission (FERC). Additional authorizations will be required from the NYSPSC, FERC and other Federal, state and local agencies.

~~Con Edison has increased its estimate of capital expenditures in 2013 by its competitive energy businesses from $253 million to $400 million. See Note M to the Third Quarter Financial Statements.~~

For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ and the twelve months ended December 31, ~~2012~~2013 was:


	Ratio of Earnings to Fixed Charges							Ratio of Earnings to Fixed Charges
	For the Nine Months Ended September 30, 2013			For the Nine Months Ended September 30, 2012		For the Twelve Months Ended December 31, 2012		For the Three Months Ended March 31, 2014		For the Three Months Ended March 31, 2013		For the Twelve Months Ended December 31, 2013
Con Edison(a)		3.0	(a)		3.9		3.7		4.8		1.9		3.0
CECONY		4.0			3.9		3.7		4.6		4.1		3.7

(a)

~~The decrease from prior period reflects~~Reflects after-tax benefit/(charge) to earnings relating to Con Edison Development’s LILO transactions of $7 million, $(150) million and $(95) million for the ~~impact of the LILO transactions.~~three months ended March 31, 2014 and 2013 and twelve months ended December 31, 2013, respectively. See ~~Notes H and~~Note I to the ~~Third~~First Quarter Financial Statements.

For each of the Companies, the common equity ratio at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 was:

Common Equity Ratio
(Percent of total capitalization)

   September 30, 2013 December 31, 2012
Con Edison
53.7    54.1
CECONY
53.6    53.6


56


	Common Equity Ratio (Percent of total capitalization)
	March 31, 2014		December 31, 2013
Con Edison		52.3		53.9
CECONY		51.9		53.7

Off-Balance Sheet Arrangements

The Companies have no off-balance sheet arrangements other than ~~a guarantee~~two guarantees ($80 million maximum and $208 million maximum) issued by Con Edison Development on behalf of ~~an entity~~two entities in which it acquired a 50 percent interest in July 2013 and March 2014, respectively (see ~~Notes~~“Guarantees” in Note H and MNote N to the ~~Third~~First Quarter Financial Statements). The ~~entity was~~entities were formed to develop, construct and operate a photovoltaic solar energy ~~generation facility~~facilities with a cumulative capacity of ~~150~~400 MW (AC) ~~(with 92 MW (AC) currently in service)~~. Con Edison Development is not the primary beneficiary of ~~this entity~~these entities since the power to direct the activities that most significantly impact the economics of the ~~facility~~facilities is shared equally between Con Edison Development and a third party. ~~Currently, no~~No payments have been made nor are ~~due~~any expected to be made under the ~~guarantee. Con Edison Development’s share of the entity’s net income is included in Con Edison’s consolidated income statement.~~guarantees.

Regulatory Matters

In November 2012, the Governor of New York established a commission to review actions taken by New York utilities relating to emergency weather events, including Superstorm Sandy and other major storms, and to make recommendations regarding, among other things, the oversight, management and legal framework governing power delivery services in New York. See “Other Regulatory Matters” in Note B to the Third Quarter Financial Statements. In MarchDecember 2013, ~~following the issuance of recommendations by the commission and submission by the Governor of a bill to the State legislature,~~ the New York State Public Service ~~Law was amended to, among other things, authorize~~Commission (NYSPSC) directed the NYSPSC to (i) levy expanded penalties against combination gas and electric utilities; (ii) review, at least every five years, an electric utility’s capability to provide safe, adequate and reliable service, order the utility to comply with additional and more stringent terms of service than existed prior to the review, assess the continued operation of the utility as the provider of electric service in its service territory and propose, and act upon, such measures as are necessary to ensure safe and adequate service; and (iii) based on findings of repeated violations of the New York Public Service Law or rules or regulations adopted thereto that demonstrate a failure of a combination gas and electric utility to continue to provide safe and adequate service, revoke or modify an operating certificate issued to the utility by the NYSPSC (following consideration of certain factors, including public interest and standards deemed necessary by the NYSPSC to ensure continuity of service, and due process).

In August 2013, the NYSPSC approved emergency response plans submitted by the Utilities, subject to certain modifications. Pursuant to the amended New York Public Service Law, each electric utility is required to submit to the NYSPSC annually a planstaff “to recommend, for ~~the reasonably prompt restoration of service~~commencement in the ~~case~~first quarter of ~~widespread outages~~2014, a process that will result in timely decisions regarding the ~~utility’s service territory due to storms or other events beyond the control~~broad restructuring of ~~the utility. If, after evidentiary hearings or other investigatory proceedings, the NYSPSC finds~~distribution utility regulation, such that the ~~utility failed to implement its plan reasonably, the NYSPSC may deny recovery~~post-2015 course of ~~any part of the service restoration costs caused by such failure.~~energy efficiency and other clean energy programs can be


					5743

determined in the context of these more sweeping changes.” The NYSPSC articulated five core policy outcomes intended to better align the role and operations of utilities to enable market and customer-driven change: empowering customers; leveraging customer contributions; system-wide efficiency; fuel and resource diversity; and system reliability and resiliency. The NYSPSC requested that the scope of the proceeding be sufficiently broad to address the role of distribution utilities in enabling system-wide efficiency and market-based deployment of distributed energy resources and load management; changes that can and should be made in the current regulatory, tariff, and market design and incentive structure in New York to better align utility interest with achieving the NYSPSC’s energy policy objectives; and further changes that need to be made to energy efficiency delivery including better alignment and definition of the roles and responsibilities of New York State Energy Research and Development Authority (NYSERDA) and utilities.

In April 2014, following the issuance of a NYSPSC staff report and proposal that, among other things, recommended that the NYSPSC consider fundamental changes in the manner in which utilities provide service, the NYSPSC initiated its Reforming the Energy Vision proceeding to (1) improve system efficiency, empower customer choice, and encourage greater penetration of clean generation and energy efficiency technologies and practices; (2) examine how existing practices should be modified to establish Distributed System Platform Providers (DSPP), actively managing and coordinating distributed energy resources and providing a market enabling customers to optimize their energy priorities, provide system benefits, and be compensated for providing such system benefits; and (3) examine how the NYSPSC’s regulatory practices should be modified to incent utility practices that best promote the NYSPSC’s policies and objectives, including the promotion of energy efficiency, renewable energy, least cost energy supply, fuel diversity, system adequacy and reliability, demand elasticity, and customer empowerment. The NYSPSC indicated that its goal is to reach generic policy determinations with respect to DSPP and related issues and regulatory design and ratemaking issues by the end of 2014 and in the first quarter of 2015, respectively. The Utilities are not able to predict the outcome of the Reforming the Energy Vision proceeding or its impact on the Utilities.

Financial and Commodity Market Risks

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

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its businesses manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison and CECONY estimate that at ~~September 30, 2013,~~March 31, 2014, a 10 percent ~~increase~~variation in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of $1 million. Under CECONY’s current gas, steam and electric rate plans, variations in actual ~~long-term~~variable rate tax-exempt debt interest ~~rates~~expense are reconciled to levels reflected in rates. Under O&R’s current New York rate plans, variations in actual tax-exempt (and under the gas rate plan, taxable) long-term debt interest expense are reconciled to the level set in rates.

In addition, from time to time, Con Edison and its businesses enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See “Interest Rate Swap” in Note KL to the ~~Third~~First Quarter Financial Statements.

Commodity Price Risk

Con Edison’s commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and Con Edison’s competitive energy businesses apply risk management strategies to mitigate their related exposures. See Note KL to the ~~Third~~First Quarter Financial Statements.


44

Con Edison estimates that, as of ~~September 30, 2013,~~March 31, 2014, a 10 percent decline in market prices would result in a decline in fair value of ~~$47~~$54 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which ~~$39~~$46 million is for CECONY and $8 million is for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers, including gains and losses on certain derivative instruments used to hedge energy purchased and related costs.

Con Edison’s competitive energy businesses use a value-at-risk (VaR) model to assess the market price risk of their portfolio of electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts, generating assets and commodity derivative instruments. VaR represents the potential change in fair value of ~~instruments or~~ the portfolio due to changes in market ~~factors,~~prices, for a specified time period and confidence level. These businesses estimate VaR across their ~~electricity and natural gas commodity businesses~~portfolio using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and


58

assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for ~~transactions associated with hedges and commodity contracts,~~the portfolio, assuming a one-day holding period, for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and the year ended December 31, ~~2012,~~2013, respectively, was as follows:


95% Confidence Level, One-Day Holding Period	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
	*(Millions of Dollars)*				*(Millions of Dollars)*
Average for the period	$	1	$	1	$	2	$	1
High		1		2		7		1
Low		—		—		—		—

The competitive energy businesses compare the measured VaR results against performance due to actual prices and stress test the portfolio each quarter using an assumed 30 percent price change from forecast. The stress test includes an assessment of the impact of volume changes on the portfolio because the businesses generally commit to sell their customers their actual requirements, an amount which is estimated when the sales commitments are made. The businesses limit the volume of commodity derivative instruments entered into relative to their estimated sale commitments to maintain net market price exposures to their estimated sale commitments within a certain percentage of maximum and minimum exposures.

Credit Risk

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. 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 and 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 of setoff. See “Credit Exposure” in Note KL to the ~~Third~~First Quarter Financial Statements.

The Utilities had $17 million of credit exposure in connection with energy supply and hedging activities, net of collateral, at September 30, 2013, of which $16 million was with commodity exchange brokers and $1 million was with investment grade counterparties.

Con Edison’s competitive energy businesses had $93 million of credit exposure in connection with energy supply and hedging activities, net of collateral, at September 30, 2013, of which $42 million was with independent system operators, $29 million was with investment grade counterparties, $21 million was with commodity exchange brokers and $1 million was with non-investment grade or non-rated counterparties.

Investment Risk

The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. The Companies’ current investment policy for pension plan assets includes investment targets of 60 percent equities and 40 percent fixed income and other securities. At ~~September 30, 2013,~~March 31, 2014, the pension plan investments consisted of 6059 percent equity and 4041 percent fixed income and other securities.


					59

Material Contingencies

For information concerning potential liabilities arising from the Companies’ material contingencies, see Notes B, G and H to the ~~Third~~First Quarter Financial Statements.

Results of Operations

See “Results of Operations – Summary,” above.

Results of operations reflect, among other things, the Companies’ accounting policies and rate plans that limit the rates the Utilities can charge their customers. Under the revenue decoupling mechanisms currently applicable to CECONY’s electric and gas businesses and O&R’s electric and gas businesses in New York, the Utilities’ delivery revenues generally will not be affected by changes in delivery volumes from levels assumed when rates were approved. Revenues for CECONY’s steam business and O&R’s businesses in New Jersey and Pennsylvania are affected by changes in


					45

delivery volumes resulting from weather, economic conditions and other factors.

In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect the Companies’ results of operations. Management uses the term “net revenues” (operating revenues less such costs) to identify changes in operating revenues that may affect the Companies’ results of operations. Management believes that, although “net revenues” may not be a measure determined in accordance with accounting principles generally accepted in the United States of America, the measure facilitates the analysis by management and investors of the Companies’ results of operations.

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities and Con Edison’s competitive energy businesses. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ follows. For additional business segment financial information, see Note JK to the ~~Third~~First Quarter Financial Statements.


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Three Months Ended ~~September 30, 2013~~March 31, 2014 Compared with Three Months Ended ~~September 30, 2012~~March 31, 2013

The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in ~~2013~~2014 compared with ~~2012~~2013 were:


	CECONY						O&R						Competitive Energy Businesses and Other^(a)						Con Edison^(b)						CECONY						O&R						Competitive Energy Businesses and Other^(a)					Con Edison^(b)
*(Millions of Dollars)*	Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent			Increases (Decreases) Amount			Increases (Decreases) Percent		Increases (Decreases) Amount			Increases (Decreases) Percent
Operating revenues	$	25			0.9	%	$	—			—	%	$	21			6.1	%	$	46			1.3	%	$	398			14.2	%	$	29			12.8	%	$	178			Large	$	605			19.0	%
Purchased power		20			3.3			(2	)		(2.9	)		(2	)		(0.8	)		16			1.7			162			35.6			19			38.0			75			37.1		256			36.2
Fuel		(3	)		(5.1	)		—			—			—			—			(3	)		(5.1	)		9			6.1			—			—			—			—		9			6.1
Gas purchased for resale		13			28.9			(1	)		(9.1	)		6			Large			18			32.1			127			58.0			12			42.9			11			Large		150			60.0
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)		(5	)		(0.2	)		3			2.1			17			19.3			15			0.6			100			5.0			(2	)		(1.3	)		92			Large		190			9.1
Other operations and maintenance		(39	)		(5.4	)		7			9.7			1			3.4			(31	)		(3.8	)		(16	)		(2.2	)		8			11.4			3			15.8		(5	)		(0.6	)
Depreciation and amortization		12			5.3			1			7.7			5			Large			18			7.5			7			3.0			—			—			3			75.0		10			4.0
Taxes, other than income taxes		24			5.3			—			—			—			—			24			5.0			26			5.8			(2	)		(11.1	)		2			50.0		26			5.5
Operating income		(2	)		(0.3	)		(5	)		(11.4	)		11			20.8			4			0.5			83			14.8			(8	)		(17.0	)		84			Large		159			30.2
Other income less deductions		(1	)		Large			—			—			4			Large			3			Large			5			Large			1			Large			2			Large		8			Large
Net interest expense		(10	)		(7.2	)		2			33.3			2			25.0			(6	)		(3.9	)		(1	)		(0.8	)		(2	)		(18.2	)		(140	)		Large		(143	)		(51.3	)
Income before income tax expense		7			1.1			(7	)		(18.4	)		13			27.7			13			1.9			89			20.7			(5	)		(13.9	)		226			Large		310			Large
Income tax expense		(5	)		(2.2	)		(2	)		(14.3	)		(4	)		(20.0	)		(11	)		(4.2	)		32			21.1			4			66.7			105			Large		141			Large
Net income		12			3.1			(5	)		(20.8	)		17			63.0			24			5.5
Preferred stock dividend requirements		—			—			—			—			—			—			—			—
Net income for common stock	$	12			3.1	%	$	(5	)		(20.8	)%	$	17			63.0	%	$	24			5.5	%	$	57			20.6	%	$	(9	)		(30.0	)%	$	121			Large	$	169			88.0	%

(a)	~~Includes inter-company and~~Other includes parent company ~~accounting.~~expenses, primarily interest, and consolidation adjustments.

(b)	Represents the consolidated financial results of Con Edison and its businesses.

~~CECONY~~

Three Months Ended
September 30, 2013

Three Months Ended
September 30, 2012

(Millions of Dollars) Electric Gas Steam 2013
Total Electric Gas Steam 2012
Total 2013-2012
Variation
Operating revenues
$ 2,622    $ 199    $ 72    $ 2,893    $ 2,611    $ 189    $ 68    $ 2,868    $ 25
Purchased power
615    —    9    624    597    —    7    604    20
Fuel
45    —    11    56    42    —    17    59    (3 )
Gas purchased for resale
—    58    —    58    —    45    —    45    13
Net revenues
1,962    141    52    2,155    1,972    144    44    2,160    (5 )
Operations and maintenance
565    75    46    686    601    81    43    725    (39 )
Depreciation and amortization
188    33    16    237    179    31    15    225    12
Taxes, other than income taxes
398    57    25    480    380    53    23    456    24
Operating income
$ 811    $ (24 ) $ (35 ) $ 752    $ 812    $ (21 ) $ (37 ) $ 754    $ (2 )


46					61

CECONY


	Three Months Ended March 31, 2014								Three Months Ended March 31, 2013
*(Millions of Dollars)*	Electric		Gas		Steam		2014 Total		Electric		Gas		Steam		2013 Total		2014-2013 Variation
Operating revenues	$	2,074	$	789	$	341	$	3,204	$	1,814	$	660	$	332	$	2,806	$	398
Purchased power		598		—		19		617		441		—		14		455		162
Fuel		92		—		64		156		65		—		82		147		9
Gas purchased for resale		—		346		—		346		—		219		—		219		127
Net revenues		1,384		443		258		2,085		1,308		441		236		1,985		100
Operations and maintenance		569		104		52		725		579		100		62		741		(16	)
Depreciation and amortization		189		32		19		240		185		32		16		233		7
Taxes, other than income taxes		369		74		34		477		355		67		29		451		26
Operating income	$	257	$	233	$	153	$	643	$	189	$	242	$	129	$	560	$	83

Electric

CECONY’s results of electric operations for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period is as follows:


	Three Months Ended							Three Months Ended
*(Millions of Dollars)*	September 30, 2013		September 30, 2012		Variation			March 31, 2014		March 31, 2013		Variation
Operating revenues	$	2,622	$	2,611	$	11		$	2,074	$	1,814	$	260
Purchased power		615		597		18			598		441		157
Fuel		45		42		3			92		65		27
Net revenues		1,962		1,972		(10	)		1,384		1,308		76
Operations and maintenance		565		601		(36	)		569		579		(10	)
Depreciation and amortization		188		179		9			189		185		4
Taxes, other than income taxes		398		380		18			369		355		14
Electric operating income	$	811	$	812		$(1	)	$	257	$	189		$68

CECONY’s electric sales and deliveries, excluding off-system sales, for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period were:


	Millions of kWhs Delivered										Revenues in Millions												Millions of kWhs Delivered									Revenues in Millions
	Three Months Ended										Three Months Ended												Three Months Ended									Three Months Ended
Description	September 30, 2013		September 30, 2012		Variation			Percent Variation			September 30, 2013			September 30, 2012			Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation		Percent Variation			March 31, 2014		March 31, 2013			Variation			Percent Variation
Residential/Religious^(a)		3,460		3,735		(275	)		(7.4	)%	$	931		$	959			$(28	)		(2.9	)%		2,416		2,382		34		1.4	%	$	787	$	647		$	140			21.6	%
Commercial/Industrial		2,835		2,908		(73	)		(2.5	)		622			616			6			1.0			2,461		2,394		67		2.8			618		479			139			29.0
Retail access customers		7,889		7,874		15			0.2			889			894			(5	)		(0.6	)		6,437		6,223		214		3.4			522		577			(55	)		(9.5	)
NYPA, Municipal Agency and other sales		2,853		2,957		(104	)		(3.5	)		200			202			(2	)		(1.0	)		2,582		2,561		21		0.8			133		131			2			1.5
Other operating revenues		—		—		—			—			(20	)		(60	)		40			66.7			—		—		—		—			14		(20	)		34			Large
Total		17,037		17,474		(437	)		(2.5	)%	$	2,622		$	2,611		$	11			0.4	%		13,896		13,560		336		2.5	%	$	2,074	$	1,814		$	260			14.3	%

(a)	“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.

CECONY’s electric operating revenues increased ~~$11~~$260 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due primarily to higher purchased power costs ($18157 million) and fuel costs ($327 million), ~~offset in part by lower revenues from the electric rate plan ($19 million, which includes a decrease of $45 million reflecting the use~~and recovery of certain ~~regulatory liabilities~~expenses recognized in ~~2012 to offset a temporary surcharge under the electric rate plan)~~prior periods ($30 million). CECONY’s revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.

Electric delivery volumes in CECONY’s service area decreased 2.5 percent in the three months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 2.2 percent in the three months ended September 30, 2013 compared with the 2012 period.

CECONY’s electric purchased power costs increased $18 million in the three months ended September 30, 2013 compared with the 2012 period due to an increase in unit costs ($29 million), offset by a decrease in purchased volumes ($11 million). Electric fuel costs increased $3 million in the three months ended September 30, 2013 compared with the 2012 period due to higher unit costs ($7 million), offset by lower sendout volumes from the company’s electric generating facilities ($4 million).


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CECONY’s electric operating income decreased $1 million in the three months ended September 30, 2013 compared with the 2012 period. The decrease reflects primarily lower net revenues ($10 million, due primarily to the electric rate plan), higher taxes other than income taxes ($18 million, principally property taxes) and higher depreciation and amortization ($9 million), offset by lower operations and maintenance costs ($36 million). Operations and maintenance expenses primarily reflect a decrease in pension costs ($30 million) in the 2013 period as compared to the 2012 period when certain pension costs that were deferred from earlier periods were recognized under the electric rate plan and increases in surcharges for assessments and fees that are collected in revenues from customers ($7 million).

~~Gas~~

~~CECONY’s results of gas operations for the three months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Three Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 199    $ 189    $ 10
Gas purchased for resale
58    45    13
Net revenues
141    144    (3 )
Operations and maintenance
75    81    (6 )
Depreciation and amortization
33    31    2
Taxes, other than income taxes
57    53    4
Gas operating income
$ (24 ) $ (21 ) $ (3 )

~~CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended September 30, 2013 compared with the 2012 period were:~~

   Thousands of dths Delivered Revenues in Millions
   Three Months Ended    Three Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
Residential
3,405    2,971    434    14.6 % $90    $75    $15    20.0 %
General
3,423    3,415    8    0.2    47    38    9    23.7
Firm transportation
7,090    6,752    338    5.0    53    47    6    12.8
Total firm sales and transportation
13,918    13,138    780    5.9    190    160    30    18.8
Interruptible sales^(a)
2,341    1,217    1,124    92.4    3    —    3    Large
NYPA
13,844    13,716    128    0.9    —    1    (1 ) Large
Generation plants
23,447    29,644    (6,197 ) (20.9 ) 7    10    (3 ) (30.0 )
Other
4,833    4,791    42    0.9    7    9    (2 ) (22.2 )
Other operating revenues
—    —    —    —    (8 ) 9    (17 ) Large
Total
58,383    62,506    (4,123 ) (6.6 )% $199    $189    $10    5.3 %

^(a)	~~Includes 1,530 and 280 thousands of dths for the 2013 and 2012 periods, respectively, which are also reflected in firm transportation and other.~~


					6347

Electric delivery volumes in CECONY’s ~~gas operating revenues~~service area increased ~~$10~~2.5 percent in the three months ended March 31, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area increased 0.5 percent in the three months ended March 31, 2014 compared with the 2013 period.

CECONY’s electric purchased power costs increased $157 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 due to an increase in unit costs ($146 million) and purchased volumes ($11 million). Electric fuel costs increased $27 million in the three months ended March 31, 2014 compared with the 2013 period due to higher unit costs ($25 million) and sendout volumes from the company’s electric generating facilities ($2 million).

CECONY’s electric operating income increased $68 million in the three months ended March 31, 2014 compared with the 2013 period. The increase reflects primarily higher net revenues ($76 million) and decreases in certain operations and maintenance expenses ($10 million), offset in part by higher taxes other than income taxes ($14 million, principally property taxes) and higher depreciation and amortization ($4 million). Operations and maintenance expenses primarily reflect a decrease in pension costs ($26 million) and lower surcharges for assessments and fees that are collected in revenues from customers ($18 million), offset in part by higher operating costs attributable to emergency response due to weather related events ($27 million) and higher support and maintenance of company underground facilities to accommodate municipal projects ($7 million).

Gas

CECONY’s results of gas operations for the three months ended March 31, 2014 compared with the 2013 period is as follows:


	Three Months Ended
*(Millions of Dollars)*	March 31, 2014		March 31, 2013		Variation
Operating revenues	$	789	$	660	$	129
Gas purchased for resale		346		219		127
Net revenues		443		441		2
Operations and maintenance		104		100		4
Depreciation and amortization		32		32		—
Taxes, other than income taxes		74		67		7
Gas operating income	$	233	$	242	$	(9)

CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended March 31, 2014 compared with the 2013 period were:


	Thousands of dths Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended
Description	March 31, 2014		March 31, 2013		Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation			Percent Variation
Residential		21,736		19,055		2,681			14.1	%		$362		$302		$60			19.9	%
General		14,017		11,188		2,829			25.3			164		135		29			21.5
Firm transportation		29,011		25,694		3,317			12.9			180		167		13			7.8
Total firm sales and transportation		64,764		55,937		8,827			15.8			706		604		102			16.9
Interruptible sales (a)		5,124		2,897		2,227			76.9			60		22		38			Large
NYPA		11,468		9,633		1,835			19.0			1		1		—			—
Generation plants		13,079		13,678		(599	)		(4.4	)		8		6		2			33.3
Other		7,342		7,609		(267	)		(3.5	)		12		16		(4	)		(25.0	)
Other operating revenues		—		—		—			—			2		11		(9	)		(81.8	)
Total		101,777		89,754		12,023			13.4	%		$789		$660		$129			19.5	%

(a)	Includes 3,531 and 936 thousands of dths for 2014 and 2013 periods, respectively, which are also reflected in firm transportation and other.

CECONY’s gas operating revenues increased $129 million in the three months ended March 31, 2014 compared with the 2013 period due primarily to an increase in gas purchased for resale costs ($13127 million)~~, offset in part by lower~~ and higher revenues from the ~~gas rate plan~~recovery of certain costs ($12 million). CECONY’s 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


48

approved. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

CECONY’s sales and transportation volumes for firm customers increased ~~5.9~~15.8 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the company’s service area increased ~~6.2~~2.0 percent in the three months ended ~~September 30, 2013.~~March 31, 2014.

CECONY’s purchased gas cost increased ~~$13~~$127 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due to higher unit costs ($1476 million)~~, offset by lower~~ and sendout volumes ($151 million).

CECONY’s gas operating income decreased $3$9 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. The decrease reflects primarily higher taxes other than income taxes ($47 million, principally local revenue taxes and property taxes)~~, lower net revenues ($3 million)~~ and higher ~~depreciation and amortization ($2 million), offset by lower~~ operations and maintenance expense ($64 million, due primarily to higher pension costs ($4 million)).

Steam

CECONY’s results of steam operations for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period is as follows:

   Three Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 72    $ 68    $ 4
Purchased power
9    7    2
Fuel
11    17    (6 )
Net revenues
52    44    8
Operations and maintenance
46    43    3
Depreciation and amortization
16    15    1
Taxes, other than income taxes
25    23    2
Steam operating income
$ (35 ) $ (37 ) $ 2


	Three Months Ended
*(Millions of Dollars)*	March 31, 2014		March 31, 2013		Variation
Operating revenues	$	341	$	332	$	9
Purchased power		19		14		5
Fuel		64		82		(18	)
Net revenues		258		236		22
Operations and maintenance		52		62		(10	)
Depreciation and amortization		19		16		3
Taxes, other than income taxes		34		29		5
Steam operating income	$	153	$	129	$	24


64

CECONY’s steam sales and deliveries for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period were:


	Millions of Pounds Delivered										Revenues in Millions												Millions of Pounds Delivered									Revenues in Millions
	Three Months Ended										Three Months Ended												Three Months Ended									Three Months Ended
Description	September 30, 2013		September 30, 2012		Variation			Percent Variation			September 30, 2013			September 30, 2012			Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation		Percent Variation			March 31, 2014			March 31, 2013			Variation			Percent Variation
General		16		15		1			6.7	%	$	2		$	2		$	—			—	%		380		309		71		23.0	%	$	17		$	16		$	1			6.3	%
Apartment house		903		816		87			10.7			19			17			2			11.8			2,901		2,541		360		14.2			88			89			(1	)		(1.1	)
Annual power		3,112		3,487		(375	)		(10.8	)		58			59			(1	)		(1.7	)		7,010		5,852		1,158		19.8			247			238			9			3.8
Other operating revenues		—		—		—			—			(7	)		(10	)		3			30.0			—		—		—		—			(11	)		(11	)		—			—
Total		4,031		4,318		(287	)		(6.6	)%	$	72		$	68		$	4			5.9	%		10,291		8,702		1,589		18.2	%	$	341		$	332		$	9			2.7	%

CECONY’s steam operating revenues increased $4$9 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due primarily to the ~~net change in rates under the steam rate plans~~weather impact on revenues ($1123 million) ~~and~~, higher purchased power costs ($25 million) and the net change in revenues from the recovery of certain costs ($1 million), offset in part by lower fuel costs ($~~6 million) and the weather impact on revenues ($2~~18 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Steam sales and delivery volumes ~~decreased 6.6~~increased 18.2 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. After adjusting for variations, principally weather and billing days, steam sales and deliveries ~~decreased 7.1~~increased 5.9 percent in the three months ended ~~September 30, 2013, reflecting lower average normalized use per customer.~~March 31, 2014.

CECONY’s steam ~~fuel~~purchased power costs ~~decreased $6~~increased $5 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012 period due to lower unit costs ($5 million) and sendout volumes ($1 million). Steam purchased power costs increased $2 million in the three months ended September 30,~~ 2013 ~~compared with the 2012~~ period due to an increase in unit costs ($25 million). Steam fuel costs decreased $18 million in the three months ended March 31, 2014 compared with the 2013 period due to lower unit costs ($28 million), offset by higher sendout volumes ($10 million).

Steam operating income increased $2$24 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. The increase reflects primarily higher net revenues ($8 million), offset in part by higher operations and maintenance expense ($3 million, due primarily to higher pension expense ($5 million), offset in part by lower surcharges for assessments and fees that are collected in revenues from customers ($1 million)), higher taxes, other than income taxes ($2 million, principally property taxes) and higher depreciation and amortization ($1 million).

~~Net Interest Expense~~

Net interest expense decreased $10 million in the three months ended September 30, 2013 compared with the 2012 period due primarily to lower accrued interest as a result of certain federal income tax benefits. See Note I to the Third Quarter Financial Statements.


					6549

net revenues ($22 million) and lower operations and maintenance expense ($10 million, due primarily to lower pension expense ($10 million)), offset in part by higher taxes other than income taxes ($5 million, principally property taxes) and depreciation and amortization ($3 million).

Income ~~Taxes~~Tax Expense

Income taxes ~~decreased $5~~increased $32 million in ~~the three months ended September 30, 2013~~2014 compared with ~~the 2012 period. See Note I~~2013 due primarily to ~~the Third Quarter Financial Statements.~~higher income before income tax expense.

O&R


	Three Months Ended September 30, 2013							Three Months Ended September 30, 2012										Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
*(Millions of Dollars)*	Electric		Gas			2013 Total		Electric		Gas			2012 Total		2013-2012 Variation			Electric		Gas		2014 Total		Electric		Gas		2013 Total		2014-2013 Variation
Operating revenues	$	200	$	26		$	226	$	199	$	27		$	226	$	—		$	163	$	93	$	256	$	145	$	82	$	227	$	29
Purchased power		68		—			68		70		—			70		(2	)		69		—		69		50		—		50		19
Gas purchased for resale		—		10			10		—		11			11		(1	)		—		40		40		—		28		28		12
Net revenues		132		16			148		129		16			145		3			94		53		147		95		54		149		(2	)
Operations and maintenance		64		15			79		57		15			72		7			61		17		78		53		17		70		8
Depreciation and amortization		10		4			14		10		3			13		1			10		4		14		10		4		14		—
Taxes, other than income taxes		12		4			16		12		4			16		—			11		5		16		12		6		18		(2	)
Operating income	$	46		$(7	)	$	39	$	50		$(6	)	$	44		$(5	)	$	12	$	27	$	39	$	20	$	27	$	47	$	(8	)

Electric

O&R’s results of electric operations for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period is as follows:


	Three Months Ended							Three Months Ended
*(Millions of Dollars)*	September 30, 2013		September 30, 2012		Variation			March 31, 2014		March 31, 2013		Variation
Operating revenues	$	200	$	199	$	1		$	163	$	145	$	18
Purchased power		68		70		(2	)		69		50		19
Net revenues		132		129		3			94		95		(1	)
Operations and maintenance		64		57		7			61		53		8
Depreciation and amortization		10		10		—			10		10		—
Taxes, other than income taxes		12		12		—			11		12		(1	)
Electric operating income	$	46	$	50		$(4	)	$	12	$	20	$	(8	)

O&R’s electric sales and deliveries, excluding off-system sales, for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period were:


	Millions of kWhs Delivered										Revenues in Millions										Millions of kWhs Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended										Three Months Ended										Three Months Ended
Description	September 30, 2013		September 30, 2012		Variation			Percent Variation			September 30, 2013		September 30, 2012		Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation			Percent Variation
Residential/Religious^(a)		508		550		(42	)		(7.6	)%	$	94	$	97	$	(3	)		(3.1	)%		376		368		8			2.2	%	$	74	$	65	$	9			13.8	%
Commercial/Industrial		240		247		(7	)		(2.8	)		38		38		—			—			213		208		5			2.4			37		30		7			23.3
Retail access customers		889		885		4			0.5			61		59		2			3.4			784		733		51			7.0			45		41		4			9.8
Public authorities		28		32		(4	)		(12.5	)		3		3		—			—			25		26		(1	)		(3.8	)		5		3		2			66.7
Other operating revenues		—		—		—			—			4		2		2			Large			—		—		—			—			2		6		(4	)		(66.7	)
Total		1,665		1,714		(49	)		(2.9	)%	$	200	$	199	$	1			0.5	%		1,398		1,335		63			4.7	%	$	163	$	145	$	18			12.4	%

(a)	“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.


6650

O&R’s electric operating revenues increased $1$18 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due primarily to higher ~~revenues from the New York electric rate plan ($4 million), offset in part by lower~~ purchased power costs ($219 million). O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan.

Electric delivery volumes in O&R’s service area ~~decreased 2.9~~increased 4.7 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. After adjusting for ~~variations, principally~~ weather and ~~billing days,~~other variations, electric delivery volumes in O&R’s service area ~~decreased 2.6~~increased 0.8 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period.

Electric operating income decreased $4$8 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. The decrease reflects primarily higher operations and maintenance ~~expense~~expenses ($78 million, ~~due~~reflecting primarily ~~to an increase~~certain regulatory credits in the ~~storm costs~~2013 period ($3 million) ~~and surcharges for assessments and fees that are collected in revenues from customers ($2 million)~~)~~, offset by higher net revenues ($3 million)~~.

Gas

O&R’s results of gas operations for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period is as follows:


	Three Months Ended									Three Months Ended
*(Millions of Dollars)*	September 30, 2013			September 30, 2012			Variation			March 31, 2014		March 31, 2013		Variation
Operating revenues		$26			$27			$(1	)		$93		$82		$11
Gas purchased for resale		10			11			(1	)		40		28		12
Net revenues		16			16			—			53		54		(1	)
Operations and maintenance		15			15			—			17		17		—
Depreciation and amortization		4			3			1			4		4		—
Taxes, other than income taxes		4			4			—			5		6		(1	)
Gas operating income		$(7	)		$(6	)		$(1	)		$27		$27		$—

O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period were:


	Thousands of dths Delivered										Revenues in Millions										Thousands of dths Delivered									Revenues in Millions
	Three Months Ended										Three Months Ended										Three Months Ended									Three Months Ended
Description	September 30, 2013		September 30, 2012		Variation			Percent Variation			September 30, 2013		September 30, 2012		Variation			Percent Variation			March 31, 2014		March 31, 2013		Variation		Percent Variation			March 31, 2014		March 31, 2013			Variation		Percent Variation
Residential		481		433		48			11.1	%	$	9	$	8	$	1			12.5	%		4,029		3,448		581		16.9	%	$	49	$	42		$	7		16.7	%
General		114		103		11			10.7			1		1		—			—			910		745		165		22.1			10		8			2		25.0
Firm transportation		1,050		910		140			15.4			10		9		1			11.1			6,176		5,425		751		13.8			33		33			—		—
Total firm sales and transportation		1,645		1,446		199			13.8			20		18		2			11.1			11,115		9,618		1,497		15.6			92		83			9		10.8
Interruptible sales		959		995		(36	)		(3.6	)		—		1		(1	)		Large			1,286		1,124		162		14.4			1		1			—		—
Generation plants		979		444		535			Large			—		—		—			—			2,457		239		2,218		Large			—		—			—		—
Other		65		65		—			—			—		—		—			—			458		422		36		8.5			—		—			—		—
Other operating revenues		—		—		—			—			6		8		(2	)		(25.0	)
Other gas revenues																						—		—		—		—			—		(2	)		2		Large
Total		3,648		2,950		698			23.7	%	$	26	$	27		$(1	)		(3.7)	%		15,316		11,403		3,913		34.3	%	$	93	$	82			$11		13.4	%


					6751

O&R’s gas operating revenues ~~decreased $1~~increased $11 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due primarily to ~~the decrease~~an increase in gas purchased for resale costs in 2013 ($112 million)~~. O&R’s New York revenues from~~, offset by the gas ~~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.~~rate plan.

Sales and transportation volumes for firm customers increased ~~13.8~~15.6 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. After adjusting for ~~variations, principally~~ weather and ~~billing days,~~other variations, total firm sales and transportation volumes increased ~~3.1~~1.3 percent in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period.

Gas operating income ~~decreased $1 million~~was the same in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period. ~~The decrease reflects~~

Income Tax Expense

Income taxes increased $4 million in three months ended March 31, 2014 compared with the 2013 period due primarily ~~higher depreciation and amortization ($1 million).~~to changes in estimates of accumulated deferred income taxes in the 2013 period.

Competitive Energy Businesses

The competitive energy businesses’ results of operations for the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period is as follows:


	Three Months Ended							Three Months Ended
*(Millions of Dollars)*	September 30, 2013		September 30, 2012		Variation			March 31, 2014		March 31, 2013			Variation
Operating revenues	$	365	$	344	$	21		$	329	$	152		$	177
Purchased power		255		256		(1	)		277		202			75
Gas purchased for resale		6		—		6			14		3			11
Net revenues		104		88		16			38		(53	)		91
Operations and maintenance		31		29		2			23		20			3
Depreciation and amortization		6		2		4			7		4			3
Taxes, other than income taxes		4		4		—			6		5			1
Operating income	$	63	$	53	$	10		$	2	$	(82	)	$	84

The competitive energy businesses’ operating revenues increased ~~$21~~$177 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period, due primarily to the ~~gain on termination~~impact of athe LILO ~~transaction~~transactions ($45121 million, see ~~“Lease In/Lease Out Transactions” in~~ Note HI to the ~~Third~~First Quarter Financial Statements)~~, offset by lower~~ and higher electric retail ~~and wholesale~~ revenues. Electric retail revenues ~~decreased $30~~increased $46 million due to ~~lower sales volume ($43 million), offset by~~ higher unit ~~prices ($13 million). Electric wholesale revenues decreased $14 million in the three~~


68

~~months ended September 30, 2013 as compared with the 2012 period, due to lower sales volumes. Solar~~prices. Wholesale revenues increased ~~$17~~$8 million and energy services revenues increased $2 million in the three months ended ~~September 30, 2013 as~~March 31, 2014 compared with the ~~2012 period reflecting an increase in solar energy projects in service. Other revenues~~2013 period.

Purchased power costs increased $3$75 million in the three months ended ~~September 30, 2013 as~~March 31, 2014 compared with the ~~2012 period.~~2013 period, due primarily to higher unit prices ($63 million) and changes in mark-to-market values ($25 million), offset by lower volumes ($12 million).

~~Purchased power costs decreased $1~~Operating income increased $84 million in the three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012 period, due primarily to lower volumes ($51 million, offset by higher unit prices ($26 million) and changes in mark-to-market values ($24 million)).~~

~~Operating income increased $10 million in~~ 2013 compared with 2012 due primarily to the gain on termination of a LILO transaction ($45 million), offset in part by net mark-to-market effects ($24 million), higher depreciation and amortization ($4 million), lower net revenues ($5 million) and higher operations and maintenance expense ($2 million).

~~Other~~

~~For Con Edison, “Other” also includes inter-company eliminations relating to operating revenues and operating expenses.~~


					69

~~Nine Months Ended September 30, 2013 Compared with Nine Months Ended September 30, 2012~~

~~The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 2013 compared with 2012 were:~~

   CECONY O&R Competitive Energy
Businesses and Other^(a) Con Edison^(b)
(Millions of Dollars) Increases
(Decreases)
Amount Increases
(Decreases)
Percent Increases
(Decreases)
Amount Increases
(Decreases)
Percent Increases
(Decreases)
Amount Increases
(Decreases)
Percent Increases
(Decreases)
Amount Increases
(Decreases)
Percent
Operating revenues
$ 283    3.7 % $ 34    5.7 % $(117 ) (12.3 )% $ 200    2.2 %
Purchased power
(6 ) (0.4 ) 19    12.7    (32 ) (4.3 ) (19 ) (0.8 )
Fuel
48    22.5    —    —    —    —    48    22.5
Gas purchased for resale
112    42.4    2    4.2    15    Large    129    41.1
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)
129    2.3    13    3.2    (100 ) (47.6 ) 42    0.7
Operations and maintenance
37    1.8    6    2.7    (8 ) (9.9 ) 35    1.5
Depreciation and amortization
41    6.2    3    7.7    11    Large    55    7.8
Taxes, other than income taxes
70    5.4    3    6.7    (2 ) (13.3 ) 71    5.2
Operating income
(19 ) (1.1 ) 1    1.0    (101 ) (93.5 ) (119 ) (6.3 )
Other income less deductions
—    —    1    Large    4    66.7    5    Large
Net interest expense
(18 ) (4.4 ) 7    31.8    131    Large    120    26.4
Income before income tax expense
(1 ) (0.1 ) (5 ) (6.4 ) (228 ) Large    (234 ) (16.3 )
Income tax expense
(5 ) (1.1 ) (7 ) (29.2 ) (116 ) Large    (128 ) (25.5 )
Net income
4    0.5    2    3.7    (112 ) Large    (106 ) (11.3 )
Preferred stock dividend requirements
(3 ) Large    —    —    —    —    (3 ) Large
Net income for common stock
$ 7    0.8 % $ 2    3.7 % $(112 ) Large    $(103 ) (11.1 )%

~~(a)~~

~~Includes inter-company and parent company accounting.~~

~~(b)~~

~~Represents the consolidated financial results of Con Edison and its businesses.~~

~~CECONY~~

Nine Months Ended
September 30, 2013

Nine Months Ended
September 30, 2012

(Millions of Dollars) Electric Gas Steam 2013
Total Electric Gas Steam 2012
Total 2013-2012
Variation
Operating revenues
$ 6,309    $ 1,190    $ 522    $ 8,021    $ 6,307    $ 1,017    $ 414    $ 7,738    $ 283
Purchased power
1,515    —    33    1,548    1,527    —    27    1,554    (6 )
Fuel
139    —    122    261    122    —    91    213    48
Gas purchased for resale
—    376    —    376    —    264    —    264    112
Net revenues
4,655    814    367    5,836    4,658    753    296    5,707    129
Operations and maintenance
1,681    262    159    2,102    1,691    242    132    2,065    37
Depreciation and amortization
559    97    49    705    527    89    48    664    41
Taxes, other than income taxes
1,108    183    79    1,370    1,057    167    76    1,300    70
Operating income
$ 1,307    $ 272    $ 80    $ 1,659    $ 1,383    $ 255    $ 40    $ 1,678    $(19 )


70

~~Electric~~

~~CECONY’s results of electric operations for the nine months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 6,309    $ 6,307    $ 2
Purchased power
1,515    1,527    (12 )
Fuel
139    122    17
Net revenues
4,655    4,658    (3 )
Operations and maintenance
1,681    1,691    (10 )
Depreciation and amortization
559    527    32
Taxes, other than income taxes
1,108    1,057    51
Electric operating income
$ 1,307    $ 1,383    $(76 )

~~CECONY’s electric sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2013 compared with the 2012 period were:~~

   Millions of kWhs Delivered Revenues in Millions
   Nine Months Ended    Nine Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
Residential/Religious^(a)
8,025    8,393    (368 ) (4.4 )% $ 2,154    $ 2,147    $ 7    0.3 %
Commercial/Industrial
7,488    7,561    (73 ) (1.0 ) 1,548    1,526    22    1.4
Retail access customers
20,238    19,768    470    2.4    2,073    2,117    (44 ) (2.1 )
NYPA, Municipal Agency and other sales
7,794    8,233    (439 ) (5.3 ) 474    477    (3 ) (0.6 )
Other operating revenues
—    —    —    —    60    40    20    50.0
Total
43,545    43,955    (410 ) (0.9 )% $ 6,309    $ 6,307    $ 2    — %

~~(a)~~

~~“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.~~

CECONY’s electric operating revenues increased $2 million in the nine months ended September 30, 2013 compared with the 2012 period due primarily to higher fuel costs ($17 million), offset in part by lower purchased power costs ($12 million) and lower revenues from the electric rate plan ($3 million, which includes a decrease of $45 million reflecting the use of certain regulatory liabilities in 2012 to offset a temporary surcharge under the electric rate plan). CECONY’s revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.


					71

Electric delivery volumes in CECONY’s service area decreased 0.9 percent in the nine months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 1.5 percent in the nine months ended September 30, 2013 compared with the 2012 period.

CECONY’s electric purchased power costs decreased $12 million in the nine months ended September 30, 2013 compared with the 2012 period due to a decrease in purchased volumes ($82 million), offset by an increase in unit costs ($70 million). Electric fuel costs increased $17 million in the nine months ended September 30, 2013 compared with the 2012 period due to higher unit costs ($16 million) and sendout volumes from the company’s electric generating facilities ($1 million).

CECONY’s electric operating income decreased $76 million in the nine months ended September 30, 2013 compared with the 2012 period. The decrease reflects primarily higher taxes other than income taxes ($51 million, principally property taxes), higher depreciation and amortization ($32 million), lower net revenues ($3 million, due primarily to the electric rate plan), offset in part by lower operations and maintenance costs ($10 million). Operations and maintenance expenses reflect a decrease in pension costs ($22 million) in the 2013 period as compared to the 2012 period when certain pension costs that were deferred from earlier periods were recognized under the electric rate plan, offset in part by higher operating costs attributable to weather-related events ($13 million).

~~Gas~~

~~CECONY’s results of gas operations for the nine months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 1,190    $ 1,017    $ 173
Gas purchased for resale
376    264    112
Net revenues
814    753    61
Operations and maintenance
262    242    20
Depreciation and amortization
97    89    8
Taxes, other than income taxes
183    167    16
Gas operating income
$ 272    $ 255    $ 17


72

~~CECONY’s gas sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2013 compared with the 2012 period were:~~

   Thousands of dths Delivered Revenues in Millions

Nine Months Ended
   Nine Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
Residential
28,795    24,590    4,205    17.1 % $ 542    $ 450    $ 92    20.4 %
General
21,515    18,012    3,503    19.4    253    211    42    19.9
Firm transportation
45,329    38,620    6,709    17.4    308    284    24    8.5
Total firm sales and transportation
95,639    81,222    14,417    17.8    1,103    945    158    16.7
Interruptible sales^(a)
7,956    4,542    3,414    75.2    40    24    16    66.7
NYPA
37,011    34,285    2,726    8.0    2    2    —    —
Generation plants
49,766    63,161    (13,395 ) (21.2 ) 19    23    (4 ) (17.4 )
Other
18,576    17,128    1,448    8.5    40    30    10    33.3
Other operating revenues
—    —    —    —    (14 ) (7 ) (7 ) Large
Total
208,948    200,338    8,610    4.3 % $ 1,190    $ 1,017    $ 173    17.0 %

~~(a)~~

~~Includes 3,727 and 461 thousands of dths for the 2013 and 2012 period, respectively, which are also reflected in firm transportation and other.~~

CECONY’s gas operating revenues increased $173 million in the nine months ended September 30, 2013 compared with the 2012 period due primarily to an increase in gas purchased for resale costs ($112 million) and higher revenues from the gas rate plan ($54 million). CECONY’s 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. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

CECONY’s sales and transportation volumes for firm customers increased 17.8 percent in the nine months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the company’s service area increased 3.2 percent in the nine months ended September 30, 2013.

CECONY’s purchased gas cost increased $112 million in the nine months ended September 30, 2013 compared with the 2012 period due to higher unit costs ($58 million) and sendout volumes ($54 million).

CECONY’s gas operating income increased $17 million in the nine months ended September 30, 2013 compared with the 2012 period. The increase reflects primarily higher net revenue ($61 million), offset by higher operations and maintenance expense ($20 million, due primarily to an increase in the surcharges for assessments and fees that are collected in revenues from customers ($25 million), offset in part by lower healthcare costs ($3 million)), higher taxes other than income taxes ($16 million, principally property taxes and local revenue taxes) and higher depreciation and amortization ($8 million).


					73

~~Steam~~

~~CECONY’s results of steam operations for the nine months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 522    $ 414    $ 108
Purchased power
33    27    6
Fuel
122    91    31
Net revenues
367    296    71
Operations and maintenance
159    132    27
Depreciation and amortization
49    48    1
Taxes, other than income taxes
79    76    3
Steam operating income
$ 80    $ 40    $ 40

~~CECONY’s steam sales and deliveries for the nine months ended September 30, 2013 compared with the 2012 period were:~~

   Millions of Pounds Delivered Revenues in Millions
   Nine Months Ended    Nine Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
General
400    308    92    29.9 % $ 24    $ 18    $ 6    33.3 %
Apartment house
4,630    3,858    772    20.0    146    112    34    30.4
Annual power
11,658    10,999    659    6.0    383    315    68    21.6
Other operating revenues
—    —    —    —    (31 ) (31 ) —    —
Total
16,688    15,165    1,523    10.0 % $ 522    $ 414    $ 108    26.1 %

~~CECONY’s steam operating revenues increased $108 million in the nine months ended September 30, 2013 compared with the 2012~~ period due primarily to the ~~weather~~ impact ~~on revenues~~of the LILO transactions ($44 million), higher fuel costs ($31 million), the net change in rates under the steam rate plans ($28 million) and higher purchased power costs ($6 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Steam sales and delivery volumes increased 10.0 percent in the nine months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 4.0 percent in the nine months ended September 30, 2013, reflecting lower average normalized use per customer.

CECONY’s steam fuel costs increased $31 million in the nine months ended September 30, 2013 compared with the 2012 period due to higher unit costs ($20 million) and sendout volumes ($11 million). Steam purchased power costs increased $6 million in the nine months ended September 30, 2013 compared with the 2012 period due to an increase in unit costs ($6 million).

~~Steam operating income increased $40 million in the nine months ended September 30, 2013 compared with the 2012 period. The increase reflects primarily higher net revenues ($71~~121 million), offset ~~in part~~ by ~~higher operations and maintenance expense~~net mark-to-market effects ($~~27 million, due primarily to higher pension expense~~25 million), lower gross margins ($219 million) and ~~higher surcharges for assessments and fees~~


74

~~that are collected in revenues from customers~~increased depreciation ($3 ~~million)), higher taxes other than income taxes ($3 million, principally local revenue taxes), and higher depreciation and amortization ($1~~ million).

Net Interest Expense

Net interest expense decreased ~~$18~~$139 million in the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 compared ~~with the 2012 period due primarily to lower interest charges on long-term debt and lower accrued interest as a result of certain federal income tax benefits. See Note I~~ to the ~~Third Quarter Financial Statements.~~

~~O&R~~

   Nine Months Ended
September 30, 2013
Nine Months Ended
September 30, 2012

(Millions of Dollars) Electric Gas
2013
Total
Electric Gas 2012
Total 2013-2012
Variation
Operating revenues
$ 492    $ 143    $ 635    $ 457    $ 144    $ 601    $ 34
Purchased power
169    —    169    150    —    150    19
Gas purchased for resale
—    50    50    —    48    48    2
Net revenues
323    93    416    307    96    403    13
Operations and maintenance
176    49    225    171    48    219    6
Depreciation and amortization
31    11    42    28    11    39    3
Taxes, other than income taxes
35    13    48    34    11    45    3
Operating income
$ 81    $ 20    $ 101    $ 74    $ 26    $ 100    $ 1

~~Electric~~

~~O&R’s results of electric operations for the nine months ended September 30,~~ 2013 ~~compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 492    $ 457    $ 35
Purchased power
169    150    19
Net revenues
323    307    16
Operations and maintenance
176    171    5
Depreciation and amortization
31    28    3
Taxes, other than income taxes
35    34    1
Electric operating income
$ 81    $ 74    $ 7


					75

~~O&R’s electric sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2013 compared with the 2012 period were:~~

   Millions of kWhs Delivered Revenues in Millions
   Nine Months Ended    Nine Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
Residential/Religious^(a)
1,235    1,297    (62 ) (4.8 )% $ 224    $ 210    $ 14    6.7 %
Commercial/Industrial
667    736    (69 ) (9.4 ) 100    94    6    6.4
Retail access customers
2,394    2,315    79    3.4    148    138    10    7.2
Public authorities
79    89    (10 ) (11.2 ) 8    7    1    14.3
Other operating revenues
—    —    —    —    12    8    4    50.0
Total
4,375    4,437    (62 ) (1.4 )% $ 492    $ 457    $ 35    7.7 %

~~(a)~~

~~“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.~~

O&R’s electric operating revenues increased $35 million in the nine months ended September 30, 2013 compared with the 2012 period due primarily to higher purchased power costs ($19 million) and higher revenues from the New York electric rate plan ($11 million). O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan.

Electric delivery volumes in O&R’s service area decreased 1.4 percent in the nine months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in O&R’s service area decreased 1.6 percent in the nine months ended September 30, 2013 compared with the 2012 period.

Electric operating income increased $7 million in the nine months ended September 30, 2013 compared with the 2012 period. The increase reflects primarily higher net revenues ($16 million), offset by higher operations and maintenance expense ($5 million, due primarily to an increase in the surcharges for assessments and fees that are collected in revenues from customers), higher depreciation and amortization ($3 million) and higher taxes other than income taxes ($1 million).

~~Gas~~

~~O&R’s results of gas operations for the nine months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 143    $ 144    $(1 )
Gas purchased for resale
50    48    2
Net revenues
93    96    (3 )
Operations and maintenance
49    48    1
Depreciation and amortization
11    11    —
Taxes, other than income taxes
13    11    2
Gas operating income
$ 20    $ 26    $(6 )


76

~~O&R’s gas sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2013 compared with the 2012 period were:~~

   Thousands of dths Delivered Revenues in Millions
   Nine Months Ended    Nine Months Ended
Description September 30,
2013 September 30,
2012 Variation Percent
Variation September 30,
2013 September 30,
2012 Variation Percent
Variation
Residential
4,894    4,114    780    19.0 % $ 66    $ 59    $ 7    11.9 %
General
1,066    827    239    28.9    12    10    2    20.0
Firm transportation
8,186    6,860    1,326    19.3    55    54    1    1.9
Total firm sales and transportation
14,146    11,801    2,345    19.9    133    123    10    8.1
Interruptible sales
3,116    3,250    (134 ) (4.1 ) 2    3    (1 ) (33.3 )
Generation plants
1,345    444    901    Large    —    —    —    —
Other
600    506    94    18.6    —    —    —    —
Other operating revenues
—    —    —    —    8    18    (10 ) (55.6 )
Total
19,207    16,001    3,206    20.0 % $ 143    $ 144    $(1 ) (0.7 )%

O&R’s gas operating revenues decreased $1 million in the nine months ended September 30, 2013 compared with the 2012 period due primarily to the gas rate plan, offset in part by the increase in gas purchased for resale ($2 million). O&R’s New York 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.

Sales and transportation volumes for firm customers increased 19.9 percent in the nine months ended September 30, 2013 compared with the 2012 period. After adjusting for variations, principally weather and billing days, total firm sales and transportation volumes increased 0.5 percent in the nine months ended September 30, 2013 compared with the 2012 period.

Gas operating income decreased $6 million in the nine months ended September 30, 2013 compared with the 2012 period. The decrease reflects primarily lower net revenues ($3 million), higher taxes other than income taxes ($2 million) and higher operations and maintenance expense ($1 million).

~~Income Taxes~~

~~Income taxes decreased $7 million in the nine months ended September 30, 2013 compared with the 2012 period due primarily to changes in estimates of accumulated deferred income taxes.~~


					77

~~Competitive Energy Businesses~~

~~The competitive energy businesses’ results of operations for the nine months ended September 30, 2013 compared with the 2012 period is as follows:~~

   Nine Months Ended
(Millions of Dollars) September 30,
2013 September 30,
2012 Variation
Operating revenues
$ 834    $ 954    $(120 )
Purchased power
705    736    (31 )
Gas purchased for resale
17    2    15
Net revenues
112    216    (104 )
Operations and maintenance
76    85    (9 )
Depreciation and amortization
16    6    10
Taxes, other than income taxes
13    14    (1 )
Operating income
$ 7    $ 111    $(104 )

The competitive energy businesses’ operating revenues decreased $120 million in the nine months ended September 30, 2013 compared with the 2012 period, due primarily to the impact of the termination of the LILO transactions ($27 million, see “Lease In/Lease Out Transactions” in Note H to the Third Quarter Financial Statements) and lower electric retail and wholesale revenues. Electric retail revenues decreased $87 million, due to lower sales volume ($115 million), offset by higher unit prices ($28 million). Electric wholesale revenues decreased $48 million in the nine months ended September 30, 2013 as compared with the 2012 period, due to lower sales volumes ($41 million) and unit prices ($7 million). Net mark-to-market values decreased $40 million in the nine months ended September 30, 2013 as compared with the 2012 period, of which $53 million in losses are reflected in purchased power costs and $13 million in gains are reflected in revenues. Solar revenues increased $31 million in the nine months ended September 30, 2013 as compared with the 2012 period reflecting an increase in solar energy projects in service. Other revenues decreased $2 million in the nine months ended September 30, 2013 as compared with the 2012 period.

Purchased power costs decreased $31 million in the nine months ended September 30, 2013 compared with the 2012 period, due primarily to lower volumes ($149 million), offset by higher unit prices ($65 million) and changes in mark-to-market values ($53 million).

Operating income decreased $104 million in 2013 compared with 2012 due primarily to net mark-to-market effects ($40 million), lower net revenues ($37 million) and the impact of the termination of the LILO transactions ($27 million).

~~Net Interest Expense~~

~~Net interest expense increased $132 million in the nine months ended September 30, 2013 compared with the 2012~~ period due primarily to the impact of the LILO ~~transactions.~~transactions in 2013. See ~~Notes H and~~Note I to the ~~Third~~First Quarter Financial Statements.


7852

Income ~~Taxes~~Tax Expense

Income taxes ~~decreased $112~~increased $105 million in the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 compared with the ~~2012~~2013 period due primarily to ~~lower income before income tax expense~~the impact of the LILO transactions in 2013 (see Note I to the First Quarter Financial Statements), and a tax benefit in 2013 resulting from the acceptance by the IRS of the company’s claim for manufacturing tax deductions (see Note IJ to the ~~Third~~First Quarter Financial Statements).

Other

For Con Edison, “Other” also includes inter-company eliminations relating to operating revenues and operating expenses.


					7953

Item 3: Quantitative and Qualitative Disclosures About Market Risk

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

Item 4: Controls and Procedures

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

There was no change in the Companies’ internal control over financial reporting that occurred during the Companies’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companies’ internal control over financial reporting.


8054

Part II Other Information

Item 1: Legal Proceedings

For information about certain legal proceedings affecting the Companies, see Notes B, G and H to the financial statements in Part I, Item 1 of this report, which information is incorporated herein by ~~reference and the following paragraphs.~~

~~CECONY - Superfund – Gowanus Canal~~

In September 2013, the U.S. Environmental Protection Agency (EPA) issued its record of decision for the Gowanus Canal Superfund Site. The EPA concluded that there was significant contamination at the site, including polycyclic aromatic hydrocarbons, polychlorinated biphenyls (PCBs), pesticides, metals, and volatile organic compounds. The EPA selected a remedy for the site that includes dredging, capping and disposal of contaminated sediments. The EPA estimated the cost of the selected remedy to be $506.1 million (and indicated the actual cost could be significantly higher or lower). The EPA has identified 35 potentially responsible parties (PRPs) with respect to the site, including CECONY (which the EPA indicated has facilities that may be a source of PCBs at the site). The EPA is seeking to have one or more of the PRPs, by December 2013, agree to perform the remedial design for the selected remedy. Absent such agreement, the EPA stated that it will proceed with its enforcement options, which may include performing the work itself (the cost of which the PRPs may be liable for) and/or requiring one or more of the PRPs to perform the remedial design. CECONY is unable to predict its exposure to liability with respect to the site.

~~O&R - Superfund - Newark Bay~~

In August 2013, O&R agreed to pay less than $100,000 to settle claims against O&R by Tierra Solutions, Inc. and Maxus Energy Corporation seeking equitable contribution for removal and cleanup costs, punitive damages, penalties, and economic losses allegedly arising from contamination allegedly released to the “Newark Bay Complex,” a system of waterways including Newark Bay, the Arthur Kill, the Kill Van Kull, and lower portions of the Passaic and Hackensack Rivers.reference.

Item 1A: Risk Factors

There were no material changes in the Companies’ risk factors compared to those disclosed in Item 1A of the Form 10-K other than the resolution of the Internal Revenue Service’s disallowance of substantial tax deductions taken by the company. See “Lease In/Lease Out Transactions” in Note H and Note I to the Third Quarter Financial Statements.10-K.


					8155

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

Period Total
Number of
Shares (or
Units)
Purchased*
Average
Price
Paid
per
Share
(or
Unit)
Total
Number of
Shares (or
Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs Maximum
Number (or
Appropriate
Dollar
Value) of
Shares (or
Units) that
May Yet Be
Purchased
Under the
Plans or
Programs
July 1, 2013 to July 31, 2013
187,066    $ 59.95    —    —
August 1, 2013 to August 31, 2013
45,964    58.20    —    —
September 1, 2013 to September 30, 2013
—    —    —    —
Total
233,030    $ 59.60    —    —


Period	Total Number of Shares (or Units) Purchased*		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2014 to January 31, 2014		108,160		$53.78		—		—
February 1, 2014 to February 28, 2014		81,536		54.13		—		—
March 1, 2014 to March 31, 2014		83,955		54.94		—		—
Total		273,651		$54.24		—		—

*	Represents Con Edison common shares purchased in open-market transactions. The number of shares purchased approximated the number of treasury shares used for the company’s employee stock plans.


8256

Item 6: Exhibits

CON EDISON



Exhibit ~~10.1.1~~		~~Consolidated Edison, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10 to Con Edison’s Current Report on Form 8-K, dated May 20, 2013 – File No. 1-14514).~~

~~Exhibit 10.1.2~~10.1		Form of Performance Unit Award for Certain Specified Officers under the Consolidated Edison, Inc. Long Term Incentive ~~Plan.~~

~~Exhibit 10.1.3~~		Extension Agreement, effective August 29, 2013, among CECONY, Con Edison, O&R, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10 to Con Edison’s Current Report on Form 8-K, dated August 29, 2013 – File No. 1-14514).

~~Exhibit 10.1.4~~		~~Extension Agreement, effective October 23, 2013, among CECONY, Con Edison, O&R, the lender party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.~~

~~Exhibit 10.1.5~~		~~Amendment, executed effective as of October 23, 2013, to The Consolidated Edison Retirement Plan.~~

~~Exhibit 10.1.6~~		~~Amendment, executed effective as of October 23, 2013, to The Consolidated Edison Thrift~~ Plan.

Exhibit 12.1		Statement of computation of Con Edison’s ratio of earnings to fixed charges for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ and the 12-month period ended December 31, ~~2012.~~2013.

Exhibit 31.1.1		Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.

Exhibit 31.1.2		Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.

Exhibit 32.1.1		Section 1350 Certifications – Chief Executive Officer.

Exhibit 32.1.2		Section 1350 Certifications – Chief Financial Officer.

Exhibit 101.INS		XBRL Instance Document.

Exhibit 101.SCH		XBRL Taxonomy Extension Schema.

Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase.

Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase.

Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase.


					8357

CECONY



Exhibit 3.2		By-laws of CECONY, effective May 19, 2014.

Exhibit 4.2		Form of CECONY’s 4.45% Debentures, Series 2014 A (incorporated by reference to Exhibit 4 to CECONY’s Current Report on Form 8-K, dated March 3, 2014 – File No. 1-1217).

Exhibit 12.2		Statement of computation of CECONY’s ratio of earnings to fixed charges for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ and the 12-month period ended December 31, ~~2012.~~2013.

Exhibit 31.2.1		Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.

Exhibit 31.2.2		Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.

Exhibit 32.2.1		Section 1350 Certifications – Chief Executive Officer.

Exhibit 32.2.2		Section 1350 Certifications – Chief Financial Officer.

Exhibit 101.INS		XBRL Instance Document.

Exhibit 101.SCH		XBRL Taxonomy Extension Schema.

Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase.

Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase.

Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, instruments defining the rights of holders of long-term debt of Con Edison’s subsidiaries other than CECONY, the total amount of which does not exceed ten percent of the total assets of Con Edison and its subsidiaries on a consolidated basis, are not filed as exhibits to Con Edison’s Form 10-K or Form 10-Q. Con Edison agrees to furnish to the SEC upon request a copy of any such instrument.


8458

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


					8559


*(Millions of Dollars)*	For the Three Months Ended September 30, 2013			For the Nine Months Ended September 30, 2013
Increase/(decrease) to non-utility operating revenues	$	44		$	(27	)
(Increase)/decrease to other interest expense		—			(131	)
Income tax benefit/(expense)		(18	)		63
Total increase/(decrease) in net income	$	26		$	(95	)


	Three Months Ended September 30,					Nine Months Ended September 30,
*(Millions of Dollars)*	2013		2012			2013			2012
CECONY		$401		$389			$831			$824
O&R		19		24			56			54
Competitive energy businesses (a)		40		31			(55	)		65
Other (b)		4		(4	)		(4	)		(12	)
Con Edison		$464		$440			$828			$931


	Three Months Variation						Nine Months Variation
	Earnings per Share			Net Income for Common Stock (Millions of Dollars)			Earnings per Share			Net Income for Common Stock (Millions of Dollars)
CECONY (a)
Rate plans (b)	$	(0.02	)	$	(5	)	$	0.16		$	48
Weather impact on steam revenues		(0.01	)		(2	)		0.09			27
Operations and maintenance expenses (b)		0.08			24			(0.07	)		(23	)
Depreciation, property taxes and other tax matters (c)		(0.05	)		(16	)		(0.18	)		(53	)
Other		0.04			11			0.03			8
Total CECONY		0.04			12			0.03			7
O&R		(0.01	)		(5	)		—			2
Competitive energy businesses (d)		0.03			9			(0.41	)		(120	)
Other, including parent company expenses (c)		0.02			8			0.03			8
Total variations	$	0.08		$	24			$(0.35	)		$(103	)


	Nine Months Ended September 30, 2013								Nine Months Ended September 30, 2012
*(Millions of Dollars)*	Electric		Gas		Steam		2013 Total		Electric		Gas		Steam		2012 Total		2013-2012 Variation
Operating revenues	$	6,309	$	1,190	$	522	$	8,021	$	6,307	$	1,017	$	414	$	7,738	$	283
Purchased power		1,515		—		33		1,548		1,527		—		27		1,554		(6	)
Fuel		139		—		122		261		122		—		91		213		48
Gas purchased for resale		—		376		—		376		—		264		—		264		112
Net revenues		4,655		814		367		5,836		4,658		753		296		5,707		129
Operations and maintenance		1,681		262		159		2,102		1,691		242		132		2,065		37
Depreciation and amortization		559		97		49		705		527		89		48		664		41
Taxes, other than income taxes		1,108		183		79		1,370		1,057		167		76		1,300		70
Operating income	$	1,307	$	272	$	80	$	1,659	$	1,383	$	255	$	40	$	1,678		$(19	)


	Nine Months Ended
*(Millions of Dollars)*	September 30, 2013		September 30, 2012		Variation
Operating revenues	$	6,309	$	6,307	$	2
Purchased power		1,515		1,527		(12	)
Fuel		139		122		17
Net revenues		4,655		4,658		(3	)
Operations and maintenance		1,681		1,691		(10	)
Depreciation and amortization		559		527		32
Taxes, other than income taxes		1,108		1,057		51
Electric operating income	$	1,307	$	1,383		$(76	)

CONSOLIDATED EDISON, INC.

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

DATE: ~~November 4, 2013~~May 8, 2014

/s/ Robert Hoglund

Robert Hoglund
Senior Vice President, Chief
Financial Officer and Duly
Authorized Officer