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ED > SEC Filings for ED > Form 10-Q on 4-Nov-2013All Recent SEC Filings

Show all filings for CONSOLIDATED EDISON INC

Form 10-Q for CONSOLIDATED EDISON INC


4-Nov-2013

Quarterly Report


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 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 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 about CECONY applies to Con Edison.

This MD&A should be read in conjunction with the Third 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 and 1-1217, the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies' combined Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2013 and June 30, 2013 (File Nos. 1-14514 and 1-1217).

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

Con Edison, incorporated in New York State in 1997, is a holding company 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.

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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 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.

CECONY

Electric

CECONY provides electric service to approximately 3.3 million customers in all of New York City (except 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 MMlbs of steam annually to approximately 1,717 customers in parts of Manhattan.


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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 and related hedging of electricity to retail and wholesale customers, sales of certain energy-related products and services, and participation in energy infrastructure projects. At September 30, 2013, Con Edison's equity investment in its competitive energy businesses was $466 million and their assets amounted to $1,277 million.

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
(Millions of Dollars, except                      Operating                   Net Income for                 Operating                 Net Income for
percentages)                                       Revenues                    Common Stock                   Revenues                  Common Stock                     Assets
CECONY                                         $2,893             83 %           $401        87 %         $8,021             84 %        $831        100 %            $37,375          89 %
O&R                                               226              7 %             19         4 %            635              7 %          56          7 %              2,613           6 %
Total Utilities                                 3,119             90 %            420        91 %          8,656             91 %         887        107 %             39,988          95 %
Con Edison Solutions (a)                          287              8 %              6         1 %            769              8 %           7          1 %                282           1 %
Con Edison Energy (a)                              12              - %              2         - %             46              1 %           3          - %                 71           - %
Con Edison Development (b)                         67              2 %             32         7 %             23              - %         (65 )       (8 )%               919           2 %
Other (c)                                          (1 )            - %              4         1 %             (7 )            - %          (4 )        - %                704           2 %
Total Con Edison                               $3,484            100 %           $464       100 %         $9,487            100 %        $828        100 %            $41,964         100 %

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

(b) Includes an after-tax gain/(charge) of $26 million and $(95) million relating to the lease in/lease out (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 Internal Revenue Service (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 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.


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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                  Nine Months
                                       Ended September 30,           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 Third Quarter Financial Statements). Also includes $4 million and $17 million of net after-tax mark-to-market gains for the three months ended September 30, 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 parent company accounting.

The Companies' results of operations for three and nine months ended September 30, 2013, as compared with the 2012 periods, reflect changes in the rate plans of Con Edison's utility subsidiaries, increases in certain operations and maintenance expenses, depreciation and property taxes and for the nine months ended September 30, 2013, the weather impact on steam revenues. The results of operations include the operating results of the competitive energy businesses, including net mark-to-market effects.

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


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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 as compared with the 2012 period, resulting from these and other major factors:

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

(a) Under the revenue decoupling mechanisms in CECONY's electric and gas rate plans and the weather-normalization clause applicable to the gas business, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Under CECONY's 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 variations include a decrease in revenues in the three and nine months ended September 30, 2013, as compared to the 2012 periods when revenues reflected the use 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 million or $0.03 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 I to the Third 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 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 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 to the Third Quarter Financial Statements) and reflect after-tax net mark-to-market gains of $12 million or $0.04 a share in 2013 and after-tax net mark-to-market gains of $35 million or $0.12 a share in 2012.

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 months ended September 30, 2013 and 2012 are summarized as follows:

Con Edison



                                                 Con Edison                                    CECONY
(Millions of Dollars)                2013          2012         Variance         2013          2012         Variance
Operating activities               $  1,238      $  1,638      $     (400 )    $  1,369      $  1,463      $      (94 )
Investing activities                 (1,895 )      (1,867 )           (28 )      (1,753 )      (1,483 )          (270 )
Financing activities                    337          (350 )           687            69          (326 )           395
Net change                             (320 )        (579 )           259          (315 )        (346 )            31
Balance at beginning of period          394           648            (254 )         353           372             (19 )
Balance at end of period           $     74      $     69      $        5      $     38      $     26      $       12


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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. 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.

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 months ended September 30, 2013 for Con Edison and CECONY were $400 million and $94 million lower, respectively, than in 2012. The decrease in net cash flows for Con Edison reflects a special deposit the company made with federal and state tax agencies relating primarily to the LILO transactions. See "Lease In/Lease Out Transactions" in Note H to the Third Quarter Financial Statements. The decrease in net cash flows is also due to the increased pension contributions 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.

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 million and $270 million higher, respectively, for the nine months ended September 30, 2013 compared with the 2012 period. The changes for Con Edison and CECONY reflect primarily increased utility construction expenditures in 2013. In addition, for Con Edison, the change reflects


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increased 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 million and $395 million higher, respectively, in the nine months ended September 30, 2013 compared with the 2012 period.

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, 2013 and 2012 and the average daily balances for the nine months ended September 30, 2013 and 2012 for Con Edison and CECONY were as follows:

                                                  2013                                2012
(Millions of Dollars, except         Outstanding at         Daily         Outstanding at         Daily
Weighted Average Yield)               September 30         average         September 30         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 %


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Other Changes in Assets and Liabilities

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



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

Prepayments

The increase in prepayments for Con Edison and CECONY reflects the portion allocable to the 2013 fourth quarter of CECONY's July 2013 payment of its New York City semi-annual property taxes.

Special Deposits, Accrued Taxes and Accrued Interest

The increases in Con Edison's special deposits, accrued taxes and accrued interest reflect the impact of the LILO transactions. See Notes H and I to the Third 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, in accordance with the accounting rules for retirement benefits. The change in the regulatory asset also reflects the amortization of accounting costs. The decrease in the noncurrent liability for pension and retiree benefits and the increase in notes payable reflect in part contributions to the plans made by the Utilities in 2013. See Notes B, E and F to the Third 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.


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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 . . .

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