ED 10-Q Quarterly Report June 30, 2012

ED 10-Q Quarter ended June 30, 2012

CONSOLIDATED EDISON INC

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10-Q 1 d363232d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

¨	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 filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨

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

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


Con Edison	Yes ¨	No x

CECONY	Yes ¨	No x

As of July 31, 2012, Con Edison had outstanding 292,892,396 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.
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
CO ₂		Carbon dioxide
GHG		Greenhouse gases
MGP Sites		Manufactured gas plant sites
PCBs		Polychlorinated biphenyls
PRP		Potentially responsible party
SO ₂		Sulfur dioxide
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes


2


Units of Measure
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, 2012
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2011
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, 2012
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 Financial Statements (Unaudited)		18
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		61
ITEM 4	Controls and Procedures		61
PART II—Other Information
ITEM 1	Legal Proceedings		62
ITEM 1A	Risk Factors		62
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		62
ITEM 6	Exhibits		63
	Signatures		64


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;

•

the Internal Revenue Service has disallowed substantial tax deductions taken by the company;

•

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 June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	*(Millions of Dollars/Except Share Data)*
OPERATING REVENUES
Electric		$2,090			$2,153			$3,952			$4,022
Gas		300			333			945			1,088
Steam		83			107			346			432
Non-utility		298			400			606			800
TOTAL OPERATING REVENUES		2,771			$2,993			5,849			6,342
OPERATING EXPENSES
Purchased power		729			1,020			1,510			1,886
Fuel		46			68			153			244
Gas purchased for resale		62			111			258			418
Operations and maintenance		790			732			1,539			1,429
Depreciation and amortization		236			219			469			437
Taxes, other than income taxes		433			445			884			904
TOTAL OPERATING EXPENSES		2,296			2,595			4,813			5,318
OPERATING INCOME		475			398			1,036			1,024
OTHER INCOME (DEDUCTIONS)
Investment and other income		2			10			10			19
Allowance for equity funds used during construction		2			2			2			6
Other deductions		(6	)		(7	)		(10	)		(10	)
TOTAL OTHER INCOME (DEDUCTIONS)		(2	)		5			2			15
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		473			403			1,038			1,039
INTEREST EXPENSE
Interest on long-term debt		149			146			295			293
Other interest		5			7			10			14
Allowance for borrowed funds used during construction		(1	)		(1	)		(1	)		(3	)
NET INTEREST EXPENSE		153			152			304			304
INCOME BEFORE INCOME TAX EXPENSE		320			251			734			735
INCOME TAX EXPENSE		106			83			240			252
NET INCOME		214			168			494			483
Preferred stock dividend requirements of subsidiary		—			(3	)		(3	)		(6	)
NET INCOME FOR COMMON STOCK		$ 214			$ 165			$ 491			$ 477
Net income for common stock per common share – basic		$ 0.73			$ 0.57			$ 1.68			$ 1.63
Net income for common stock per common share – diluted		$ 0.73			$ 0.56			$ 1.67			$ 1.62
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.605			$0.600			$1.210			$1.200
AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC (IN MILLIONS)		292.9			292.7			292.9			292.3
AVERAGE NUMBER OF SHARES OUTSTANDING – DILUTED (IN MILLIONS)		294.4			294.3			294.4			293.9

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 June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	*(Millions of Dollars)*
NET INCOME		$214			$168			$494			$483
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $(1) and $4 taxes in 2012 and $1 and $3 in taxes 2011, respectively		(1	)		2			6			5
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		(1	)		2			6			5
COMPREHENSIVE INCOME		$213			$170			$500			$488
Preferred stock dividend requirements of subsidiary		—			(3	)		(3	)		(6	)
COMPREHENSIVE INCOME FOR COMMON STOCK		$213			$167			$497			$482

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


					7


Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Six Months Ended June 30,
	2012			2011
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net Income		$ 494			$ 483
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		469			437
Deferred income taxes		146			181
Rate case amortization and accruals		22			29
Common equity component of allowance for funds used during construction		(2	)		(6	)
Net derivative gains		(31	)		(35	)
Other non-cash items (net)		(85	)		(38	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		89			72
Materials and supplies, including fuel oil and gas in storage		19			38
Other receivables and other current assets		17			69
Prepayments		(6	)		194
Accounts payable		(89	)		(76	)
Pensions and retiree benefits obligations		483			430
Pensions and retiree benefits contributions		(450	)		(502	)
Accrued taxes		(34	)		66
Accrued interest		19			—
Superfund and environmental remediation costs (net)		1			—
Deferred charges, noncurrent assets and other regulatory assets		116			125
Deferred credits and other regulatory liabilities		73			140
Other liabilities		(4	)		(18	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,247			1,589
INVESTING ACTIVITIES
Utility construction expenditures		(1,030	)		(952	)
Cost of removal less salvage		(85	)		(81	)
Non-utility construction expenditures		(43	)		(50	)
Proceeds from investment tax credits and grants related to renewable energy investments		25			4
Net investment in Pilesgrove solar project and other		28			—
Loan to affiliate		—			(50	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,105	)		(1,129	)
FINANCING ACTIVITIES
Net proceeds from short-term debt		800			—
Preferred stock redemption		(239	)		—
Retirement of long-term debt		(2	)		(3	)
Issuance of long-term debt		400			—
Issuance of common shares for stock plans, net of repurchases		(12	)		49
Debt issuance costs		(4	)		—
Common stock dividends		(349	)		(346	)
Preferred stock dividends		(3	)		(6	)
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES		591			(306	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		733			154
BALANCE AT BEGINNING OF PERIOD		648			338
BALANCE AT END OF PERIOD		$ 1,381			$ 492
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid/(refunded) during the period for:
Interest		$ 281			$ 282
Income taxes		$ 45			$ (155	)

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


8


Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2012		December 31, 2011
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 1,381		$ 648
Accounts receivable – customers, less allowance for uncollectible accounts of $86 and $87 in 2012 and 2011, respectively		1,034		1,123
Accrued unbilled revenue		493		474
Other receivables, less allowance for uncollectible accounts of $10 in 2012 and 2011		228		303
Fuel oil, gas in storage, materials and supplies, at average cost		337		356
Prepayments		151		145
Deferred tax assets – current		136		266
Regulatory assets		127		164
Other current assets		215		159
TOTAL CURRENT ASSETS		4,102		3,638
INVESTMENTS		451		455
UTILITY PLANT, AT ORIGINAL COST
Electric		21,757		21,114
Gas		4,930		4,734
Steam		2,019		1,983
General		2,093		1,944
TOTAL		30,799		29,775
Less: Accumulated depreciation		6,263		6,051
Net		24,536		23,724
Construction work in progress		1,048		1,241
NET UTILITY PLANT		25,584		24,965
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $64 and $59 in 2012 and 2011, respectively		102		89
Construction work in progress		48		39
NET PLANT		25,734		25,093
OTHER NONCURRENT ASSETS
Goodwill		429		429
Intangible assets, less accumulated amortization of $4 and $3 in 2012 and 2011, respectively		3		3
Regulatory assets		9,078		9,337
Other deferred charges and noncurrent assets		252		259
TOTAL OTHER NONCURRENT ASSETS		9,762		10,028
TOTAL ASSETS		$40,049		$39,214

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


					9


Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2012		December 31, 2011
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$ 1,231		$ 530
Notes payable		800		—
Accounts payable		813		955
Customer deposits		308		303
Accrued taxes		154		188
Accrued interest		179		160
Accrued wages		91		91
Fair value of derivative liabilities		110		169
Regulatory liabilities		233		118
Other current liabilities		461		473
TOTAL CURRENT LIABILITIES		4,380		2,987
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		158		181
Pensions and retiree benefits		4,385		4,835
Superfund and other environmental costs		539		489
Asset retirement obligations		147		145
Fair value of derivative liabilities		51		48
Other noncurrent liabilities		119		131
TOTAL NONCURRENT LIABILITIES		5,401		5,831
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		7,743		7,563
Regulatory liabilities		1,029		977
Other deferred credits		77		64
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		8,849		8,604
LONG-TERM DEBT		9,840		10,143
SHAREHOLDERS’ EQUITY
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)		11,579		11,436
Preferred stock of subsidiary		—		213
TOTAL SHAREHOLDERS’ EQUITY		11,579		11,649
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$40,049		$39,214

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)			Total
*(Millions of Dollars/Except Share Data)*	Shares			Amount		Additional Paid-In Capital		Retained Earnings			Shares			Amount			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
BALANCE AS OF DECEMBER 31, 2010		291,616,334			$31		$4,915		$7,220			23,210,700			$(1,001	)		$(64	)		$(40	)		$11,061
Net income for common stock									311															311
Common stock dividends									(175	)														(175	)
Issuance of common shares – dividend reinvestment and employee stock plans		656,049			1		30																	31
Other comprehensive income																					3			3
BALANCE AS OF MARCH 31, 2011		292,272,383			$32		$4,945		$7,356			23,210,700			$(1,001	)		$(64	)		$(37	)		$11,231
Net income for common stock									165															165
Common stock dividends									(175	)														(175	)
Issuance of common shares – dividend reinvestment and employee stock plans		603,513					32					(182,942	)		5									37
Common stock repurchases												178,942			(9	)								(9	)
Other comprehensive income																					2			2
BALANCE AS OF JUNE 30, 2011		292,875,896			$32		$4,977		$7,346			23,206,700			$(1,005	)		$(64	)		$(35	)		$11,251
BALANCE AS OF DECEMBER 31, 2011		292,888,521			$32		$4,991		$7,568			23,194,075			$(1,033	)		$(64	)		$(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

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 June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	*(Millions of Dollars)*
OPERATING REVENUES
Electric		$1,961			$2,013			$3,696			$3,734
Gas		265			296			828			959
Steam		83			107			346			432
TOTAL OPERATING REVENUES		2,309			2,416			4,870			5,125
OPERATING EXPENSES
Purchased power		504			621			950			1,104
Fuel		46			68			154			244
Gas purchased for resale		50			92			219			355
Other operations and maintenance		693			631			1,339			1,227
Depreciation and amortization		221			205			439			410
Taxes, other than income taxes		415			429			844			868
TOTAL OPERATING EXPENSES		1,929			2,046			3,945			4,208
OPERATING INCOME		380			370			925			917
OTHER INCOME (DEDUCTIONS)
Investment and other income		1			4			5			9
Allowance for equity funds used during construction		1			2			1			5
Other deductions		(5	)		(6	)		(8	)		(9	)
TOTAL OTHER INCOME (DEDUCTIONS)		(3	)		—			(2	)		5
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		377			370			923			922
INTEREST EXPENSE
Interest on long-term debt		135			131			266			263
Other interest		5			5			10			10
Allowance for borrowed funds used during construction		(1	)		(1	)		(1	)		(3	)
NET INTEREST EXPENSE		139			135			275			270
INCOME BEFORE INCOME TAX EXPENSE		238			235			648			652
INCOME TAX EXPENSE		75			75			209			220
NET INCOME		163			160			439			432
Preferred stock dividend requirements		—			(3	)		(3	)		(6	)
NET INCOME FOR COMMON STOCK		$ 163			$ 157			$ 436			$ 426

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 June 30,					For the Six Month Ended June 30,
	2012			2011		2012			2011
	*(Millions of Dollars)*
NET INCOME		$163			$160		$439			$432
OTHER COMPREHENSIVE LOSS, NET OF TAXES
Pension plan liability adjustments, net of $(1) taxes in 2012		(2	)		—		(2	)		—
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAXES		(2	)		—		(2	)		—
COMPREHENSIVE INCOME		$161			$160		$437			$432

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 Six Months Ended June 30,
	2012			2011
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net income		$ 439			$ 432
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		439			410
Deferred income taxes		106			146
Rate case amortization and accruals		22			29
Common equity component of allowance for funds used during construction		(1	)		(5	)
Other non-cash items (net)		(37	)		37
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		63			74
Materials and supplies, including fuel oil and gas in storage		18			36
Other receivables and other current assets		(8	)		207
Prepayments		5			9
Accounts payable		(57	)		(56	)
Pensions and retiree obligations		422			393
Pensions and retiree contributions		(450	)		(502	)
Accrued taxes		(3	)		21
Accrued interest		7			—
Superfund and environmental remediation costs (net)		(1	)		—
Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets		59			65
Deferred credits and other regulatory liabilities		70			138
Other liabilities		12			(9	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,105			1,425
INVESTING ACTIVITIES
Utility construction expenditures		(974	)		(905	)
Cost of removal less salvage		(83	)		(78	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,057	)		(983	)
FINANCING ACTIVITIES
Net proceeds from short-term debt		800			—
Preferred stock redemption		(239	)		—
Issuance of long-term debt		400			—
Debt issuance costs		(4	)		—
Dividend to parent		(341	)		(340	)
Preferred stock dividends		(3	)		(6	)
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES		613			(346	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		661			96
BALANCE AT BEGINNING OF PERIOD		372			78
BALANCE AT END OF PERIOD		$ 1,033			$ 174
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid/(refunded) during the period for:
Interest		$ 252			$ 253
Income taxes		$ 45			$ (128	)

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


14


Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET(UNAUDITED)


	June 30, 2012		December 31, 2011
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 1,033		$ 372
Accounts receivable – customers, less allowance for uncollectible accounts of $79 in 2012 and 2011		914		977
Other receivables, less allowance for uncollectible accounts of $9 in 2012 and 2011		104		102
Accrued unbilled revenue		389		366
Accounts receivable from affiliated companies		46		54
Fuel oil, gas in storage, materials and supplies, at average cost		290		308
Prepayments		80		85
Regulatory assets		104		140
Deferred tax assets – current		81		157
Other current assets		115		100
TOTAL CURRENT ASSETS		3,156		2,661
INVESTMENTS		193		177
UTILITY PLANT AT ORIGINAL COST
Electric		20,492		19,886
Gas		4,376		4,200
Steam		2,019		1,983
General		1,933		1,785
TOTAL		28,820		27,854
Less: Accumulated depreciation		5,718		5,523
Net		23,102		22,331
Construction work in progress		982		1,165
NET UTILITY PLANT		24,084		23,496
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $24 in 2012 and 2011		5		6
NET PLANT		24,089		23,502
OTHER NONCURRENT ASSETS
Regulatory assets		8,457		8,661
Other deferred charges and noncurrent assets		214		217
TOTAL OTHER NONCURRENT ASSETS		8,671		8,878
TOTAL ASSETS		$36,109		$35,218

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


					15


Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2012		December 31, 2011
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$ 1,225		$ 525
Notes payable		800		—
Accounts payable		666		774
Accounts payable to affiliated companies		20		16
Customer deposits		296		290
Accrued taxes		19		32
Accrued taxes to affiliated companies		136		126
Accrued interest		140		133
Accrued wages		83		81
Fair value of derivative liabilities		62		98
Regulatory liabilities		202		79
Other current liabilities		393		396
TOTAL CURRENT LIABILITIES		4,042		2,550
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		151		173
Pensions and retiree benefits		3,917		4,337
Superfund and other environmental costs		423		373
Asset retirement obligations		147		145
Fair value of derivative liabilities		22		24
Other noncurrent liabilities		111		120
TOTAL NONCURRENT LIABILITIES		4,773		5,174
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		7,081		6,921
Regulatory liabilities		906		861
Other deferred credits		74		61
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		8,061		7,843
LONG-TERM DEBT		8,919		9,220
SHAREHOLDER’S EQUITY
Common shareholder’s equity (See Statement of Common Shareholder’s Equity)		10,314		10,218
Preferred stock		—		213
TOTAL SHAREHOLDER’S EQUITY		10,314		10,431
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$36,109		$35,218

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		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
BALANCE AS OF DECEMBER 31, 2010		235,488,094		$589		$4,234		$6,132			$(962	)		$(64	)		$ (6	)		$ 9,923
Net income								271												271
Common stock dividend to parent								(170	)											(170	)
Cumulative preferred dividends								(3	)											(3	)
Other comprehensive income																	—			—
BALANCE AS OF MARCH 31, 2011		235,488,094		$589		$4,234		$6,230			$(962	)		$(64	)		$ (6	)		$10,021
Net income								160												160
Common stock dividend to parent								(170	)											(170	)
Cumulative preferred dividends								(3	)											(3	)
Other comprehensive income																	—			—
BALANCE AS OF JUNE 30, 2011		235,488,094		$589		$4,234		$6,217			$(962	)		$(64	)		$ (6	)		$10,008
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

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, 2011 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012. Certain prior period amounts have been reclassified to conform to the current period presentation.

Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania 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 retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply and services company; 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

Earnings Per Common Share

For the three and six months ended June 30, 2012 and 2011, basic and diluted EPS for Con Edison are calculated as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
*(Millions of Dollars, except per share amounts/Shares in Millions)*	2012		2011		2012		2011
Net income for common stock		$ 214		$ 165		$ 491		$ 477
Weighted average common shares outstanding – Basic		292.9		292.7		292.9		292.3
Add: Incremental shares attributable to effect of potentially dilutive securities		1.5		1.6		1.5		1.6
Adjusted weighted average common shares outstanding – Diluted		294.4		294.3		294.4		293.9
Net income for common stock per common share – basic		$ 0.73		$ 0.57		$ 1.68		$ 1.63
Net income for common stock per common share – diluted		$ 0.73		$ 0.56		$ 1.67		$ 1.62

Note B — Regulatory Matters

Rate Agreements

CECONY — Electric

In March 2012, the NYSPSC issued an order requiring that the $134 million surcharge that was to have been collected from customers during the rate year ending March 2013 instead be offset using certain CECONY regulatory liabilities that would have otherwise been refundable to or applied for the benefit of customers after the rate year.

O&R — Electric

On February 24, 2012, O&R, the staff of the NYSPSC and the Utility Intervention Unit of New York State’s Division of Consumer Protection entered into a Joint Proposal with respect to the Company’s rates for electric delivery service rendered in New York. The Joint Proposal, which the NYSPSC approved in June 2012, covers the three-year period from July 2012 through June 2015. The Joint Proposal provides for electric base rate increases of $19.4 million, $8.8 million and $15.2 million, effective July 2012, 2013 and 2014, respectively, which is being implemented, at the NYSPSC’s option, with increases of $15.2 million effective July 2012 and 2013 and an increase of $13.1 million, together with a surcharge of $2.1 million, effective July 2014. The Joint Proposal reflects the following major items:

•

a weighted average cost of capital of 7.61 percent, 7.65 percent and 7.48 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively, reflecting:

•

a return on common equity of 9.4 percent, 9.5 percent and 9.6 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively;

•

cost of long-term debt of 6.07 percent for each of the rate years ending June 30, 2013 and 2014 and 5.64 percent for the rate year ending June 30, 2015;

•

common equity ratio of 48 percent for each of the rate years ending June 30, 2013, 2014 and 2015; and

•

average rate base of $671 million, $708 million and $759 million for the rate years ending June 30, 2013, 2014 and 2015, respectively;

•

sharing with electric customers of any actual earnings, excluding the effects of any penalties and certain other items, above specified percentage returns on common equity (based on the actual average common equity ratio, subject to a 50 percent maximum):

•

the company will allocate to customers the revenue requirement equivalent of 50 percent, 75 percent and 90 percent of any such earnings for each rate year in excess of 80 basis points, 180 basis points and 280 basis points, respectively, above the return on common equity for that rate year indicated above; and

•

the earnings sharing allocation between the company and customers will be done on a cumulative basis at the end of rate year three;

•

continuation of a revenue decoupling mechanism;


					19

•

continuation of a provision which defers as a regulatory liability for the benefit of customers or, subject to certain limitations, a regulatory asset for recovery from customers, as the case may be, the revenue requirement impact of the amount by which actual average net utility plant for each rate year is different than the average net utility plant reflected in rates ($678 million, $704 million and $753 million for the rate years ending June 30, 2013, 2014 and 2015, respectively);

•

continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

•

continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs, property taxes and certain other expenses are reconciled to amounts for those expenses reflected in rates; and

•

continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see “Investigations of Vendor Payments” in Note H). 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. At June 30, 2012, the company had collected an estimated $959 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSC’s consultant is expected to continue to review the company’s expenditures. At June 30, 2012, the company had a $15 million regulatory liability relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability.

In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note G.


20

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2012 and December 31, 2011 were comprised of the following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Regulatory assets
Unrecognized pension and other postretirement costs		$5,407		$5,852		$5,159		$5,554
Future income tax		1,874		1,798		1,796		1,724
Environmental remediation costs		730		681		615		564
Pension and other postretirement benefits deferrals		214		198		183		157
Revenue taxes		169		163		163		158
Deferred storm costs		121		128		78		80
Net electric deferrals		111		121		111		121
Surcharge for New York State assessment		87		90		80		82
Deferred derivative losses – long-term		70		60		45		44
O&R transition bond charges		42		44		—		—
Preferred stock redemption		30		—		30		—
Workers’ compensation		21		23		20		23
Property tax reconciliation		13		13		—		—
Recoverable energy costs – long-term		—		14		—		14
Other		189		152		177		140
Regulatory assets – long-term		9,078		9,337		8,457		8,661
Deferred derivative losses – current		126		164		104		140
Recoverable energy costs – current		1		—		—		—
Regulatory assets – current		127		164		104		140
Total Regulatory Assets		$9,205		$9,501		$8,561		$8,801
Regulatory liabilities
Allowance for cost of removal less salvage		$ 468		$ 448		$ 389		$ 372
Net unbilled revenue deferrals		140		104		140		104
Property tax reconciliation		97		35		97		35
World Trade Center settlement proceeds		72		62		72		62
Long-term interest rate reconciliation		46		30		46		30
Carrying charges on transmission and distribution net plant		41		38		19		14
Gas line losses		17		21		17		21
Expenditure prudence proceeding		15		11		15		11
Energy efficiency programs		8		22		5		20
Other		125		206		106		192
Regulatory liabilities – long-term		1,029		977		906		861
Electric surcharge offset		104		—		104		—
Refundable energy costs – current		69		51		38		12
Revenue decoupling mechanism		59		66		59		66
Deferred derivative gains – current		1		1		1		1
Regulatory liabilities – current		233		118		202		79
Total Regulatory Liabilities		$1,262		$1,095		$1,108		$ 940

Note C — Capitalization

In March 2012, CECONY issued $400 million of 4.20 percent 30-year debentures, $239 million of the net proceeds from the sale of which were used to redeem on May 1, 2012 all outstanding shares of its $5 Cumulative Preferred Stock and Cumulative Preferred Stock ($100 par value).

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


*(Millions of Dollars)*	June 30, 2012				December 31, 2011
Long-Term Debt (including current portion)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Con Edison		$11,071		$13,310		$10,673		$12,744
CECONY		$10,144		$12,135		$ 9,745		$11,593


					21

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,674 million and $636 million of the fair value of long-term debt at June 30, 2012 are classified as Level 2 and Level 3, respectively. For CECONY, $11,499 million and $636 million of the fair value of long-term debt at June 30, 2012 are classified as Level 2 and Level 3, respectively (see Note K). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing

At June 30, 2012, Con Edison had $800 million of commercial paper outstanding, all of which was outstanding under CECONY’s program. The weighted average interest rate was 0.4 percent for each of Con Edison and CECONY. The Companies have not borrowed under their October 2011 credit agreement. Con Edison had $252 million of letters of credit outstanding under the credit agreement (including $237 million for CECONY).

Note E — Pension Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and six months ended June 30, 2012 and 2011 were as follows:


	For the Three Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost – including administrative expenses		$ 59			$ 47			$ 55			$ 44
Interest cost on projected benefit obligation		137			140			128			131
Expected return on plan assets		(177	)		(183	)		(168	)		(175	)
Amortization of net actuarial loss		177			132			168			125
Amortization of prior service costs		2			2			2			2
NET PERIODIC BENEFIT COST		$ 198			$ 138			$ 185			$ 127
Amortization of regulatory asset		1			1			1			1
TOTAL PERIODIC BENEFIT COST		$ 199			$ 139			$ 186			$ 128
Cost capitalized		(68	)		(48	)		(63	)		(45	)
Reconciliation to rate level		3			(6	)		2			(7	)
Cost charged to operating expenses		$ 134			$ 85			$ 125			$ 76


	For the Six Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost – including administrative expenses		$ 118			$ 94			$ 110			$ 88
Interest cost on projected benefit obligation		274			280			257			262
Expected return on plan assets		(352	)		(366	)		(335	)		(350	)
Amortization of net actuarial loss		354			264			335			250
Amortization of prior service costs		4			4			3			4
NET PERIODIC BENEFIT COST		$ 398			$ 276			$ 370			$ 254
Amortization of regulatory asset		1			1			1			1
TOTAL PERIODIC BENEFIT COST		$ 399			$ 277			$ 371			$ 255
Cost capitalized		(135	)		(96	)		(126	)		(89	)
Reconciliation to rate level		(32	)		(57	)		(36	)		(59	)
Cost charged to operating expenses		$ 232			$ 124			$ 209			$ 107


22

Expected Contributions

The Companies expect to make contributions to the pension plan during 2012 of $775 million (of which $721 million is to be contributed by CECONY). During the first six months of 2012, CECONY contributed $438 million to the pension plan and also funded $12 million for the non-qualified supplemental plan. The Companies’ policy is to fund their accounting cost to the extent tax deductible.

Note F — Other Postretirement Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and six months ended June 30, 2012 and 2011 were as follows:


	For the Three Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost		$ 6			$ 6			$ 5			$ 5
Interest cost on accumulated other postretirement benefit obligation		18			21			15			18
Expected return on plan assets		(21	)		(22	)		(18	)		(19	)
Amortization of net actuarial loss		24			22			21			20
Amortization of prior service cost		(5	)		(2	)		(4	)		(3	)
Amortization of transition obligation		1			1			1			1
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 23			$ 26			$ 20			$ 22
Cost capitalized		(8	)		(9	)		(7	)		(8	)
Reconciliation to rate level		5			4			4			4
Cost charged to operating expenses		$ 20			$ 21			$ 17			$ 18


	For the Six Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost		$ 13			$ 12			$ 10			$ 10
Interest cost on accumulated other postretirement benefit obligation		36			42			32			36
Expected return on plan assets		(42	)		(44	)		(38	)		(38	)
Amortization of net actuarial loss		49			44			44			40
Amortization of prior service cost		(11	)		(4	)		(9	)		(6	)
Amortization of transition obligation		1			2			1			2
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 46			$ 52			$ 40			$ 44
Cost capitalized		(16	)		(18	)		(14	)		(15	)
Reconciliation to rate level		14			9			8			7
Cost charged to operating expenses		$ 44			$ 43			$ 34			$ 36

Expected Contributions

Con Edison expects to make a contribution of $83 million, including $71 million for CECONY, to the other postretirement benefit plans in 2012.

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


					23

for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

The accrued liabilities and regulatory assets related to Superfund Sites at June 30, 2012 and December 31, 2011 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Accrued Liabilities:
Manufactured gas plant sites		$469		$422		$354		$307
Other Superfund Sites		70		67		69		66
Total		$539		$489		$423		$373
Regulatory assets		$730		$681		$615		$564

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, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs. In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover such costs and possible alternatives.

Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three and six months ended June 30, 2012 and 2011, were as follows:


	For the Three Months Ended June 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Remediation costs incurred		$8		$10		$7		$8
Insurance recoveries received		—		—		—		—


	For the Six Months Ended June 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Remediation costs incurred		$15		$16		$14		$14
Insurance recoveries received		—		—		—		—

In 2010, 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 environmental contaminants could range up to $1.9 billion. In 2010, 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 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


24

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, CECONY estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was 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, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at June 30, 2012 and December 31, 2011 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Accrued liability – asbestos suits	$	10	$	10	$	10	$	10
Regulatory assets – asbestos suits	$	10	$	10	$	10	$	10
Accrued liability – workers’ compensation	$	95	$	98	$	91	$	93
Regulatory assets – workers’ compensation	$	21	$	23	$	20	$	23

Note H — Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 93 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover most of the company’s costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

Investigations of Vendor Payments

In January 2009, CECONY commenced an internal investigation relating to the arrests of certain employees and retired employees (all of whom have since been convicted) for accepting kickbacks from contractors that performed construction work for the company. The company has retained a law firm, which has retained an accounting firm, to assist in the company’s investigation. The company has provided information to governmental authorities, which consider the company to be a victim of unlawful conduct, in connection with their investigation of the arrested employees and contractors. The company has terminated its employment of the arrested employees and its contracts with the contractors. In February 2009, the NYSPSC commenced a proceeding that, among other things, will examine the prudence of certain of the company’s expenditures relating to the arrests and consider whether additional expenditures should also be examined (see “Other Regulatory Matters” in Note B).

CECONY is also investigating the September 2010 arrest of a retired employee (who has since been convicted of participating in a bribery scheme in which the employee received payments from two companies that supplied materials to the company) and the January 2011 arrest of an employee (for accepting kickbacks from an engineering firm that performed work for the company). CECONY has provided information to governmental authorities in connection with their ongoing investigations of these matters.

The company, based upon its evaluation of its internal controls for 2011 and previous years, believes that the controls were effective to provide reasonable assurance that its financial statements have been fairly presented,


					25

in all material respects, in conformity with generally accepted accounting principles. Because the company’s investigations are ongoing, the company is unable to predict the impact of any of the employees’ unlawful conduct on the company’s internal controls, business, results of operations or financial position.

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involve electric generating and gas distribution facilities in the Netherlands, with a total investment 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 is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. The company’s investment in these leveraged leases was $(69) million at June 30, 2012 and $(55) million at December 31, 2011 and is comprised of a $228 million gross investment less $297 million of deferred tax liabilities at June 30, 2012 and $234 million gross investment less $289 million of deferred tax liabilities at December 31, 2011.

On audit of Con Edison’s tax return for 1997, the IRS disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect 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 this tax payment 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. The IRS appealed the decision in December 2011.

In connection with its audit of Con Edison’s federal income tax returns for 1998 through 2007, the IRS disallowed $416 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. Con Edison is pursuing administrative appeals of these audit level disallowances. In connection with its audit of Con Edison’s federal income tax returns for 2010, 2009 and 2008, the IRS has disallowed $40 million, $41 million and $42 million, respectively, of net tax deductions taken with respect to both of the LILO transactions. When these audit level disallowances become appealable, Con Edison intends to file an appeal of the disallowances.

Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edison’s estimated tax savings, reflected in its financial statements, from the two LILO transactions through June 30, 2012, in the aggregate, was $244 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $118 million net of tax at June 30, 2012.

Pursuant to the accounting rules for leveraged lease transactions, the expected timing of income tax cash flows generated by Con Edison’s LILO transactions are required to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the company’s results of operations.


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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 $795 million and $760 million at June 30, 2012 and December 31, 2011, respectively.

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2012 is as follows:


Guarantee Type	0 – 3 years		4 – 10 years		> 10 years		Total
	*(Millions of Dollars)*
Energy transactions		$658		$12		$66		$736
Intra-company guarantees		15		—		1		16
Other guarantees		38		5		—		43
TOTAL		$711		$17		$67		$795

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 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.

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:

•

$7 million relates 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;

•

$11 million for guarantees provided by Con Edison Development to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar facilities performed by its subsidiaries; and

•

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 a retail electric provider. Con Edison’s estimate of the maximum potential obligation is $5 million as of June 30, 2012.


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Note I — Financial Information by Business Segment

The financial data for the business segments are as follows:


	For the Three Months Ended June 30,
	Operating revenues						Inter-segment revenues						Depreciation and amortization				Operating income
*(Millions of Dollars)*	2012			2011			2012			2011			2012		2011		2012			2011
CECONY
Electric		$1,961			$2,013			$ 4			$ 3			$175		$162		$348			$350
Gas		265			296			2			1			30		27		54			31
Steam		83			107			19			20			16		16		(22	)		(11	)
Consolidation adjustments		—			—			(25	)		(24	)		—		—		—			—
Total CECONY		$2,309			$2,416			$ —			$ —			$221		$205		$380			$370
O&R
Electric		$ 129			$ 141			$ —			$ —			$ 9		$ 8		$ 16			$ 14
Gas		35			37			—			—			4		4		1			1
Total O&R		$ 164			$ 178			$ —			$ —			$ 13		$ 12		$ 17			$ 15
Competitive energy businesses		$ 300			$ 406			$ 2			$ 2			$ 2		$ 2		$ 78			$ 14
Other*		(2	)		(7	)		(2	)		(2	)		—		—		—			(1	)
Total Con Edison		$2,771			$2,993			$ —			$ —			$236		$219		$475			$398

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


	For the Six Months Ended June 30,
	Operating revenues						Inter-segment revenues						Depreciation and amortization				Operating income
*(Millions of Dollars)*	2012			2011			2012			2011			2012		2011		2012			2011
CECONY
Electric		$3,696			$3,734			$ 7			$ 6			$348		$324		$ 573			$ 566
Gas		828			959			3			2			59		54		275			237
Steam		346			432			38			40			32		32		77			114
Consolidation adjustments		—			—			(48	)		(48	)		—		—		—			—
Total CECONY		$4,870			$5,125			$ —			$ —			$439		$410		$ 925			$ 917
O&R
Electric		$ 257			$ 289			$ —			$ —			$ 19		$ 17		$ 24			$ 25
Gas		117			130			—			—			7		7		31			28
Total O&R		$ 374			$ 419			$ —			$ —			$ 26		$ 24		$ 55			$ 53
Competitive energy businesses		$ 610			$ 814			$ 4			$ 5			$ 4		$ 3		$ 59			$ 58
Other*		(5	)		(16	)		(4	)		(5	)		—		—		(3	)		(4	)
Total Con Edison		$5,849			$6,342			$ —			$ —			$469		$437		$1,036			$1,024

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

Note J — 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. The fair values of the Companies’ commodity derivatives at June 30, 2012 and December 31, 2011 were as follows:


	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Fair value of net derivative assets/(liabilities) – gross		$(195	)		$(249	)		$(111	)		$(144	)
Impact of netting of cash collateral		102			110			51			46
Fair value of net derivative assets/(liabilities) – net		$ (93	)		$(139	)		$ (60	)		$ (98	)


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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. 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.

At June 30, 2012, Con Edison and CECONY had $112 million and $12 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $37 million with investment-grade counterparties, $34 million with commodity exchange brokers, $39 million with independent system operators and $2 million with non-rated counterparties. CECONY’s net credit exposure consisted of $1 million with investment-grade counterparties and $11 million with commodity exchange brokers.

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 June 30, 2012 were:


*(Millions of Dollars)*	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 118			$ 22
Long-term	Other deferred charges and non-current assets		22			9
Total derivative assets			$ 140			$ 31
Impact of netting			(79	)		(6	)
Net derivative assets			$ 61			$ 25
Derivative Liabilities
Current	Fair value of derivative liabilities		$ 253			$ 96
Long-term	Fair value of derivative liabilities		82			46
Total derivative liabilities			$ 335			$142
Impact of netting			(181	)		(57	)
Net derivative liabilities			$ 154			$ 85

(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 fair values of the Companies’ commodity derivatives at December 31, 2011 were:


*(Millions of Dollars)*	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$139			$ 16
Long-term	Other deferred charges and non-current assets		26			14
Total derivative assets			$165			$ 30
Impact of netting			(95	)		(6	)
Net derivative assets			$ 70			$ 24
Derivative Liabilities
Current	Fair value of derivative liabilities		$331			$127
Long-term	Fair value of derivative liabilities		83			48
Total derivative liabilities			$414			$175
Impact of netting			(205	)		(53	)
Net derivative liabilities			$209			$122

(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.


					29

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, 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 the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2012:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 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		$ (1)			$ (1)
Total deferred gains			$ (1)			$ (1)
Current	Deferred derivative losses		$ 66			$ 55
Current	Recoverable energy costs		(63	)		(56	)
Long-term	Deferred derivative losses		8			16
Total deferred losses			$ 11			$ 15
Net deferred gains/(losses)			$ 10			$ 14
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 27	(b)		$ —
	Gas purchased for resale		(1	)		—
	Non-utility revenue		(8	)(b)		—
Total pre-tax gain/(loss) recognized in income			$ 18			$ —

(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 June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(9) million and $72 million, respectively.


Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 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		$ —			$ —
Total deferred gains			$ —			$ —
Current	Deferred derivative losses		$ 38			$ 36
Current	Recoverable energy costs		(127	)		(112	)
Long-term	Deferred derivative losses		(11	)		(1	)
Total deferred losses			$(100	)		$ (77	)
Net deferred gains/(losses)			$(100	)		$ (77	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ (59	)(b)		$ —
	Gas purchased for resale		(2	)		—
	Non-utility revenue		(11	)(b)		—
Total pre-tax gain/(loss) recognized in income			$ (72	)		$ —

(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 six months ended June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(13) million and $45 million, respectively.


30

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2011:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 30, 2011
*(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		$ (4)			$ (4)
Long-term	Regulatory liabilities		(1	)		—
Total deferred gains			$ (5)			$ (4)
Current	Deferred derivative losses		$ 25			$ 18
Current	Recoverable energy costs		(53	)		(39	)
Long-term	Regulatory assets		12			9
Total deferred losses			$ (16)			$ (12)
Net deferred gains/(losses)			$ (21)			$ (16)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 73	(b)		$ —
	Gas purchased for resale		17			—
	Non-utility revenue		7	(b)		—
Total pre-tax gain/(loss) recognized in income			$ 97			$ —

(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 June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(12) million and $10 million, respectively.


Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 30, 2011
*(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		$ 2			$ 1
Long-term	Regulatory liabilities		2			2
Total deferred gains			$ 4			$ 3
Current	Deferred derivative losses		$ 69			$ 53
Current	Recoverable energy costs		(102	)		(81	)
Long-term	Regulatory assets		28			20
Total deferred losses			$ (5	)		$ (8	)
Net deferred losses			$ (1	)		$ (5	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 52	(b)		$ —
	Gas purchased for resale		11			—
	Non-utility revenue		17	(b)		—
Total pre-tax gain/(loss) recognized in income			$ 80			$ —

(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 six months ended June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax loss/(gain) of $(25) million and $60 million, respectively.


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As of June 30, 2012, Con Edison had 1,483 contracts, including 706 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
	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		681		16,351,706		77		12,273		725		96,403,140		1,483
CECONY		137		3,879,800		—		—		569		89,220,000		706

(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 the clearing 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.

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 June 30, 2012, 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)
Aggregate fair value – net liabilities		$124			$84
Collateral posted		$ 62			$56
Additional collateral (b) (downgrade one level from current ratings (c))		$ 9			$ 3
Additional collateral (b) (downgrade to below investment grade from current ratings (c))		$101	(d)		$46	(d)

(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 June 30, 2012, would have amounted to an estimated $28 million for Con Edison, including $0 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)

The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), CECONY (A3/A-/A-) or O&R (Baa1/A-/A-). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.

(d)	Derivative instruments that are net assets have been excluded from the table. At June 30, 2012, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $24 million.

Interest Rate Swaps

O&R has an interest rate swap 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 June 30, 2012 was an unrealized loss of $7 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2012 was $1 million. 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.


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Note K – Fair Value Measurements

The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

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

•

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

•

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

•

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

Effective January 1, 2012, the Companies adopted Accounting Standards Update (ASU) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments expand existing disclosure requirements for fair value measurements and make other amendments. For fair value measurements in Level 3, this update requires the Companies to provide a description of the valuation process in place, a quantitative disclosure of unobservable inputs and assumptions used in the measurement as well as a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs. The update also requires the Companies to disclose any transfers between Levels 1 and 2 of fair value hierarchy measurements and the reasons for the transfers.


					33

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 are summarized below.


	Level 1				Level 2						Level 3						Netting Adjustments (4)						Total
*(Millions of Dollars)*	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity (1)		$ 2		$ 1		$ 63			$ 11			$ 65			$ 10			$ (68	)		$ 3			$ 62			$ 25
Other assets		96		89		(3	)		(1	)		105			95			—			—			198			183
Transfer in (5) (6)		—		—		105			95			—			—			—			—			105			95
Transfer out (5) (6)		—		—		—			—			(105	)		(95	)		—			—			(105	)		(95	)
Other assets (3)		$96		$89		$102			$ 94			$ —			$ —			$ —			$ —			$ 198			$183
Total		$98		$90		$165			$105			$ 65			$ 10			$ (68	)		$ 3			$ 260			$208
Derivative liabilities:
Commodity		$ 6		$ 1		$193			$114			$126			$ 18			$(170	)		$(48	)		$ 155			$ 85
Transfer in (5) (6)		—		—		3			1			3			3			—			—			6			4
Transfer out (5) (6)		—		—		(3	)		(3	)		(3	)		(1	)		—			—			(6	)		(4	)
Commodity Total (1)		$ 6		$ 1		$193			$112			$126			$ 20			$(170	)		$(48	)		$ 155			$ 85
Interest rate contract		—		—		(1	)		—			8			—			—			—			7			—
Transfer in (5) (6)		—		—		8			—			—			—			—			—			8			—
Transfer out (5) (6)		—		—		—			—			(8	)		—			—			—			(8	)		—
Interest rate contract (2)		$ —		$ —		$ 7			$ —			$ —			$ —			$ —			$ —			$ 7			$ —
Total		$ 6		$ 1		$200			$112			$126			$ 20			$(170	)		$(48	)		$ 162			$ 85

(1)	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 J.

(2)	See Note J.

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

(4)	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.

(5)	The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6)	Transferred from Level 3 to Level 2 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall. Other assets and interest rate contract were transferred as of March 31, 2012.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 are summarized below.


	Level 1				Level 2						Level 3						Netting Adjustments (4)						Total
*(Millions of Dollars)*	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity (1)		$ 3		$ —		$ 64			$ 8			$ 87			$ 11			$ (84	)		$ 5			$ 70			$ 24
Other assets (3)		76		76		—			—			99			90			—			—			175			166
Total		$79		$76		$ 64			$ 8			$186			$101			$ (84	)		$ 5			$245			$190
Derivative liabilities:
Commodity		$12		$ 4		$222			$122			$169			$ 37			$(194	)		$(41	)		$209			$122
Transfer in (5) (6) (7)		—		—		26			25			6			6			—			—			32			31
Transfer out (5) (6) (7)		—		—		(6	)		(6	)		(26	)		(25	)		—			—			(32	)		(31	)
Commodity (1)		$12		$ 4		$242			$141			$149			$ 18			$(194	)		$(41	)		$209			$122
Interest rate contract (2)		—		—		—			—			8			—			—			—			8			—
Total		$12		$ 4		$242			$141			$157			$ 18			$(194	)		$(41	)		$217			$122

(1)	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 J.

(2)	See Note J.

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


34

(4)	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.

(5)	The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6)	Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

(7)	Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2010 to less than one year as of December 31, 2011.

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.


*(Millions of Dollars)*	Fair Value of Level 3 at June 30, 2012			Valuation Techniques	Unobservable Inputs
Con Edison
Commodity	$	(61	)	Market approach (1)	Discount for inactive markets and/or illiquid locations (2)
CECONY
Commodity	$	(10	)	Market approach (1)	Discount for inactive markets and/or illiquid locations (2)

(1)

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The commodity derivatives are valued using quoted prices or internally developed models with observable inputs, adjusted for certain contracts that are traded in inactive markets and/or at illiquid locations. The unobservable inputs used in the Companies’ models do not have a significant impact on the valuation.

(2)	Significant increases or decreases in any of these inputs in isolation would have a limited impact on fair value measurement. Generally, a change in the fair value measurement is linearly based on changes in these inputs.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value for the three and six months ended June 30, 2012 and classified as Level 3 in the fair value hierarchy:


	For the Three Months Ended June 30, 2012
				Total Gains/(Losses)— Realized and Unrealized
*(Millions of Dollars)*	Beginning Balance as of April 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 June 30, 2012
Con Edison
Derivatives:
Commodity	$	(93	)	$	(24	)	$	4	$	5	$	—	$	—	$	43	$	4	$	(61	)
CECONY
Derivatives:
Commodity	$	(13	)	$	(11	)	$	4	$	2	$	—	$	—	$	6	$	2	$	(10	)


					35


	For the Six Months Ended June 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 June 30, 2012
Con Edison
Derivatives:
Commodity		$(62)		$(82)		$(13)		$11		$—		$—		$81		$ 4			$(61)
Interest rate contract		(8)		(1)		—		—		—		—		1		8	(2)		—
Other assets (1)		99		3		3		—		—		—		—		(105	)(2)		—
Total		$ 29		$(80)		$(10)		$11		$—		$—		$82		$ (93)			$(61)
CECONY
Derivatives:
Commodity		$ (7)		$(16)		$ (3)		$ 8		$—		$—		$ 6		$ 2	(2)		$(10)
Other assets (1)		90		3		2		—		—		—		—		(95	)(2)		—
Total		$ 83		$(13)		$ (1)		$ 8		$—		$—		$ 6		$ (93)			$(10)

(1)	Amounts included in earnings are reported in investment and other income on the consolidated income statement.

(2)	Other assets and interest rate contract were transferred as of March 31, 2012.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value for the three and six months ended June 30, 2011 and classified as Level 3 in the fair value hierarchy:


	For the Three Months Ended June 30, 2011
				Total Gains/(Losses)— Realized and Unrealized
*(Millions of Dollars)*	Beginning Balance as of April 1, 2011			Included in Earnings			Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements			Transfer In/Out of Level 3		Ending Balance as of June 30, 2011
Con Edison
Derivatives:
Commodity		$(31	)		$(31	)		$14		$5		$—		$—		$18			$—		$(25	)
Interest rate contract		(10	)		(1	)		—		—		—		—		1			—		(10	)
Other assets (1)		105			1			—		—		—		—		—			—		106
Total		$ 64			$(31	)		$14		$5		$—		$—		$19			$—		$ 71
CECONY
Derivatives:
Commodity		$ 2			$ (1	)		$ 2		$1		$—		$—		$ (4	)		$—		$ —
Other assets (1)		95			1			—		—		—		—		—			—		96
Total		$ 97			$ —			$ 2		$1		$—		$—		$ (4	)		$—		$ 96

(1)	Amounts included in earnings are reported in investment and other income on the consolidated income statement.


36


	For the Six Months Ended June 30, 2011
				Total Gains/(Losses)— Realized and Unrealized
*(Millions of Dollars)*	Beginning Balance as of January 1, 2011			Included in Earnings			Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements			Transfer In/Out of Level 3		Ending Balance as of June 30, 2011
Con Edison
Derivatives:
Commodity		$ (88	)		$(22	)		$45		$14		$—		$—		$21			$5		$(25	)
Interest rate contract		(10	)		(2	)		—		—		—		—		2			—		(10	)
Other assets (1)		101			3			2		—		—		—		—			—		106
Total		$3			$(21	)		$47		$14		$—		$—		$23			$5		$ 71
CECONY
Derivatives:
Commodity		$ (26	)		$ (3	)		$20		$11		$—		$—		$ (7	)		$5		$ —
Other assets (1)		92			3			1		—		—		—		—			—		96
Total		$ 66			$ —			$21		$11		$—		$—		$ (7	)		$5		$ 96

(1)	Amounts included in earnings are reported in investment and other income on the consolidated income statement.

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

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 ($6 million loss and $13 million loss) and purchased power costs ($1 million loss and $9 million loss) on the consolidated income statement for the three months ended June 30, 2012 and 2011, respectively. Realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($9 million loss and $25 million loss), and purchased power costs ($44 million loss and $18 million gain) on the consolidated income statement for the six months ended June 30, 2012 and 2011, respectively. The change in fair value relating to Level 3 commodity derivative assets held at June 30, 2012 and 2011 is included in non-utility revenues ($6 million loss and $13 million loss), and purchased power costs ($31 million gain and $6 million gain) on the consolidated income statement for the three months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 and 2011, the change in fair value relating to Level 3 commodity derivative assets and liabilities is included in non-utility revenues ($9 million loss and $25 million loss), and purchased power costs ($24 million gain and $36 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 June 30, 2012, 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 market-based method by using the counterparty (for an asset) or the Companies’ (for a liability) credit default swaps rates.


					37

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

This combined management’s discussion and analysis of financial condition and results of operations (MD&A) relates to the consolidated financial statements (the Second Quarter Financial Statements) included in this report of two separate registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). 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 management’s discussion and analysis about CECONY applies to Con Edison.

This MD&A should be read in conjunction with the Second Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2011 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 (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.

LOGO

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 is evaluating additional opportunities to invest in electric and gas-related businesses.

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 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.

Gas

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

In June 2012, the company increased its forecast of average annual growth of the peak gas demand in its service area over the next five years at design conditions from approximately 3.5 percent to 4.3 percent, reflecting, among other things, oil to gas conversions anticipated to result from changes to New York City regulations that will phase out the use of certain types of heating oil and the relative prices of oil and natural gas.

Steam

CECONY operates the largest steam distribution system in the United States by producing and delivering more than 22,000 MMlbs of steam annually to approximately 1,735 customers in parts of Manhattan.

Collective Bargaining Agreement

In July 2012, CECONY reached a four-year collective bargaining agreement covering approximately 8,000 employees (which is subject to ratification by the employees) ending a 26-day work stoppage involving those employees. During the work stoppage, the company operated its electric, gas and steam businesses with approximately 5,500 employees and additional resources.

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 June 30, 2012, Con Edison’s equity investment in its competitive energy businesses was $385 million and their assets amounted to $857 million. For information about the July 2012 purchase of a solar energy company, see “Liquidity and Capital Resources – Capital Requirements and Resources,” below.

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


	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012						At June 30, 2012
(Millions of Dollars, except percentages)	Operating Revenues			Net Income for Common Stock			Operating Revenues			Net Income for Common Stock			Assets
CECONY		$2,309	83%		$163	76%		$4,870	83%		$436	89%		$36,109	90%
O&R		164	6%		11	5%		374	6%		30	6%		2,444	6%
Total Utilities		2,473	89%		174	81%		5,244	89%		466	95%		38,553	96%
Con Edison Solutions (a)		276	10%		44	21%		553	10%		31	6%		302	1%
Con Edison Energy (a)		19	1%		(1)	—%		50	1%		(1)	—%		76	—%
Con Edison Development		7	—%		2	—%		12	—%		4	1%		534	1%
Other (b)		(4)	—%		(5)	(2)%		(10)	—%		(9)	(2)%		584	2%
Total Con Edison		$2,771	100%		$214	100%		$5,849	100%		$491	100%		$40,049	100%

(a)

Net income from the competitive energy businesses for the three and six months ended June 30, 2012 includes $36 million and $18 million, respectively, of net after-tax mark-to-market gains/(losses) (Con Edison Solutions, $37 million and $20 million and Con Edison Energy, $(1) million and $(2) million).

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


					39

Con Edison’s net income for common stock for the three months ended June 30, 2012 was $214 million or $0.73 a share ($0.73 on a diluted basis) compared with $165 million or $0.57 a share ($0.56 on a diluted basis) for the three months ended June 30, 2011. Net income for common stock for the six months ended June 30, 2012 was $491 million or $1.68 a share ($1.67 on a diluted basis) compared with earnings of $477 million or $1.63 a share ($1.62 on a diluted basis) for the six months ended June 30, 2011. See “Results of Operations – Summary,” below. For segment financial information, see Note I to the Second Quarter Financial Statements and “Results of Operations,” below.

Results of Operations — Summary

Net income for common stock for the three and six months ended June 30, 2012 and 2011 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
*(millions of dollars)*	2012			2011			2012			2011
CECONY		$163			$157			$436			$426
O&R		11			4			30			23
Competitive energy businesses (a)		45			9			34			36
Other (b)		(5	)		(5	)		(9	)		(8	)
Con Edison		$214			$165			$491			$477

(a)	Includes $36 million and $(1) million of net after-tax mark-to-market gains/(losses) for the three months ended June 30, 2012 and 2011, respectively. Includes $18 million and $21 million of net after-tax mark-to-market gains for the six months ended June 30, 2012 and 2011, respectively.

(b)	Consists of inter-company and parent company accounting.

The Companies’ results of operations for the three and six months ended June 30, 2012, as compared with the 2011 periods, reflect changes in the Utilities’ rate plans and the effects of the milder winter weather on steam revenues. These rate plans provide for additional revenues to cover expected increases in certain operations and maintenance expenses, and depreciation. The results of operations include the operating results of the competitive energy businesses, including net mark-to-market effects.

Operations and maintenance expenses were higher in the 2012 periods due to pension costs and the support and maintenance of company underground facilities to accommodate municipal projects and, in the six month period were offset in part, by lower operating costs attributable to the milder winter. Depreciation was higher in the 2012 period reflecting the impact from higher utility plant balances.

The following table presents the estimated effect on earnings per share and net income for common stock for the three and six months ended 2012 as compared with the 2011 period, resulting from these and other major factors:


	Three Months Variation						Six Months Variation
	Earnings per Share			Net Income (millions of dollars)			Earnings per Share			Net Income (millions of dollars)
CECONY
Rate plans, primarily to recover increases in certain costs		$ 0.21			$ 62			$ 0.41			$120
Weather impact on steam revenues		(0.02	)		(6	)		(0.10	)		(28	)
Operations and maintenance expenses		(0.14	)		(41	)		(0.24	)		(70	)
Depreciation		(0.03	)		(10	)		(0.06	)		(18	)
Other		—			1			0.02			6
Total CECONY		0.02			6			0.03			10
O&R		0.02			7			0.02			7
Competitive energy businesses (a)		0.12			36			—			(2	)
Other, including parent company expenses		—			—			—			(1	)
Total variations		$ 0.16			$ 49			$ 0.05			$ 14

(a)

These variations reflect after-tax net mark-to-market gains/(losses) of $36 million or $0.12 a share and $(1) million for the three months ended June 30, 2012 and 2011, respectively, and after-tax net mark-to-market gains of $18 million or $0.06 a share and $21 million or $0.07 a share for the six months ended June 30, 2012 and 2011, respectively.

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


40

Liquidity and Capital Resources

The Companies’ liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows and as discussed below. Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the six months ended June 30, 2012 and 2011 are summarized as follows:

Con Edison


	Con Edison									CECONY
*(millions of dollars)*	2012			2011			Variance			2012			2011			Variance
Operating activities		$ 1,247			$ 1,589			$(342	)		$ 1,105			$1,425			$(320	)
Investing activities		(1,105	)		(1,129	)		24			(1,057	)		(983	)		(74	)
Financing activities		591			(306	)		897			613			(346	)		959
Net change		733			154			579			661			96			565
Balance at beginning of period		648			338			310			372			78			294
Balance at end of period		$ 1,381			$ 492			$ 889			$ 1,033			$ 174			$ 859

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 six months ended June 30, 2012 for Con Edison and CECONY were $342 million and $320 million lower, respectively, compared with the 2011 period. The Companies’ cash flows from operating activities reflect the timing of the deduction for income tax purposes of their construction expenditures. The decrease in net cash flows reflect primarily the higher estimated income tax payments, net of refunds received, in 2012 ($200 million for Con Edison and $173 million for CECONY) and higher cash collateral paid to brokers and counterparties in the 2012 period ($69 million for Con Edison and $53 million for CECONY).

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. See Note B to the Second Quarter Financial Statements.

Cash Flows Used in Investing Activities

Net cash flows used in investing activities for Con Edison and CECONY were $24 million lower and $74 million higher, respectively, for the six months ended June 30, 2012 compared with the 2011 period. The changes for Con Edison and CECONY reflect increased utility construction expenditures in 2012. In addition, for Con Edison, the change reflects the return


					41

of investment resulting from the receipt of government grant proceeds at the Pilesgrove solar project, proceeds from investment tax credits and grants related to other renewable investments and lower non-utility construction expenditures.

Cash Flows from Financing Activities

Net cash flows from financing activities for Con Edison and CECONY were $897 million and $959 million higher, respectively, in the six months ended June 30, 2012 compared with the 2011 period.

Cash flows from financing activities of the Companies also reflect commercial paper issuances (included on the consolidated balance sheets as “Notes payable”). The commercial paper amounts outstanding at June 30, 2012 and 2011 and the average daily balances for the six months ended June 30, 2012 and 2011 for Con Edison and CECONY were as follows:


	2012						2011
*(millions of dollars, except Weighted Average Yield)*	Outstanding at June 30			Daily average			Outstanding at June 30			Daily average
Con Edison		$800			$19			$—			$110
CECONY		$800			$19			$—			$110
Weighted average yield		0.4	%		0.3	%		—	%		0.3	%

Other Changes in Assets and Liabilities

The following table shows changes in certain assets and liabilities at June 30, 2012, compared with December 31, 2011.


	Con Edison			CECONY
*(millions of dollars)*	2012 vs. 2011 Variance			2012 vs. 2011 Variance
Assets
Cash and temporary cash investments		$733			$661
Regulatory asset – Unrecognized pension and other postretirement costs		(445	)		(395	)
Liabilities
Notes payable		$800			$800
Pension and retiree benefits		(450	)		(420	)
Deferred income taxes and investment tax credits		180			160

Cash and Temporary Cash Investments and Notes Payable

The increases in cash and temporary cash investments and notes payable reflect commercial paper issuances by CECONY in June 2012 in advance of its July 2012 semi-annual payment of New York City property taxes ($603 million) and the July 2012 maturity of its 5.625 percent 10-year debentures ($300 million).

Regulatory Asset for Unrecognized Pension 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, 2011 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 reflects in part contributions to the plans made by the Utilities in 2012. See Notes B, E and F to the Second Quarter Financial Statements.


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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. See “Cash Flows from Operating Activities,” above.

Capital Requirements and Resources

As of June 30, 2012, there was no material change in the Companies’ capital requirements, contractual obligations and capital resources compared to those disclosed under “Capital Requirements and Resources” in Item 1 of the Form 10-K other than as described below and in Note C to the Second Quarter Financial Statements.

In July 2012, Con Edison Development purchased a company that is developing 70 MW of solar energy projects in Alpaugh, California. Electricity generated by the projects is to be purchased by Pacific Gas and Electric Company pursuant to long-term power purchase agreements. Con Edison has increased its estimate of capital expenditures in 2012 by its competitive energy businesses from $119 million to approximately $450 million to reflect the costs to purchase the solar energy company and complete the projects. The acquisition of the solar energy company was funded at the closing with available cash balances and commercial paper issuances. Con Edison is evaluating long-term financing for the projects. Con Edison expects to receive investment tax credits or grants for the projects.

For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the six months ended June 30, 2012 and 2011 and the twelve months ended December 31, 2011 was:


	Ratio of Earnings to Fixed Charges
	For the Six Months Ended June 30, 2012		For the Twelve Months Ended December 31, 2011		For the Six Months Ended June 30, 2011
Con Edison		3.3		3.6		3.2
CECONY		3.3		3.8		3.3

For each of the Companies, the common equity ratio at June 30, 2012 and December 31, 2011 was:


	Common Equity Ratio (Percent of total capitalization)
	June 30, 2012		December 31, 2011
Con Edison		54.1		52.5
CECONY		53.6		52.0

Regulatory Matters

CECONY’s current electric rate plan covers the three-year period ending March 31, 2013. Either the company or the New York State Public Service Commission (NYSPSC) can initiate a proceeding for a new rate plan. A new rate plan filed by the company would take effect automatically in approximately 11 months unless prior to such time the NYSPSC adopts a rate plan. CECONY understands that the base rates determined pursuant to the current rate plan and the other provisions of the current rate plan would continue in effect after March 31, 2013 until a new rate plan is effective. The company is preparing to file a new rate plan with the NYSPSC in November 2012. A new rate plan is expected to be effective in October 2013.

CECONY’s current gas and steam rate agreements cover the three-year period ending September 30, 2013. The company is preparing to file new gas and steam rate plans with the NYSPSC in November 2012. New gas and steam rate plans, are expected to be effective in October 2013.

For information about a March 2012 NYSPSC order relating to a surcharge that CECONY was to have collected from customers and O&R’s February 2012 Joint Proposal (which was adopted by the NYSPSC in June 2012) with respect to its rates for electric service rendered in New York, see Note B to the Second Quarter Financial Statements.


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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 June 30, 2012, a 10 percent variation in interest rates applicable to its variable rate debt would not result in a material change in annual interest expense. Under CECONY’s current gas, steam and electric rate plans, variations in actual long-term debt interest rates 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 Swaps” in Note J to the Second 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 J to the Second Quarter Financial Statements.

Con Edison estimates that, as of June 30, 2012, a 10 percent decline in market prices would result in a decline in fair value of $57 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $46 million is for CECONY and $11 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 risk of their electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts and commodity derivative instruments. VaR represents the potential change in fair value of instruments or the portfolio due to changes in market factors, for a specified time period and confidence level. These businesses estimate VaR across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for transactions associated with hedges on generating assets and commodity contracts, assuming a one-day holding period, for the six months ended June 30, 2012 and the year ended December 31, 2011, respectively, was as follows:


95% Confidence Level, One-Day Holding Period	June 30, 2012		December 31, 2011
	*(millions of dollars)*
Average for the period		$ 1		$ 1
High		1		1
Low		—		—

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,


44

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 J to the Second Quarter Financial Statements.

Investment Risk

The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. The Companies’ current investment policy for pension plan assets includes investment targets of 60 percent equities and 40 percent fixed income and other securities. At June 30, 2012, the pension plan investments consisted of 62 percent equity and 38 percent fixed income and other securities.

Material Contingencies

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

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. Delivery revenues for CECONY’s steam business and O&R’s businesses in New Jersey and Pennsylvania are affected by changes in delivery volumes resulting from weather, economic conditions and other factors. See Note B to the Second Quarter Financial Statements.

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 six months ended June 30, 2012 and 2011 follows. For additional business segment financial information, see Note I to the Second Quarter Financial Statements.


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Three Months Ended June 30, 2012 Compared with Three Months Ended June 30, 2011

The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 2012 compared with 2011 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		$(107	)		(4.4	)%		$(14	)		(7.9	)%		$(101	)		(25.3	)%		$(222	)		(7.4	)%
Purchased power		(117	)		(18.8	)		(16	)		(28.6	)		(158	)		(46.1	)		(291	)		(28.5	)
Fuel		(22	)		(32.4	)		—			—			—			—			(22	)		(32.4	)
Gas purchased for resale		(42	)		(45.7	)		(2	)		(15.4	)		(5	)		(83.3	)		(49	)		(44.1	)
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)		74			4.5			4			3.7			62			Large			140			7.8
Operations and maintenance		62			9.8			(1	)		(1.4	)		(3	)		(9.7	)		58			7.9
Depreciation and amortization		16			7.8			1			8.3			—			—			17			7.8
Taxes, other than income taxes		(14	)		(3.3	)		2			16.7			—			—			(12	)		(2.7	)
Operating income		10			2.7			2			13.3			65			Large			77			19.3
Other income less deductions		(3	)		Large			—			—			(4	)		Large			(7	)		Large
Net interest expense		4			3.0			(3	)		(30.0	)		—			—			1			0.7
Income before income tax expense		3			1.3			5			83.3			61			Large			69			27.5
Income tax expense		—			—			(2	)		Large			25			Large			23			27.7
Net income		3			1.9			7			Large			36			Large			46			27.4
Preferred stock dividend requirements		(3	)		Large			—			—			—			—			(3	)		Large
Net income for common stock		$ 6			3.8	%		$ 7			Large			$ 36			Large			$ 49			29.7	%

(a)	Includes inter-company and parent company accounting.

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

CECONY


	Three Months Ended June 30, 2012									Three Months Ended June 30, 2011
*(millions of dollars)*	Electric		Gas		Steam			2012 Total		Electric		Gas		Steam			2011 Total		2012-2011 Variation
Operating revenues		$1,961		$265		$ 83			$2,309		$2,013		$296		$ 107			$2,416		$(107	)
Purchased power		498		—		6			504		609		—		12			621		(117	)
Fuel		29		—		17			46		40		—		28			68		(22	)
Gas purchased for resale		—		50		—			50		—		92		—			92		(42	)
Net revenues		1,434		215		60			1,709		1,364		204		67			1,635		74
Operations and maintenance		573		79		41			693		504		90		37			631		62
Depreciation and amortization		175		30		16			221		162		27		16			205		16
Taxes, other than income taxes		338		52		25			415		348		56		25			429		(14	)
Operating income		$ 348		$ 54		$(22	)		$ 380		$ 350		$ 31		$ (11	)		$ 370		$ 10


46

Electric

CECONY’s results of electric operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$1,961		$2,013		$ (52	)
Purchased power		498		609		(111	)
Fuel		29		40		(11	)
Net revenues		1,434		1,364		70
Operations and maintenance		573		504		69
Depreciation and amortization		175		162		13
Taxes, other than income taxes		338		348		(10	)
Electric operating income		$ 348		$ 350		$ (2	)

CECONY’s electric sales and deliveries, excluding off-system sales, for the three months ended June 30, 2012 compared with the 2011 period were:


	Millions of kWhs Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012		June 30, 2011		Variation			Percent Variation
Residential/Religious (a)		2,248		2,462		(214	)		(8.7	)%		$ 600		$ 652		$(52	)		(8.0	)%
Commercial/Industrial		2,269		2,614		(345	)		(13.2	)		470		556		(86	)		(15.5	)
Retail access customers		5,991		5,630		361			6.4			632		554		78			14.1
NYPA, Municipal Agency and other sales		2,585		2,530		55			2.2			151		140		11			7.9
Other operating revenues		—		—					—			108		111		(3	)		(2.7	)
Total		13,093		13,236		(143	)		(1.1	)%		$1,961		$2,013		$(52	)		(2.6	)%

(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 decreased $52 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to lower purchased power ($111 million) and fuel costs ($11 million), offset in part by higher revenues from the electric rate plan ($85 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 plan.

Electric delivery volumes in CECONY’s service area decreased 1.1 percent in the three months ended June 30, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.1 percent in the three months ended June 30, 2012 compared with the 2011 period reflecting lower average use per customer.

CECONY’s electric purchased power costs decreased $111 million in the three months ended June 30, 2012 compared with the 2011 period due to a decrease in purchased volumes ($85 million) and unit costs ($26 million). Electric fuel costs decreased $11 million in the three months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($13 million), offset by higher sendout volumes from the company’s electric generating facilities ($2 million).

CECONY’s electric operating income decreased $2 million in the three months ended June 30, 2012 compared with the 2011 period. The decrease reflects


					47

primarily higher operations and maintenance costs ($69 million) and higher depreciation and amortization ($13 million) offset by higher net revenues ($70 million, due primarily to the electric rate plan) and lower taxes, other than income taxes ($10 million, principally property taxes). The increase in operations and maintenance costs of $69 million is due primarily to higher pension expense ($40 million), an increase in the collection of surcharges from customers ($7 million) and higher support and maintenance of company underground facilities to accommodate municipal projects ($4 million). See “Regulatory Assets and Liabilities” in Note B to the Second Quarter Financial Statements.

Gas

CECONY’s results of gas operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$265		$296		$(31	)
Gas purchased for resale		50		92		(42	)
Net revenues		215		204		11
Operations and maintenance		79		90		(11	)
Depreciation and amortization		30		27		3
Taxes, other than income taxes		52		56		(4	)
Gas operating income		$ 54		$ 31		$ 23

CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2012 compared with the 2011 period were:


	Thousands of dths Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012			June 30, 2011			Variation			Percent Variation
Residential		5,760		7,373		(1,613	)		(21.9	)%	$	115		$	145		$	(30	)		(20.7	)%
General		4,694		5,175		(481	)		(9.3	)		52			72			(20	)		(27.8	)
Firm transportation		10,127		11,273		(1,146	)		(10.2	)		77			74			3			4.1
Total firm sales and transportation		20,581		23,821		(3,240	)		(13.6	)		244			291			(47	)		(16.2	)
Interruptible sales (a)		1,168		2,697		(1,529	)		(56.7	)		6			22			(16	)		(72.7	)
NYPA		11,020		5,315		5,705			Large			1			1			—			—
Generation plants		19,217		21,847		(2,630	)		(12.0	)		7			9			(2	)		(22.2	)
Other		4,858		5,132		(274	)		(5.3	)		9			11			(2	)		(18.2	)
Other operating revenues		—		—		—			—			(2	)		(38	)		36			94.7
Total		56,844		58,812		(1,968	)		(3.3	)%	$	265		$	296		$	(31	)		(10.5	)%

(a)	Includes 10 mdths and 1,126 mdths for the three months ended June 30, 2012 and 2011, respectively, which are also reflected in firm transportation and other.

CECONY’s gas operating revenues decreased $31 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to a decrease in gas purchased for resale costs ($42 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 plan.

CECONY’s sales and transportation volumes for firm customers decreased 13.6 percent in the three months ended June 30, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the company’s service area increased 0.7 percent in the three months ended June 30, 2012.

CECONY’s purchased gas cost decreased $42 million in the three months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($48 million), offset by higher sendout volumes ($6 million).


48

CECONY’s gas operating income increased $23 million in the three months ended June 30, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($11 million), lower operations and maintenance costs ($11 million, due primarily to a decrease in the collection of surcharges from customers ($7 million)) and lower taxes, other than income taxes ($4 million, principally property taxes and local revenue taxes), offset by higher depreciation ($3 million).

Steam

CECONY’s results of steam operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012			June 30, 2011			Variation
Operating revenues		$ 83			$107			$(24	)
Purchased power		6			12			(6	)
Fuel		17			28			(11	)
Net revenues		60			67			(7	)
Operations and maintenance		41			37			4
Depreciation and amortization		16			16			—
Taxes, other than income taxes		25			25			—
Steam operating income		$(22	)		$ (11	)		$(11	)

CECONY’s steam sales and deliveries for the three months ended June 30, 2012 compared with the 2011 period were:


	Millions of Pounds Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012			June 30, 2011			Variation			Percent Variation
General		48		73		(25	)		(34.2	)%		$ 3			$ 4			$ (1	)		(25.0	)%
Apartment house		970		1,124		(154	)		(13.7	)		24			30			(6	)		(20.0	)
Annual power		2,578		3,059		(481	)		(15.7	)		63			81			(18	)		(22.2	)
Other operating revenues		—		—		—			—			(7	)		(8	)		1			12.5
Total		3,596		4,256		(660	)		(15.5	)%		$83			$107			$(24	)		(22.4	)%

CECONY’s steam operating revenues decreased $24 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to lower fuel costs ($11 million), the impact of milder weather ($11 million) and lower purchased power costs ($6 million), offset by the net change in rates under the steam rate plan ($5 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.

Steam sales and delivery volumes decreased 15.5 percent in the three months ended June 30, 2012 compared with the 2011 period reflecting milder weather. After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 2.4 percent in the three months ended June 30, 2012, reflecting lower average normalized use per customer.

CECONY’s steam fuel costs decreased $11 million in the three months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($10 million) and sendout volumes ($1 million). Steam purchased power costs decreased $6 million in the three months ended June 30, 2012 compared with the 2011 period due to a decrease in unit costs ($6 million).

Steam operating income decreased $11 million in the three months ended June 30, 2012 compared with the 2011 period. The decrease reflects primarily lower net revenues ($7 million) and higher operations and maintenance costs ($4 million, due primarily to higher pension expense ($7 million)).


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Net Interest Expense

Net interest expense increased $4 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to the issuance by CECONY in March 2012 of $400 million of 4.20 percent 30-year debentures.

O&R


	Three Months Ended June 30, 2012						Three Months Ended June 30, 2011
*(millions of dollars)*	Electric		Gas		2012 Total		Electric		Gas		2011 Total		2012-2011 Variation
Operating revenues		$129		$35		$164		$141		$37		$178		$(14	)
Purchased power		40		—		40		56		—		56		(16	)
Gas purchased for resale		—		11		11		—		13		13		(2	)
Net revenues		89		24		113		85		24		109		4
Operations and maintenance		53		16		69		54		16		70		(1	)
Depreciation and amortization		9		4		13		8		4		12		1
Taxes, other than income taxes		11		3		14		9		3		12		2
Operating income		$ 16		$ 1		$ 17		$ 14		$ 1		$ 15		$ 2

Electric

O&R’s results of electric operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$129		$141		$(12	)
Purchased power		40		56		(16	)
Net revenues		89		85		4
Operations and maintenance		53		54		(1	)
Depreciation and amortization		9		8		1
Taxes, other than income taxes		11		9		2
Electric operating income		$ 16		$ 14		$ 2

O&R’s electric sales and deliveries, excluding off-system sales, for the three months ended June 30, 2012 compared with the 2011 period were:


	Millions of kWhs Delivered										Revenues in Millions
	Three Months Ended										Three Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012		June 30, 2011			Variation			Percent Variation
Residential/Religious (a)		372		381		(9	)		(2.4	)%		$ 55		$ 66			$(11	)		(16.7	)%
Commercial/Industrial		246		281		(35	)		(12.5	)		28		38			(10	)		(26.3	)
Retail access customers		741		664		77			11.6			42		36			6			16.7
Public authorities		29		26		3			11.5			2		2			—			—
Other operating revenues		—		—		—			—			2		(1	)		3			Large
Total		1,388		1,352		36			2.7	%		$129		$141			$(12	)		(8.5	)%

(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 decreased $12 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to lower purchased power costs ($16 million), offset in part by higher revenues from the New York rate plan ($3 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


50

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 such revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See “Rate Agreements – O&R – Electric” in Note B to the Second Quarter Financial Statements.

Electric delivery volumes in O&R’s service area increased 2.7 percent in the three months ended June 30, 2012 compared with the 2011 period. After adjusting for weather and other variations, electric delivery volumes in O&R’s service area increased 4.7 percent in the three months ended June 30, 2012 compared with the 2011 period.

Electric operating income increased $2 million in the three months ended June 30, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($4 million) and lower operations and maintenance costs ($1 million), offset by higher taxes, other than income taxes ($2 million, principally property taxes) and depreciation and amortization ($1 million).

Gas

O&R’s results of gas operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$35		$37		$(2	)
Gas purchased for resale		11		13		(2	)
Net revenues		24		24		—
Operations and maintenance		16		16		—
Depreciation and amortization		4		4		—
Taxes, other than income taxes		3		3		—
Gas operating income		$ 1		$ 1		$—

O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2012 compared with the 2011 period were:


	Thousands of dths Delivered							Revenues in Millions
	Three Months Ended							Three Months Ended
Description		June 30, 2012	June 30, 2011	Variation		Percent Variation			June 30, 2012	June 30, 2011	Variation		Percent Variation
Residential		822	965	(143	)	(14.8	)%		$12	$15	$(3	)	(20.0	)%
General		162	191	(29	)	(15.2	)		2	3	(1	)	(33.3	)
Firm transportation		1,577	1,649	(72	)	(4.4	)		14	13	1		7.7
Total firm sales and transportation		2,561	2,805	(244	)	(8.7	)		28	31	(3	)	(9.7	)
Interruptible sales		944	991	(47	)	(4.7	)		1	1	—		—
Generation plants		—	652	(652	)	Large			—	—	—		—
Other		101	136	(35	)	(25.7	)		—	—	—		—
Other gas revenues		—	—	—		—			6	5	1		20.0
Total		3,606	4,584	(978	)	(21.3	)%		$35	$37	$(2	)	(5.4	)%

O&R’s gas operating revenues decreased $2 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to the decrease in gas purchased for resale in 2012 ($2 million). O&R’s New York revenues from gas 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


					51

from levels assumed when rates were approved.

Sales and transportation volumes for firm customers decreased 8.7 percent in the three months ended June 30, 2012 compared with the 2011 period. After adjusting for weather and other variations, total firm sales and transportation volumes decreased 0.8 percent in the three months ended June 30, 2012 compared with the 2011 period. O&R’s New York revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

Gas operating income was the same in the three months ended June 30, 2012 compared with the 2011 period.

Competitive Energy Businesses

The competitive energy businesses’ results of operations for the three months ended June 30, 2012 compared with the 2011 period is as follows:


	Three Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$300		$406		$(106	)
Purchased power		186		348		(162	)
Gas purchased for resale		1		5		(4	)
Net revenues		113		53		60
Operations and maintenance		29		32		(3	)
Depreciation and amortization		2		2		—
Taxes, other than income taxes		4		5		(1	)
Operating income		$ 78		$ 14		$ 64

The competitive energy businesses’ operating revenues decreased $106 million in the three months ended June 30, 2012 compared with the 2011 period, due primarily to lower electric retail and wholesale revenues. Electric wholesale revenues decreased $37 million in the three months ended June 30, 2012 as compared with the 2011 period, due to lower sales volumes ($30 million) and unit prices ($7 million). Electric retail revenues decreased $70 million, due to lower sales volume ($42 million) and unit prices ($28 million). Net mark-to-market values increased $65 million in the three months ended June 30, 2012 as compared with the 2011 period, of which $62 million in gains are reflected in purchased power costs and $3 million in gains are reflected in revenues. Other revenues decreased $2 million in the three months ended June 30, 2012 as compared with the 2011 period due primarily to lower energy services revenue.

Purchased power costs decreased $162 million in the three months ended June 30, 2012 compared with the 2011 period, due primarily to lower volumes ($61 million), lower unit prices ($39 million) and changes in mark-to-market values ($62 million). Operating income increased $64 million in the three months ended June 30, 2012 compared with the 2011 period due primarily to net mark-to-market effects ($65 million).

Other

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


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Six Months Ended June 30, 2012 Compared with Six Months Ended June 30, 2011

The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 2012 compared with 2011 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		$(255	)		(5.0	)%		$(45	)		(10.7	)%		$(193	)		(24.2	)%		$(493	)		(7.8	)%
Purchased power		(154	)		(13.9	)		(43	)		(35.0	)		(179	)		(27.2	)		(376	)		(19.9	)
Fuel		(90	)		(36.9	)		—			—			(1	)		Large			(91	)		(37.3	)
Gas purchased for resale		(136	)		(38.3	)		(16	)		(30.2	)		(8	)		(80.0	)		(160	)		(38.3	)
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)		125			3.7			14			5.8			(5	)		(3.9	)		134			3.5
Operations and maintenance		112			9.1			5			3.5			(7	)		(11.5	)		110			7.7
Depreciation and amortization		29			7.1			2			8.3			1			33.3			32			7.3
Taxes, other than income taxes		(24	)		(2.8	)		5			20.0			(1	)		(9.1	)		(20	)		(2.2	)
Operating income		8			0.9			2			3.8			2			3.7			12			1.2
Other income less deductions		(7	)		Large			—			—			(6	)		(66.7	)		(13	)		(86.7	)
Net interest expense		5			1.9			(4	)		(20.0	)		(1	)		(7.1	)		—			—
Income before income tax expense		(4	)		(0.6	)		6			17.6			(3	)		(6.1	)		(1	)		(0.1	)
Income tax expense		(11	)		(5.0	)		(1	)		(9.1	)		—			—			(12	)		(4.8	)
Net income		7			1.6			7			30.4			(3	)		(10.7	)		11			2.3
Preferred stock dividend requirements		(3	)		(50.0	)		—			—			—			—			(3	)		(50.0	)
Net income for common stock		$ 10			2.3	%		$ 7			30.4	%		$ (3	)		(10.7	)%		$ 14			2.9	%

(a)	Includes inter-company and parent company accounting.

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

CECONY


	Six Months Ended June 30, 2012								Six Months Ended June 30, 2011
*(millions of dollars)*	Electric		Gas		Steam		2012 Total		Electric		Gas		Steam		2011 Total		2012-2011 Variation
Operating revenues		$3,696		$828		$346		$4,870		$3,734		$959		$432		$5,125		$(255	)
Purchased power		929		—		21		950		1,073		—		31		1,104		(154	)
Fuel		80		—		74		154		116		—		128		244		(90	)
Gas purchased for resale		—		219		—		219		—		355		—		355		(136	)
Net revenues		2,687		609		251		3,547		2,545		604		273		3,422		125
Operations and maintenance		1,089		161		89		1,339		963		192		72		1,227		112
Depreciation and amortization		348		59		32		439		324		54		32		410		29
Taxes, other than income taxes		677		114		53		844		692		121		55		868		(24	)
Operating income		$ 573		$275		$ 77		$ 925		$ 566		$237		$114		$ 917		$ 8


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Electric

CECONY’s results of electric operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$3,696		$3,734		$ (38	)
Purchased power		929		1,073		(144	)
Fuel		80		116		(36	)
Net revenues		2,687		2,545		142
Operations and maintenance		1,089		963		126
Depreciation and amortization		348		324		24
Taxes, other than income taxes		677		692		(15	)
Electric operating income		$ 573		$ 566		$ 7

CECONY’s electric sales and deliveries, excluding off-system sales, for the six months ended June 30, 2012 compared with the 2011 period were:


	Millions of kWhs Delivered										Revenues in Millions
	Six Months Ended										Six Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012		June 30, 2011		Variation			Percent Variation
Residential/Religious (a)		4,658		5,126		(468	)		(9.1	)%		$1,188		$1,300		$(112	)		(8.6	)%
Commercial/Industrial		4,653		5,474		(821	)		(15.0	)		910		1,118		(208	)		(18.6	)
Retail access customers		11,894		11,188		706			6.3			1,223		1,027		196			19.1
NYPA, Municipal Agency and other sales		5,276		5,304		(28	)		(0.5	)		276		257		19			7.4
Other operating revenues		—		—					—			99		32		67			Large
Total		26,481		27,092		(611	)		(2.3	)%		$3,696		$3,734		$ (38	)		(1.0	)%

(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 decreased $38 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to lower purchased power ($144 million) and fuel costs ($36 million) offset in part by higher revenues from the electric rate plan ($158 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 plan.

Electric delivery volumes in CECONY’s service area decreased 2.3 percent in the six months ended June 30, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.4 percent in the six months ended June 30, 2012 compared with the 2011 period reflecting lower average use per customer.

CECONY’s electric purchased power costs decreased $144 million in the six months ended June 30, 2012 compared with the 2011 period due to a decrease in purchased volumes ($136 million) and unit costs ($8 million). Electric fuel costs decreased $36 million in the six months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($35 million) and sendout volumes from the company’s electric generating facilities ($1 million).

CECONY’s electric operating income increased $7 million in the six months ended June 30, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($142 million, due primarily to the electric rate plan) and lower taxes,


54

other than income taxes ($15 million, principally property taxes). The higher net revenues were offset by higher operations and maintenance costs ($126 million, due primarily to higher pension expense ($78 million), an increase in the collection of surcharges from customers ($12 million) and higher support and maintenance of company underground facilities to accommodate municipal projects ($9 million)) and higher depreciation and amortization ($24 million). See “Regulatory Assets and Liabilities” in Note B to the Second Quarter Financial Statements.

Gas

CECONY’s results of gas operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$828		$959		$(131	)
Gas purchased for resale		219		355		(136	)
Net revenues		609		604		5
Operations and maintenance		161		192		(31	)
Depreciation and amortization		59		54		5
Taxes, other than income taxes		114		121		(7	)
Gas operating income		$275		$237		$ 38

CECONY’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2012 compared with the 2011 period were:


	Thousands of dths Delivered										Revenues in Millions
	Six Months Ended										Six Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012			June 30, 2011			Variation			Percent Variation
Residential		21,619		26,156		(4,537	)		(17.3	)%		$375			$471			$ (96	)		(20.4	)%
General		14,579		18,686		(4,107	)		(22.0	)		173			224			(51	)		(22.8	)
Firm transportation		31,886		35,108		(3,222	)		(9.2	)		236			218			18			8.3
Total firm sales and transportation		68,084		79,950		(11,866	)		(14.8	)		784			913			(129	)		(14.1	)
Interruptible sales (a)		3,311		6,259		(2,948	)		(47.1	)		24			55			(31	)		(56.4	)
NYPA		20,569		11,135		9,434			84.7			1			1			—			—
Generation plants		33,516		34,206		(690	)		(2.0	)		14			16			(2	)		(12.5	)
Other		12,353		12,819		(466	)		(3.6	)		21			34			(13	)		(38.2	)
Other operating revenues		—		—		—			—			(16	)		(60	)		44			73.3
Total		137,833		144,369		(6,536	)		(4.5	)%		$828			$959			$(131	)		(13.7	)%

(a)	Includes 181 mdths and 2,075 mdths for the six months ended June 30, 2012 and 2011, respectively, which are also reflected in firm transportation and other.

CECONY’s gas operating revenues decreased $131 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to a decrease in gas purchased for resale costs ($136 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 plan.

CECONY’s sales and transportation volumes for firm customers decreased 14.8 percent in the six months ended June 30, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the company’s service area increased 0.9 percent in the six months ended June 30, 2012.


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CECONY’s purchased gas cost decreased $136 million in the six months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($89 million) and sendout volumes ($47 million).

CECONY’s gas operating income increased $38 million in the six months ended June 30, 2012 compared with the 2011 period. The increase reflects primarily lower operations and maintenance costs ($31 million, due primarily to a decrease in the collection of surcharges from customers ($20 million)), lower taxes, other than income taxes ($7 million, principally property taxes and local revenue taxes) and higher net revenues ($5 million), offset by higher depreciation ($5 million).

Steam

CECONY’s results of steam operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$346		$432		$(86	)
Purchased power		21		31		(10	)
Fuel		74		128		(54	)
Net revenues		251		273		(22	)
Operations and maintenance		89		72		17
Depreciation and amortization		32		32		—
Taxes, other than income taxes		53		55		(2	)
Steam operating income		$ 77		$114		$(37	)

CECONY’s steam sales and deliveries for the six months ended June 30, 2012 compared with the 2011 period were:


	Millions of Pounds Delivered										Revenues in Millions
	Six Months Ended										Six Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012			June 30, 2011			Variation			Percent Variation
General		293		408		(115	)		(28.2	)%		$ 16			$ 20			$ (4	)		(20.0	)%
Apartment house		3,042		3,716		(674	)		(18.1	)		95			114			(19	)		(16.7	)
Annual power		7,513		9,600		(2,087	)		(21.7	)		256			315			(59	)		(18.7	)
Other operating revenues		—		—		—			—			(21	)		(17	)		(4	)		(23.5	)
Total		10,848		13,724		(2,876	)		(21.0	)%		$346			$432			$(86	)		(19.9	)%

CECONY’s steam operating revenues decreased $86 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to lower fuel costs ($54 million), the impact of milder weather ($47 million) and lower purchased power costs ($10 million), offset by the net change in rates under the steam rate plan ($27 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.

Steam sales and delivery volumes decreased 21.0 percent in the six months ended June 30, 2012 compared with the 2011 period reflecting milder winter weather. After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 1.6 percent in the six months ended June 30, 2012, reflecting lower average normalized use per customer.

CECONY’s steam fuel costs decreased $54 million in the six months ended June 30, 2012 compared with the 2011 period due to lower unit costs ($37 million) and sendout volumes ($17 million). Steam purchased power costs decreased $10 million in the six months ended June 30, 2012 compared with the 2011 period due to a decrease in unit costs ($8 million) and purchased volumes ($2 million).


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Steam operating income decreased $37 million in the six months ended June 30, 2012 compared with the 2011 period. The decrease reflects primarily lower net revenues ($22 million) and higher operations and maintenance costs ($17 million, due primarily to higher pension expense ($23 million)), offset by lower taxes, other than income taxes ($2 million, principally local revenue taxes).

Net Interest Expense

Net interest expense increased $5 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to the issuance by CECONY in March 2012 of $400 million of 4.20 percent 30-year debentures.

Income Taxes

Income taxes decreased $11 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to higher deductions for injuries and damages payments in the 2012 period.

O&R


	Six Months Ended June 30, 2012						Six Months Ended June 30, 2011
*(millions of dollars)*	Electric		Gas		2012 Total		Electric		Gas		2011 Total		2012-2011 Variation
Operating revenues		$257		$117		$374		$289		$130		$419		$(45	)
Purchased power		80		—		80		123		—		123		(43	)
Gas purchased for resale		—		37		37		—		53		53		(16	)
Net revenues		177		80		257		166		77		243		14
Operations and maintenance		112		34		146		107		34		141		5
Depreciation and amortization		19		7		26		17		7		24		2
Taxes, other than income taxes		22		8		30		17		8		25		5
Operating income		$ 24		$ 31		$ 55		$ 25		$ 28		$ 53		$ 2

Electric

O&R’s results of electric operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$257		$289		$(32	)
Purchased power		80		123		(43	)
Net revenues		177		166		11
Operations and maintenance		112		107		5
Depreciation and amortization		19		17		2
Taxes, other than income taxes		22		17		5
Electric operating income		$ 24		$ 25		$ (1	)


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O&R’s electric sales and deliveries, excluding off-system sales, for the six months ended June 30, 2012 compared with the 2011 period were:


	Millions of kWhs Delivered										Revenues in Millions
	Six Months Ended										Six Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012		June 30, 2011			Variation			Percent Variation
Residential/Religious (a)		747		810		(63	)		(7.8	)%		$113		$140			$(27	)		(19.3	)%
Commercial/Industrial		489		597		(108	)		(18.1	)		56		79			(23	)		(29.1	)
Retail access customers		1,430		1,290		140			10.9			79		68			11			16.2
Public authorities		57		50		7			14.0			4		5			(1	)		(20.0	)
Other operating revenues		—		—		—			—			5		(3	)		8			Large
Total		2,723		2,747		(24	)		(0.9	)%		$257		$289			$(32	)		(11.1	)%

(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 decreased $32 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to lower purchased power costs ($43 million), offset in part by higher revenues from the New York rate plan ($5 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 such revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See “Rate Agreements – O&R – Electric” in Note B to the Second Quarter Financial Statements.

Electric delivery volumes in O&R’s service area decreased 0.9 percent in the six months ended June 30, 2012 compared with the 2011 period. After adjusting for weather and other variations, electric delivery volumes in O&R’s service area increased 1.3 percent in the six months ended June 30, 2012 compared with the 2011 period.

Electric operating income decreased $1 million in the six months ended June 30, 2012 compared with the 2011 period. The decrease reflects primarily higher operations and maintenance costs ($5 million, due to higher pension and health care expense), taxes other than income taxes ($5 million, principally property taxes) and higher depreciation and amortization ($2 million), offset by higher net revenues ($11 million).

Gas

O&R’s results of gas operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$117		$130		$(13	)
Gas purchased for resale		37		53		(16	)
Net revenues		80		77		3
Operations and maintenance		34		34		—
Depreciation and amortization		7		7		—
Taxes, other than income taxes		8		8		—
Gas operating income		$ 31		$ 28		$ 3


58

O&R’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2012 compared with the 2011 period were:


	Thousands of dths Delivered										Revenues in Millions
	Six Months Ended										Six Months Ended
Description	June 30, 2012		June 30, 2011		Variation			Percent Variation			June 30, 2012		June 30, 2011		Variation			Percent Variation
Residential		3,681		4,742		(1,061	)		(22.4	)%		$ 51		$ 68		$(17	)		(25.0	)%
General		724		928		(204	)		(22.0	)		9		12		(3	)		(25.0	)
Firm transportation		5,949		6,952		(1,003	)		(14.4	)		45		45		—			—
Total firm sales and transportation		10,354		12,622		(2,268	)		(18.0	)		105		125		(20	)		(16.0	)
Interruptible sales		2,255		2,304		(49	)		(2.1	)		2		2		—			—
Generation plants		—		750		(750	)		Large			—		—		—			—
Other		441		534		(93	)		(17.4	)		—		—		—			—
Other gas revenues		—		—		—			—			10		3		7			Large
Total		13,050		16,210		(3,160	)		(19.5	)%		$117		$130		$(13	)		(10.0	)%

O&R’s gas operating revenues decreased $13 million in the six months ended June 30, 2012 compared with the 2011 period due primarily to the decrease in gas purchased for resale in 2012 ($16 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 decreased 18.0 percent in the six months ended June 30, 2012 compared with the 2011 period. After adjusting for weather and other variations, total firm sales and transportation volumes increased 1.4 percent in the six months ended June 30, 2012 compared with the 2011 period.

Gas operating income increased $3 million in the six months ended June 30, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($3 million).

Competitive Energy Businesses

The competitive energy businesses’ results of operations for the six months ended June 30, 2012 compared with the 2011 period is as follows:


	Six Months Ended
*(millions of dollars)*	June 30, 2012		June 30, 2011		Variation
Operating revenues		$610		$814		$(204	)
Purchased power		480		669		(189	)
Gas purchased for resale		2		11		(9	)
Net revenues		128		134		(6	)
Operations and maintenance		56		63		(7	)
Depreciation and amortization		4		3		1
Taxes, other than income taxes		9		10		(1	)
Operating income		$ 59		$ 58		$ 1

The competitive energy businesses’ operating revenues decreased $204 million in the six months ended June 30, 2012 compared with the 2011 period, due primarily to lower electric retail and wholesale revenues. Electric wholesale revenues decreased $75 million in the six months ended June 30, 2012 as compared with the 2011 period, due to lower sales volumes ($54 million) and unit prices ($21 million). Electric retail revenues decreased $132 million, due to lower sales volume ($71 million) and unit prices ($61 million). Net mark-to-market values decreased $3 million in the six months ended June 30, 2012 as


					59

compared with the 2011 period, of which $15 million in losses are reflected in purchased power costs and $12 million in gains are reflected in revenues. Other revenues decreased $9 million in the six months ended June 30, 2012 as compared with the 2011 period due primarily to lower energy services revenue.

Purchased power costs decreased $189 million in the six months ended June 30, 2012 compared with the 2011 period, due primarily to lower volumes ($106 million), lower unit prices ($98 million) and changes in mark-to-market values ($15 million). Operating income increased $1 million in the six months ended June 30, 2012 compared with the 2011.

Other

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


60

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.

The Utilities are undertaking a project with the objective of improving business processes and information systems. The Utilities expect the project to reduce costs, improve support of operating activities, reduce financial reporting risks, and simplify compliance activities. The focus of the project is the new financial and supply chain enterprise resource planning information systems that the Utilities began to use in July 2012. The Utilities expect the project to enhance the processes used by employees to record financial transactions and analyze data; purchase materials and services and manage inventory; develop business plans and budgets and report financial and purchasing data. The project is reasonably likely to materially affect the Companies’ internal control over financial reporting.


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Part II Other Information

Item 1: Legal Proceedings

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

Item 1A: Risk Factors

There were no material changes in the Companies’ risk factors compared to those disclosed in Item 1A of the Form 10-K.

Item 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
April 1, 2012 to April 30, 2012		161,859	$	58.25		—		—
May 1, 2012 to May 31, 2012		54,439		59.65		—		—
June 1, 2012 to June 30, 2012		115,557		62.20		—		—
Total		331,855	$	59.85		—		—

*	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.


62

Item 6: Exhibits

CON EDISON



Exhibit 10.1		Amendment, effective July 1, 2012, to the Consolidated Edison Retirement Plan.

Exhibit 12.1		Statement of computation of Con Edison’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2012 and 2011, and the 12-month period ended December 31, 2011.

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

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

Exhibit 32.1.1		Section 1350 Certifications – Chief Executive Officer.

Exhibit 32.1.2		Section 1350 Certifications – Chief Financial Officer.

Exhibit 101.INS		XBRL Instance Document.

Exhibit 101.SCH		XBRL Taxonomy Extension Schema.

Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase.

Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase.

Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

CECONY



Exhibit 12.2		Statement of computation of CECONY’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2012 and 2011, and the 12-month period ended December 31, 2011.

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.


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SIGNATURES

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


64

TABLE OF CONTENTS

Item 2: Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risk Item 4: Controls and Procedures Part II Other Information Item 1: Legal Proceedings Item 1A: Risk Factors Item 2: Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6: Exhibits

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CONSOLIDATED EDISON, INC.

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

DATE: August 2, 2012

/s/ Robert Hoglund

Robert Hoglund

Senior Vice President, Chief

Financial Officer and Duly

Authorized Officer