Item 7. 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 relates to the consolidated financial statements included in this report of two separate registrants: Con Edison and CECONY, and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers 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.

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

Corporate Overview

Con Edison’s principal business operations are those of the Utilities. Con Edison's business operations also include those of the Clean Energy Businesses and Con Edison Transmission. See “Significant Developments and Outlook” in the Introduction to this report, “The Utilities,” “Clean Energy Businesses” and "Con Edison Transmission" in Item 1, and segment financial information in Note N to the financial statements in Item 8. Certain financial data of Con Edison’s businesses are presented below:

	For the Year Ended December 31, 2019						At December 31, 2019
(Millions of Dollars, except percentages)	Operating Revenues			Net Income for Common Stock			Assets
CECONY	$10,821	86	%	$1,250	93	%	$46,557	80	%
O&R	893	7	%	70	5	%	3,006	5	%
Total Utilities	11,714	93	%	1,320	98	%	49,563	85	%
Clean Energy Businesses (a)	857	7	%	(18)	(1	)%	6,528	11	%
Con Edison Transmission	4	—	%	52	4	%	1,618	3	%
Other (b)	(1)	—	%	(11)	(1	)%	370	1	%
Total Con Edison	$12,574	100	%	$1,343	100	%	$58,079	100	%

(a)

Net income for common stock from the Clean Energy Businesses for the year ended December 31, 2019 includes $(21) million of net after-tax mark-to-market losses and reflects $74 million (after-tax) of income attributable to the non-controlling interest of a tax equity investor in renewable electric production projects accounted for under the HLBV method of accounting. See Note Q to the financial statements in Item 8.

(b)	Other includes parent company and consolidation adjustments.

Results of Operations

Net income for common stock and earnings per share for the years ended December 31, 2019, 2018 and 2017 were as follows:

(Millions of Dollars, except per share amounts)	Net Income for Common Stock			Earnings per Share
	2019	2018	2017	2019			2018			2017
CECONY	$1,250	$1,196	$1,104		$3.80			$3.84			$3.59
O&R	70	59	64	0.21			0.19			0.21
Clean Energy Businesses (a)(b)(c)	(18)	145	332	(0.06		)	0.46			1.08
Con Edison Transmission (c)	52	47	44	0.16			0.15			0.15
Other (c)(d)	(11)	(65)	(19)	(0.02		)	(0.21		)	(0.06		)
Con Edison (e)	$1,343	$1,382	$1,525		$4.09			$4.43			$4.97

(a)

Net income for common stock from the Clean Energy Businesses for the year ended December 31, 2019 reflects $74 million or $0.22 a share (after-tax) of income attributable to the non-controlling interest of a tax equity investor in renewable electric production projects accounted for under the HLBV method of accounting. See Note Q to the financial statements in Item 8. Net income for common stock from the Clean Energy Businesses for the year ended December 31, 2017 includes $1 million or $0.00 a share of net after-tax gain on the sale of a solar electric production project in 2017. See Note U to the financial statements in Item 8. Net income for common stock from the Clean Energy Businesses also includes $(21) million or $(0.07) a share, $(6) million or $(0.02) a share and $1 million or $0.00 a share of net after-tax mark-to-market gains/(losses) in 2019, 2018 and 2017, respectively.

(b)	In December 2018, the Clean Energy Businesses acquired Sempra Solar Holdings, LLC. Upon completion of the acquisition, the Clean Energy Businesses recognized an after-tax gain of $89 million or $0.28 per share with respect to jointly-owned renewable energy production projects. See Note U to the financial statements in Item 8.

(c)

Upon enactment of the TCJA in December 2017, Con Edison re-measured its deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA. As a result, the Clean Energy Businesses, Con Edison Transmission and the parent company recognized in net income for common stock for the year ended December 31, 2017 $269 million, $11 million and $(21) million, respectively. See Note L to the financial statements in Item 8.

50	CON EDISON ANNUAL REPORT 2019

(d)

Other includes parent company and consolidation adjustments. Net income for common stock includes $(42) million or $(0.14) a share of income tax expense resulting from a re-measurement of the company's deferred tax assets and liabilities following the issuance of proposed regulations relating to the TCJA for the year ended December 31, 2018. See Note L to the financial statements in Item 8. Net income for common stock for the year ended December 31, 2018 also includes $(8) million or $(0.02) a share of the after-tax transaction costs related to the Clean Energy Businesses' purchase of Sempra Solar Holdings, LLC. See Note U to the financial statements in Item 8.

(e)	Earnings per share on a diluted basis were $4.08 a share, $4.42 a share and $4.94 a share in 2019, 2018 and 2017, respectively. See "Earnings Per Common Share" in Note A to the financial statements in Item 8.

The following tables present the estimated effect of major factors on earnings per share and net income for common stock for the years ended December 31, 2019 as compared with 2018, and 2018 as compared with 2017.

CON EDISON ANNUAL REPORT 2019	51

	Variation for the Years Ended December 31, 2019 vs. 2018
	Earnings per Share	Net Income for Common Stock (Millions of Dollars)
CECONY (a)
Changes in rate plans	$0.76	$240	Reflects higher electric and gas net base revenues of $0.53 a share and $0.16 a share, respectively, due primarily to electric and gas base rate increases in January 2019 under the company's rate plans, higher incentives earned under the electric earnings adjustment mechanisms and positive incentives of $0.06 a share, and growth in the number of gas customers of $0.03 a share, offset, in part, by electric negative revenue adjustments of $(0.03) a share.
Weather impact on steam revenues	(0.06)	(19)	Reflects the impact of warmer winter weather in 2019.
Operations and maintenance expenses	(0.19)	(58)	Reflects higher costs for pension and other postretirement benefits of $(0.15) a share, which are recoverable under the rate plans, and higher stock-based compensation of $(0.07) a share, offset, in part, by lower consultant costs of $0.04 a share.
Depreciation, property taxes and other tax matters	(0.54)	(168)	Reflects higher property taxes of $(0.26) a share and higher depreciation and amortization expense of $(0.23) a share, both of which are recoverable under the rate plans, and the absence of New York State sales and use tax refunds received in 2018 of $(0.07) a share, offset, in part, by lower sales and use tax of $0.02 a share, upon conclusion of the audit assessment.
Other	(0.01)	59	Reflects the dilutive effect of Con Edison's stock issuances of $(0.21) a share, offset, in part, by lower costs associated with components of pension and other postretirement benefits other than service cost of $0.19 a share.
Total CECONY	(0.04)	54
O&R (a)
Changes in rate plans	0.08	24	Reflects an electric base rate increase, offset, in part, by a gas base rate decrease under the company's rate plans, effective January 1, 2019.
Operations and maintenance expenses	(0.01)	(3)	Reflects higher stock-based compensation.
Depreciation, property taxes and other tax matters	(0.02)	(6)	Reflects higher depreciation and amortization expense.
Other	(0.03)	(4)	Includes the dilutive effect of Con Edison's stock issuances of $(0.01) a share.
Total O&R	0.02	11
Clean Energy Businesses
Operating revenues less energy costs	0.53	167	Reflects higher revenues from renewable electric production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC, including the consolidation of certain jointly-owned projects that were previously accounted for as equity investments of $0.81 a share, offset, in part, by lower engineering, procurement and construction services revenues of $(0.34) a share.
Operations and maintenance expenses	0.15	47	Reflects lower engineering, procurement and construction costs of $0.19 a share and lower energy services costs of $0.04 a share, offset, in part, by higher costs associated with additional renewable electric production projects in operation resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC. of $(0.06) a share.
Depreciation and amortization	(0.34)	(105)	Reflects an increase in renewable electric production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC.
Net interest expense	(0.29)	(90)	Reflects an increase in debt resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC.
HLBV effects	(0.22)	(74)
Gain on acquisition of Sempra Solar Holdings, LLC, net of transaction costs in 2018	(0.28)	(89)
Other	(0.07)	(19)	Reflects the absence in 2019 of equity income from certain jointly-owned projects that were accounted for as equity investments in 2018 but consolidated after the December 2018 acquisition of Sempra Solar Holdings, LLC.
Total Clean Energy Businesses	(0.52)	(163)
Con Edison Transmission	0.01	5	Reflects higher allowance for funds used during construction from the Mountain Valley Pipeline project.
Other, including parent company expenses	0.19	54	Reflects lower New York State capital tax of $0.02 a share. Also reflects 2018 TCJA re-measurement of $0.14 a share and transaction costs related to the acquisition of Sempra Solar Holdings, LLC of $0.02 a share.
Total Reported (GAAP basis)	$(0.34)	$(39)
a. Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans and the weather-normalization clause applicable to their gas businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect Con Edison’s results of operations.

52	CON EDISON ANNUAL REPORT 2019

	Variation for the Years Ended December 31, 2018 vs. 2017
	Earnings per Share		Net Income for Common Stock (Millions of Dollars)
CECONY (a)
Changes in rate plans	$0.84		$258	Reflects primarily higher electric and gas net base revenues of $0.59 a share and $0.16 a share, respectively, and growth in the number of gas customers of $0.06 a share. Electric and gas base rates increased in January 2018 in accordance with the company's rate plans.
Weather impact on steam revenues	0.10		31	Steam revenues were $0.06 a share higher in 2018 due to the estimated impact of colder winter weather in 2018. Steam revenues were $(0.05) a share lower in 2017 due to the estimated impact of warmer than normal winter weather.
Operations and maintenance expenses	(0.08)		(25)	Reflects primarily higher consultant costs of $(0.05) a share and storm-related costs of $(0.04) a share.
Depreciation, property taxes and other tax matters	(0.37)		(115)	Reflects higher net property taxes of $(0.25) a share and depreciation and amortization expense of $(0.19) a share, offset, in part, by New York State sales and use tax refunds of $0.07 a share.
Other	(0.24)		(57)	Reflects primarily higher interest expense on long-term debt of $(0.16) a share, regulatory reserve related to steam earnings sharing of $(0.05) a share, and the dilutive effect of Con Edison's stock issuances of $(0.06) a share.
Total CECONY	0.25		92
O&R (a)
Changes in rate plans	0.02		6	Reflects primarily higher gas net base revenues. Gas base rates increased in November 2017 in accordance with the company's gas rate plan.
Operations and maintenance expenses	(0.02)		(6)	Reflects primarily reduction of a regulatory asset associated with certain site investigation and environmental remediation costs.
Depreciation, property taxes and other tax matters	(0.01)		(4)	Reflects higher depreciation and amortization expense.
Other	(0.01)		(1)
Total O&R	(0.02)		(5)
Clean Energy Businesses
Operating revenues less energy costs	(0.05)		(16)	Reflects primarily lower renewable revenues, including engineering, procurement and construction services, offset, in part, by an increase in renewable electric production projects in operation and an increase in energy services revenue.
Operations and maintenance expenses	0.06		19	Reflects primarily lower engineering, procurement and construction costs.
Depreciation	(0.03)		(9)
Net interest expense	(0.05)		(15)
Gain on sale of solar electric production project	—		(1)
Income tax effect of the TCJA	(0.88)		(269)
Gain on acquisition of Sempra Solar Holdings, LLC	0.42		131
Other	(0.09)		(27)
Total Clean Energy Businesses	(0.62)		(187)
Con Edison Transmission	—		3	Includes the effect of the TCJA of $0.04 a share in December 2017. Reflects income from equity investments.
Other, including parent company expenses	(0.15)		(46)	Includes TCJA re-measurement of $(0.14) a share, New York State capital tax of $(0.03) a share and transaction costs related to acquisition of Sempra Solar Holdings, LLC of $(0.02) a share. Also includes the effect of the TCJA of $(0.07) a share in December 2017.
Total Reported (GAAP basis)	$(0.54)		$(143)
a. Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans and the weather-normalization clause applicable to their gas businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect Con Edison’s results of operations.

CON EDISON ANNUAL REPORT 2019	53

The Companies’ other operations and maintenance expenses for the years ended December 31, 2019, 2018 and 2017 were as follows:

(Millions of Dollars)	2019		2018	2017
CECONY
Operations	$1,563		$1,553	$1,528
Pensions and other postretirement benefits	134		71	58
Health care and other benefits	170		166	170
Regulatory fees and assessments (a)	464		444	476
Other	304		321	294
Total CECONY	2,635		2,555	2,526
O&R	308		305	296
Clean Energy Businesses (b)	223		287	313
Con Edison Transmission	9		10	9
Other (c)	—		(5)	(5)
Total other operations and maintenance expenses	$3,175		$3,152	$3,139

(a)	Includes Demand Side Management, System Benefit Charges and Public Service Law 18A assessments which are collected in revenues.

(b)	The decrease in other operations and maintenance expenses for the year ended December 31, 2019 compared with the 2018 and 2017 periods is due primarily to lower engineering, procurement and construction costs.

(c)	Includes parent company and consolidation adjustments.

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities, the Clean Energy Businesses and Con Edison Transmission. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the years ended December 31, 2019, 2018 and 2017 follows. For additional business segment financial information, see Note N to the financial statements in Item 8.

54	CON EDISON ANNUAL REPORT 2019

The Companies’ results of operations for the years ended December 31, 2019, 2018 and 2017 were:

	CECONY						O&R						Clean Energy Businesses						Con Edison Transmission						Other (a)						Con Edison (b)
(Millions of Dollars)	2019		2018		2017		2019		2018		2017		2019		2018		2017		2019		2018		2017		2019		2018		2017		2019		2018		2017
Operating revenues	$10,821		$10,680		$10,468		$893		$891		$874		$857		$763		$694		$4		$4		$2		$(1)		$(1)		$(5)		$12,574		$12,337		$12,033
Purchased power	1,357		1,433		1,415		188		208		191		—		2		(3)		—		—		—		1		1		(2)		1,546		1,644		1,601
Fuel	207		263		216		—		—		—		—		—		—		—		—		—		—		—		—		207		263		216
Gas purchased for resale	606		643		510		90		86		73		185		313		226		—		—		—		(1)		(1)		(1)		880		1,041		808
Other operations and maintenance	2,635		2,555		2,526		308		305		296		223		287		313		9		10		9		—		(5)		(5)		3,175		3,152		3,139
Depreciation and amortization	1,373		1,276		1,195		84		77		71		226		85		74		1		1		1		—		(1)		—		1,684		1,438		1,341
Taxes, other than income taxes	2,295		2,156		2,057		84		83		82		21		13		16		—		—		—		6		14		—		2,406		2,266		2,155
Gain on sale of solar electric production project (c)	—		—		—		—		—		—		—		—		1		—		—		—		—		—		—		—		—		1
Gain on acquisition of Sempra Solar Holdings, LLC (c)	—		—		—		—		—		—		—		131		—		—		—		—		—		—		—		—		131		—
Operating income	2,348		2,354		2,549		139		132		161		202		194		69		(6)		(7)		(8)		(7)		(9)		3		2,676		2,664		2,774
Other income less deductions	(35)		(143)		(137)		(11)		(19)		(19)		5		33		33		104		91		80		(12)		(24)		(5)		51		(62)		(48)
Net interest expense	728		689		623		41		39		36		186		63		43		25		20		16		11		8		11		991		819		729
Income before income tax expense	1,585		1,522		1,789		87		74		106		21		164		59		73		64		56		(30)		(41)		(13)		1,736		1,783		1,997
Income tax expense	335		326		685		17		15		42		(58)		19		(273)		21		17		12		(19)		24		6		296		401		472
Net income	$1,250		$1,196		$1,104		$70		$59		$64		$79		$145		$332		$52		$47		$44		$(11)		$(65)		$(19)		$1,440		$1,382		$1,525
Income attributable to non-controlling interest	—		—		—		—		—		—		97		—		—		—		—		—		—		—		—		97		—		—
Net income from common stock	$1,250		$1,196		$1,104		$70		$59		$64		$(18)		$145		$332		$52		$47		$44		$(11)		$(65)		$(19)		$1,343		$1,382		$1,525

(a) Includes parent company and consolidation adjustments.

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

(c) See Note U to the financial statements in Item 8.

CON EDISON ANNUAL REPORT 2019	55

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

CECONY

	For the Year Ended December 31, 2019							For the Year Ended December 31, 2018
(Millions of Dollars)	Electric		Gas		Steam		2019 Total	Electric		Gas		Steam		2018 Total	2019-2018 Variation
Operating revenues	$8,062		$2,132		$627		$10,821	$7,971		$2,078		$631		$10,680	$141
Purchased power	1,324		—		33		1,357	1,393		—		40		1,433	(76)
Fuel	99		—		108		207	158		—		105		263	(56)
Gas purchased for resale	—		606		—		606	—		643		—		643	(37)
Other operations and maintenance	2,059		399		177		2,635	1,961		420		174		2,555	80
Depreciation and amortization	1,053		231		89		1,373	984		205		87		1,276	97
Taxes, other than income taxes	1,769		368		158		2,295	1,676		332		148		2,156	139
Operating income	$1,758		$528		$62		$2,348	$1,799		$478		$77		$2,354	$(6)

Electric

CECONY’s results of electric operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2019	2018	Variation
Operating revenues	$8,062	$7,971	$91
Purchased power	1,324	1,393	(69)
Fuel	99	158	(59)
Other operations and maintenance	2,059	1,961	98
Depreciation and amortization	1,053	984	69
Taxes, other than income taxes	1,769	1,676	93
Electric operating income	$1,758	$1,799	$(41)

CECONY’s electric sales and deliveries in 2019 compared with 2018 were:

	Millions of kWh Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2019		December 31, 2018		Variation		Percent Variation			December 31, 2019	December 31, 2018	Variation	Percent Variation
Residential/Religious (b)	10,560		10,797		(237	)	(2.2	)%		$2,671	$2,846	$(175)	(6.1	)%
Commercial/Industrial	9,908		9,588		320		3.3			1,845	1,850	(5)	(0.3	)
Retail choice customers	24,754		26,266		(1,512	)	(5.8	)		2,470	2,624	(154)	(5.9	)
NYPA, Municipal Agency and other sales	9,932		10,186		(254	)	(2.5	)		663	662	1	0.2
Other operating revenues (c)	—		—		—		—			413	(11)	424	Large
Total	55,154		56,837		(1,683	)	(3.0	)%	(d)	$8,062	$7,971	$91	1.1	%

(a)	Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.

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

(c)	Other electric operating revenues generally reflect changes in the revenue decoupling mechanism current asset or regulatory liability and changes in regulatory assets and liabilities in accordance with other provisions of the company’s rate plan.

(d)	After adjusting for variations, primarily weather and billing days, electric delivery volumes in the company’s service area decreased 1.1 percent in 2019 compared with 2018.

Operating revenues increased $91 million in 2019 compared with 2018 due primarily to an increase in revenues from the rate plan ($215 million), including earnings adjustment mechanism incentives for energy efficiency ($22 million), offset, in part, by lower purchased power expenses ($69 million) and fuel expenses ($59 million).

Purchased power expenses decreased $69 million in 2019 compared with 2018 due to lower unit costs ($199 million), offset, in part, by higher purchased volumes ($130 million).

56	CON EDISON ANNUAL REPORT 2019

Fuel expenses decreased $59 million in 2019 compared with 2018 due to lower unit costs ($54 million) and purchased volumes from the company’s electric generating facilities ($5 million).

Other operations and maintenance expenses increased $98 million in 2019 compared with 2018 due primarily to higher costs for pension and other postretirement benefits ($91 million), surcharges for assessments and fees that are collected in revenues from customers ($40 million) and higher stock-based compensation ($23 million), offset, in part, by lower other employee benefits ($41 million) and municipal infrastructure support costs ($12 million).

Depreciation and amortization increased $69 million in 2019 compared with 2018 due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $93 million in 2019 compared with 2018 due primarily to higher property taxes ($86 million) and the absence of a New York State sales and use tax refund received in 2018 ($26 million), offset, in part, by higher deferral of under-collected property taxes ($11 million), the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($6 million) and lower state and local taxes ($2 million).

Gas

CECONY’s results of gas operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2019	2018	Variation
Operating revenues	$2,132	$2,078	$54
Gas purchased for resale	606	643	(37)
Other operations and maintenance	399	420	(21)
Depreciation and amortization	231	205	26
Taxes, other than income taxes	368	332	36
Gas operating income	$528	$478	$50

CECONY’s gas sales and deliveries, excluding off-system sales, in 2019 compared with 2018 were:

	Thousands of Dt Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2019		December 31, 2018		Variation		Percent Variation			December 31, 2019	December 31, 2018	Variation		Percent Variation
Residential	54,402		57,815		(3,413	)	(5.9	)%		$943	$966	$(23)		(2.4	)%
General	33,235		34,490		(1,255	)	(3.6	)		384	390	(6)		(1.5	)
Firm transportation	81,710		82,472		(762	)	(0.9	)		593	595	(2)		(0.3	)
Total firm sales and transportation	169,347		174,777		(5,430	)	(3.1	)	(b)	1,920	1,951	(31)		(1.6	)
Interruptible sales (c)	9,903		7,351		2,552		34.7			42	40	2		5.0
NYPA	39,643		34,079		5,564		16.3			2	2	—		—
Generation plants	52,011		72,524		(20,513	)	(28.3	)		23	26	(3)		(11.5	)
Other	20,701		20,822		(121	)	(0.6	)		31	31	—		—
Other operating revenues (d)	—		—		—		—			114	28	86		Large
Total	291,605		309,553		(17,948	)	(5.8	)%		$2,132	$2,078	$54		2.6	%

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

(b)	After adjusting for variations, primarily billing days, firm gas sales and transportation volumes in the company’s service area increased 1.8 percent in 2019 compared with 2018, reflecting primarily increased volumes attributable to the growth in the number of gas customers.

(c)	Includes 5,484 thousands and 3,326 thousands of Dt for 2019 and 2018, respectively, which are also reflected in firm transportation and other.

(d)	Other gas operating revenues generally reflect changes in the revenue decoupling mechanism and weather normalization clause current asset or regulatory liability and changes in regulatory assets and liabilities in accordance with other provisions of the company’s rate plans. See Note B to the financial statements in Item 8.

Operating revenues increased $54 million in 2019 compared with 2018 due primarily to an increase in revenues from the rate plan ($99 million), offset, in part, by lower gas purchased for resale expense ($37 million).

CON EDISON ANNUAL REPORT 2019	57

Gas purchased for resale decreased $37 million in 2019 compared with 2018 due to lower unit costs ($34 million) and purchased volumes ($3 million).

Other operations and maintenance expenses decreased $21 million in 2019 compared with 2018 due primarily to lower surcharges for assessments and fees that are collected in revenues from customers.

Depreciation and amortization increased $26 million in 2019 compared with 2018 due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $36 million in 2019 compared with 2018 due primarily to higher property taxes ($37 million), the absence of a New York State sales and use tax refund received in 2018 ($3 million) and higher state and local taxes ($2 million), offset, in part, by higher deferral of under-collected property taxes ($4 million) and the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($1 million).

Steam

CECONY’s results of steam operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2019	2018	Variation
Operating revenues	$627	$631	$(4)
Purchased power	33	40	(7)
Fuel	108	105	3
Other operations and maintenance	177	174	3
Depreciation and amortization	89	87	2
Taxes, other than income taxes	158	148	10
Steam operating income	$62	$77	$(15)

CECONY’s steam sales and deliveries in 2019 compared with 2018 were:

	Millions of Pounds Delivered									Revenues in Millions
	For the Years Ended									For the Years Ended
Description	December 31, 2019		December 31, 2018		Variation		Percent Variation			December 31, 2019	December 31, 2018	Variation	Percent Variation
General	536		593		(57	)	(9.6	)%		$27	$30	$(3)	(10.0	)%
Apartment house	5,919		6,358		(439	)	(6.9	)		160	174	(14)	(8.0	)
Annual power	13,340		14,811		(1,471	)	(9.9	)		395	441	(46)	(10.4	)
Other operating revenues (a)	—		—		—		—			45	(14)	59	Large
Total	19,795		21,762		(1,967	)	(9.0	)%	(b)	$627	$631	$(4)	(0.6	)%

(a)	Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan. See Note B to the financial statements in Item 8.

(b)	After adjusting for variations, primarily weather and billing days, steam sales and deliveries in the company’s service area decreased 4.4 percent in 2019 compared with 2018.

Operating revenues decreased $4 million in 2019 compared with 2018 due primarily to the impact of warmer winter weather ($26 million) and lower purchased power expenses ($7 million), offset by certain rate plan reconciliations ($16 million), lower reserve related to steam earnings sharing ($14 million) and higher fuel expenses ($3 million).

Purchased power expenses decreased $7 million in 2019 compared with 2018 due to lower unit costs ($6 million) and purchased volumes ($1 million).

Fuel expenses increased $3 million in 2019 compared with 2018 due to higher unit costs ($7 million), offset, in part, by lower purchased volumes from the company’s steam generating facilities ($4 million).

Other operations and maintenance expenses increased $3 million in 2019 compared with 2018 due primarily to higher municipal infrastructure support costs ($7 million), higher costs for pension and other postretirement benefits ($8 million) and stock-based compensation ($2 million), offset, in part, by the absence in 2019 of property damage, clean-up and other response costs related to a steam main rupture in 2018 ($11 million).

58	CON EDISON ANNUAL REPORT 2019

Depreciation and amortization increased $2 million in 2019 compared with 2018 due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $10 million in 2019 compared with 2018 due primarily to higher property taxes ($12 million) and the absence of a New York State sales and use tax refund received in 2018 ($1 million), offset, in part, by lower state and local taxes ($1 million), higher deferral of under-collected property taxes ($1 million) and the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($1 million).

Taxes, Other Than Income Taxes

At $2,295 million, taxes other than income taxes remain one of CECONY’s largest operating expenses. The principal components of, and variations in, taxes other than income taxes were:

	For the Years Ended December 31,
(Millions of Dollars)	2019		2018		Variation
Property taxes	$1,979		$1,845		$134
State and local taxes related to revenue receipts	328		330		(2)
Payroll taxes	69		69		—
Other taxes	(81)		(88)		7
Total	$2,295	(a)	$2,156	(a)	$139

(a)	Including sales tax on customers’ bills, total taxes other than income taxes in 2019 and 2018 were $2,807 and $2,628 million, respectively.

Other Income (Deductions)

Other income (deductions) increased $108 million in 2019 compared with 2018 due primarily to lower costs associated with components of pension and other postretirement benefits other than service cost.

Net Interest Expense

Net interest expense increased $39 million in 2019 compared with 2018 due primarily to higher interest expense for long-term ($10 million) and short-term ($6 million) debt, an increase in interest accrued on the TCJA related regulatory liability ($9 million) and interest accrued on the system benefit charge liability ($8 million).

Income Tax Expense

Income taxes increased $9 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($13 million) and lower tax benefits in 2019 for plant-related flow through items ($7 million), offset, in part, by an increase in the amortization of excess deferred federal income taxes due to the TCJA ($11 million).

O&R

	For the Year Ended December 31, 2019					For the Year Ended December 31, 2018
(Millions of Dollars)	Electric		Gas		2019 Total	Electric		Gas		2018 Total	2019-2018 Variation
Operating revenues	$634		$259		$893	$642		$249		$891	$2
Purchased power	188		—		188	208		—		208	(20)
Gas purchased for resale	—		90		90	—		86		86	4
Other operations and maintenance	235		73		308	233		72		305	3
Depreciation and amortization	60		24		84	56		21		77	7
Taxes, other than income taxes	53		31		84	52		31		83	1
Operating income	$98		$41		$139	$93		$39		$132	$7

CON EDISON ANNUAL REPORT 2019	59

Electric

O&R’s results of electric operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2019	2018	Variation
Operating revenues	$634	$642	$(8)
Purchased power	188	208	(20)
Other operations and maintenance	235	233	2
Depreciation and amortization	60	56	4
Taxes, other than income taxes	53	52	1
Electric operating income	$98	$93	$5

O&R’s electric sales and deliveries in 2019 compared with 2018 were:

	Millions of kWh Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2019		December 31, 2018		Variation		Percent Variation			December 31, 2019	December 31, 2018	Variation	Percent Variation
Residential/Religious (b)	1,703		1,713		(10	)	(0.6	)%		$309	$326	$(17)	(5.2	)%
Commercial/Industrial	808		799		9		1.1			112	115	(3)	(2.6	)
Retail choice customers	2,885		2,974		(89	)	(3.0	)		191	201	(10)	(5.0	)
Public authorities	106		131		(25	)	(19.1	)		8	12	(4)	(33.3	)
Other operating revenues (c)	—		—		—		—			14	(12)	26	Large
Total	5,502		5,617		(115	)	(2.0	)%	(d)	$634	$642	$(8)	(1.2	)%

(a)	Revenues from New York electric delivery sales are subject to a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.

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

(c)	Other electric operating revenues generally reflect changes in the revenue decoupling mechanism current asset or regulatory liability in accordance with the company’s New York electric rate plan and changes in regulatory assets and liabilities in accordance with the company’s electric rate plans. See Note B to the financial statements in Item 8.

(d)	After adjusting for weather and other variations, electric delivery volumes in company’s service area decreased 1.1 percent in 2019 compared with 2018.

Operating revenues decreased $8 million in 2019 compared with 2018 due primarily to lower purchased power expenses.

Purchased power expenses decreased $20 million in 2019 compared with 2018 due to lower unit costs ($21 million), offset, in part, by higher purchased volumes ($1 million).

Other operations and maintenance expenses increased $2 million in 2019 compared with 2018 due primarily to a regulatory change in accounting for manufactured gas plant spending ($5 million) and higher stock-based compensation ($2 million), offset, in part, by the reduction of a regulatory asset associated with certain site investigation and remediation costs in 2018 ($6 million).

Depreciation and amortization increased $4 million in 2019 compared with 2018 due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $1 million in 2019 compared with 2018 due primarily to higher property taxes.

Gas

O&R’s results of gas operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

60	CON EDISON ANNUAL REPORT 2019

	For the Years Ended December 31,
(Millions of Dollars)	2019	2018	Variation
Operating revenues	$259	$249	$10
Gas purchased for resale	90	86	4
Other operations and maintenance	73	72	1
Depreciation and amortization	24	21	3
Taxes, other than income taxes	31	31	—
Gas operating income	$41	$39	$2

O&R’s gas sales and deliveries, excluding off-system sales, in 2019 compared with 2018 were:

	Thousands of Dt Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2019		December 31, 2018		Variation		Percent Variation			December 31, 2019		December 31, 2018		Variation		Percent Variation
Residential	10,209		9,860		349		3.5	%		$136		$140		$(4)		(2.9	)%
General	2,328		2,190		138		6.3			25		26		(1)		(3.8	)
Firm transportation	9,459		9,950		(491	)	(4.9	)		63		78		(15)		(19.2	)
Total firm sales and transportation	21,996		22,000		(4	)	—		(b)	224		244		(20)		(8.2	)
Interruptible sales	3,668		3,746		(78	)	(2.1	)		6		6		—		—
Generation plants	4		1		3		Large			—		—		—		—
Other	914		959		(45	)	(4.7	)		1		1		—		—
Other gas revenues	—		—		—		—			28		(2)		30		Large
Total	26,582		26,706		(124	)	(0.5	)%		$259		$249		$10		4.0	%

(a)	Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.

(b)	After adjusting for weather and other variations, firm sales and transportation volumes in the company’s service area increased 0.9 percent in 2019 compared with 2018.

Operating revenues increased $10 million in 2019 compared with 2018 due primarily to higher revenues from the New York gas rate plan ($8 million) and an increase in gas purchased for resale ($4 million).

Gas purchased for resale increased $4 million in 2019 compared with 2018 due to higher unit costs ($3 million) and purchased volumes ($1 million).

Other operations and maintenance expenses increased $1 million in 2019 compared with 2018 due primarily to a regulatory change in accounting for manufactured gas plant spending ($3 million) and higher stock-based compensation ($1 million), offset, in part, by the reduction of a regulatory asset associated with certain site investigation and remediation costs in 2018 ($3 million).

Depreciation and amortization increased $3 million in 2019 compared with 2018 due primarily to higher gas utility plant balances.

Taxes, Other Than Income Taxes

Taxes, other than income taxes, increased $1 million in 2019 compared with 2018. The principal components of taxes, other than income taxes, were:

	For the Years Ended December 31,
(Millions of Dollars)	2019		2018		Variation
Property taxes	$66		$65		$1
State and local taxes related to revenue receipts	10		10		—
Payroll taxes	8		8		—
Total	$84	(a)	$83	(a)		$1

(a)	Including sales tax on customers’ bills, total taxes other than income taxes in 2019 and 2018 were $116 million and $112 million, respectively.

CON EDISON ANNUAL REPORT 2019	61

Other Income (Deductions)

Other income (deductions) increased $8 million in 2019 compared with 2018 due primarily to lower costs associated with components of pension and other postretirement benefits other than service cost.

Income Tax Expense

Income taxes increased $2 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($3 million), offset, in part, by an increase in amortization of excess deferred federal income taxes due to the TCJA ($1 million).

Clean Energy Businesses

The Clean Energy Businesses’ results of operations for the year ended December 31, 2019 compared with the year ended December 31, 2018 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2019		2018	Variation
Operating revenues	$857		$763	$94
Purchased power	—		2	(2)
Gas purchased for resale	185		313	(128)
Other operations and maintenance	223		287	(64)
Depreciation and amortization	226		85	141
Taxes, other than income taxes	21		13	8
Gain on acquisition of Sempra Solar Holdings, LLC (a)	—		131	(131)
Operating income	$202		$194	$8

(a) See Note U to the financial statements in Item 8.

Operating revenues increased $94 million in 2019 compared with 2018 due primarily to higher revenues from renewable electric production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC, including the consolidation of certain jointly-owned projects that were previously accounted for as equity investments ($340 million), offset, in part, by lower wholesale revenues ($144 million), lower engineering, procurement and construction services revenues due to the completion in 2018 of a solar electric production project developed for another company ($92 million) and lower energy services revenues ($24 million). Net mark-to-market values increased ($14 million).

Purchased power expenses decreased $2 million in 2019 compared with 2018 due primarily to the absence in the 2019 period of the true-ups relating to the retail electric supply business sold in 2016.

Gas purchased for resale decreased $128 million in 2019 compared with 2018 due to lower purchased volumes.

Other operations and maintenance expenses decreased $64 million in 2019 compared with 2018 due primarily to lower engineering, procurement and construction costs ($82 million) and lower energy services costs ($18 million), offset, in part, by higher costs associated with additional renewable electric production projects in operation resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC ($26 million).

Depreciation and amortization increased $141 million in 2019 compared with 2018 due primarily to an increase in renewable electric production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC (including the consolidation of certain jointly-owned projects that the Clean Energy Businesses previously accounted for as equity method investments).

Taxes, other than income taxes increased $8 million in 2019 compared with 2018 due primarily to higher property taxes associated with additional renewable electric production projects in operation resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC.

Gain on acquisition of Sempra Solar Holdings, LLC decreased $131 million in 2019 compared with 2018 due to the absence in 2019 of the gain recognized in 2018 with respect to jointly-owned renewable energy production projects upon completion of the acquisition of Sempra Solar Holdings, LLC. See Note U to the financial statements in Item 8.

Other Income (Deductions)

Other income (deductions) decreased $28 million in 2019 compared with 2018 due primarily to the absence in 2019 of equity income from certain jointly-owned projects that were accounted for as equity investments in 2018 but consolidated after the December 2018 acquisition of Sempra Solar Holdings, LLC.

62	CON EDISON ANNUAL REPORT 2019

Net Interest Expense

Net interest expense increased $123 million in 2019 compared with 2018 due primarily to an increase in debt resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC, including $825 million that was borrowed to fund a portion of the purchase price, $576 million of Sempra Solar Holdings, LLC subsidiaries' project debt that was outstanding at the time of the acquisition and the consolidation of $506 million of project debt of certain jointly-owned projects that the Clean Energy Businesses previously accounted for as equity method investments**.**

Income Tax Expense

Income taxes decreased $77 million in 2019 compared with 2018 due primarily to lower income before income tax expense (excluding income attributable to non-controlling interest) ($50 million), higher renewable energy credits ($7 million), lower state income taxes ($11 million), adjustments for prior period federal income tax returns primarily due to increased research and development credits ($11 million) and lower valuation allowances on state net operating losses ($6 million), offset, in part, by an increase in uncertain tax positions ($9 million).

Income Attributable to Non-Controlling Interest

Income attributable to non-controlling interest increased $97 million in 2019 compared with 2018 due primarily to the income attributable in the 2019 period to a tax equity investor in renewable electric production projects accounted for under the HLBV method of accounting. See Note Q to the financial statements in Item 8.

Con Edison Transmission

Other Income (Deductions)

Other income (deductions) increased $13 million in 2019 compared with 2018 due primarily to higher allowance for funds used during construction from the Mountain Valley Pipeline, LLC ($27 million), offset, in part, by lower contract renewal rates at Stagecoach Gas Services ($17 million). See “Con Edison Transmission - CET Gas” in Item 1 and Note U to the financial statements in Item 8.

Net Interest Expense

Net interest expense increased $5 million in 2019 compared with 2018 due primarily to funding of increased investment in Mountain Valley Pipeline, LLC.

Income Tax Expense

Income taxes increased $4 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($2 million) and a decrease in the amortization of excess deferred federal income taxes due to the TCJA ($1 million).

Other

Taxes, Other Than Income Taxes

Taxes, other than income taxes decreased $8 million in 2019 compared with 2018 due primarily to lower New York State capital tax.

Other Income (Deductions)

Other income (deductions) increased $12 million in 2019 compared with 2018 due primarily to the absence in 2019 of transaction costs related to the acquisition of Sempra Solar Holdings, LLC in 2018. See Note U to the financial statements in Item 8.

Income Tax Expense

Income taxes decreased $43 million in 2019 compared with 2018 primarily due to the absence of the TCJA re-measurement of deferred tax assets associated with Con Edison’s 2017 net operating loss carryforward into 2018.

CON EDISON ANNUAL REPORT 2019	63

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017

CECONY

	For the Year Ended December 31, 2018							For the Year Ended December 31, 2017
(Millions of Dollars)	Electric		Gas		Steam		2018 Total	Electric		Gas		Steam		2017 Total	2018-2017 Variation
Operating revenues	$7,971		$2,078		$631		$10,680	$7,972		$1,901		$595		$10,468	$212
Purchased power	1,393		—		40		1,433	1,379		—		36		1,415	18
Fuel	158		—		105		263	127		—		89		216	47
Gas purchased for resale	—		643		—		643	—		510		—		510	133
Other operations and maintenance	1,961		420		174		2,555	1,942		413		171		2,526	29
Depreciation and amortization	984		205		87		1,276	925		185		85		1,195	81
Taxes, other than income taxes	1,676		332		148		2,156	1,625		298		134		2,057	99
Operating income	$1,799		$478		$77		$2,354	$1,974		$495		$80		$2,549	$(195)

Electric

CECONY’s results of electric operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2018	2017	Variation
Operating revenues	$7,971	$7,972	$(1)
Purchased power	1,393	1,379	14
Fuel	158	127	31
Other operations and maintenance	1,961	1,942	19
Depreciation and amortization	984	925	59
Taxes, other than income taxes	1,676	1,625	51
Electric operating income	$1,799	$1,974	$(175)

CECONY’s electric sales and deliveries in 2018 compared with 2017 were:

	Millions of kWh Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2018		December 31, 2017		Variation		Percent Variation			December 31, 2018	December 31, 2017	Variation	Percent Variation
Residential/Religious (b)	10,797		9,924		873		8.8	%		$2,846	$2,515	$331	13.2	%
Commercial/Industrial	9,588		9,246		342		3.7			1,850	1,823	27	1.5
Retail choice customers	26,266		26,136		130		0.5			2,624	2,712	(88)	(3.2	)
NYPA, Municipal Agency and other sales	10,186		10,012		174		1.7			662	633	29	4.6
Other operating revenues (c)	—		—		—		—			(11)	289	(300)	Large
Total	56,837		55,318		1,519		2.7	%	(d)	$7,971	$7,972	$(1)	—	%

(a)	Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.

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

(c)	Other electric operating revenues generally reflect changes in the revenue decoupling mechanism current asset or regulatory liability and changes in regulatory assets and liabilities in accordance with other provisions of the company’s rate plan. See Note B to the financial statements in Item 8.

(d)	After adjusting for variations, primarily weather and billing days, electric delivery volumes in the company’s service area remained flat in 2018 compared with 2017.

Operating revenues decreased $1 million in 2018 compared with 2017 due primarily to the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($308 million), offset in part by higher revenues from the electric rate plan ($244 million), fuel expenses ($31 million) and purchased power expenses ($14 million).

64	CON EDISON ANNUAL REPORT 2019

Purchased power expenses increased $14 million in 2018 compared with 2017 due to higher purchased volumes ($27 million), offset by lower unit costs ($13 million).

Fuel expenses increased $31 million in 2018 compared with 2017 due to higher unit costs ($38 million), offset by lower purchased volumes ($7 million).

Other operations and maintenance expenses increased $19 million in 2018 compared with 2017 due primarily to higher other employee benefits ($34 million), consultant costs ($27 million) and storm related costs ($16 million), offset in part by lower stock based compensation ($36 million) and surcharges for assessments and fees that are collected in revenues from customers ($23 million).

Depreciation and amortization increased $59 million in 2018 compared with 2017 due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $51 million in 2018 compared with 2017 due primarily to higher property taxes ($100 million) and state and local taxes ($3 million), offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 – 2018 ($26 million) and a sales and use tax refund ($26 million).

Gas

CECONY’s results of gas operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2018	2017	Variation
Operating revenues	$2,078	$1,901	$177
Gas purchased for resale	643	510	133
Other operations and maintenance	420	413	7
Depreciation and amortization	205	185	20
Taxes, other than income taxes	332	298	34
Gas operating income	$478	$495	$(17)

CECONY’s gas sales and deliveries, excluding off-system sales, in 2018 compared with 2017 were:

	Thousands of Dt Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2018		December 31, 2017		Variation		Percent Variation			December 31, 2018	December 31, 2017	Variation		Percent Variation
Residential	57,815		52,244		5,571		10.7	%		$966	$802	$164		20.4	%
General	34,490		30,761		3,729		12.1			390	334	56		16.8
Firm transportation	82,472		71,353		11,119		15.6			595	524	71		13.5
Total firm sales and transportation	174,777		154,358		20,419		13.2		(b)	1,951	1,660	291		17.5
Interruptible sales (c)	7,351		7,553		(202	)	(2.7	)		40	35	5		14.3
NYPA	34,079		37,033		(2,954	)	(8.0	)		2	2	—		—
Generation plants	72,524		61,800		10,724		17.4			26	25	1		4.0
Other	20,822		21,317		(495	)	(2.3	)		31	31	—		—
Other operating revenues (d)	—		—		—		—			28	148	(120)		(81.1	)
Total	309,553		282,061		27,492		9.7	%		$2,078	$1,901	$177		9.3	%

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

(b)	After adjusting for variations, primarily billing days, firm gas sales and transportation volumes in the company’s service area increased 5.1 percent in 2018 compared with 2017, reflecting primarily increased volumes attributable to the growth in the number of gas customers.

(c)	Includes 3,326 thousands and 3,816 thousands of Dt for 2018 and 2017, respectively, which are also reflected in firm transportation and other.

(d)	Other gas operating revenues generally reflect changes in the revenue decoupling mechanism and weather normalization clause current asset or regulatory liability and changes in regulatory assets and liabilities in accordance with other provisions of the company’s rate plan. See Note B to the financial statements in Item 8.

Operating revenues increased $177 million in 2018 compared with 2017 due primarily to higher revenues from the gas rate plan and growth in the number of customers ($104 million) and increased gas purchased for resale

CON EDISON ANNUAL REPORT 2019	65

expense ($133 million), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($85 million).

Gas purchased for resale increased $133 million in 2018 compared with 2017 due to higher unit costs ($84 million) and purchased volumes ($49 million).

Other operations and maintenance expenses increased $7 million in 2018 compared with 2017 due primarily to higher consultant costs.

Depreciation and amortization increased $20 million in 2018 compared with 2017 due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $34 million in 2018 compared with 2017 due primarily to higher property taxes ($40 million) and state and local taxes ($6 million), offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 – 2018 ($10 million) and a sales and use tax refund ($3 million).

Steam

CECONY’s results of steam operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2018	2017	Variation
Operating revenues	$631	$595	$36
Purchased power	40	36	4
Fuel	105	89	16
Other operations and maintenance	174	171	3
Depreciation and amortization	87	85	2
Taxes, other than income taxes	148	134	14
Steam operating income	$77	$80	$(3)

CECONY’s steam sales and deliveries in 2018 compared with 2017 were:

	Millions of Pounds Delivered									Revenues in Millions
	For the Years Ended									For the Years Ended
Description	December 31, 2018		December 31, 2017		Variation		Percent Variation			December 31, 2018	December 31, 2017	Variation	Percent Variation
General	593		490		103		21.0	%		$30	$26	$4	15.4	%
Apartment house	6,358		5,754		604		10.5			174	158	16	10.1
Annual power	14,811		13,166		1,645		12.5			441	392	49	12.5
Other operating revenues (a)	—		—		—		—			(14)	19	(33)	Large
Total	21,762		19,410		2,352		12.1	%	(b)	$631	$595	$36	6.1	%

(a)	Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan. See Note B to the financial statements in Item 8.

(b)	After adjusting for variations, primarily weather and billing days, steam sales and deliveries in the company’s service area increased 0.6 percent in 2018 compared with 2017.

Operating revenues increased $36 million in 2018 compared with 2017 due primarily to the weather impact on revenues ($43 million), higher fuel expenses ($16 million) and purchased power ($4 million), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($15 million) and higher regulatory reserve related to steam earnings sharing ($13 million).

Purchased power expenses increased $4 million in 2018 compared with 2017 due to higher purchased volumes ($6 million), offset by lower unit costs ($2 million).

Fuel expenses increased $16 million in 2018 compared with 2017 due to higher unit costs ($12 million) and purchased volumes ($4 million).

Other operations and maintenance expenses increased $3 million in 2018 compared with 2017 due primarily to property damage, clean-up and other response costs related to a steam main rupture in July 2018 ($14 million),

66	CON EDISON ANNUAL REPORT 2019

offset in part by surcharges for assessments and fees that are collected in revenues from customers ($4 million) and lower municipal infrastructure support costs ($2 million).

Depreciation and amortization increased $2 million in 2018 compared with 2017 due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $14 million in 2018 compared with 2017 due primarily to higher property taxes ($13 million) and state and local taxes ($2 million), offset in part by a sales and use tax refund ($1 million).

Taxes, Other Than Income Taxes

At $2,156 million, taxes other than income taxes remain one of CECONY’s largest operating expenses. The principal components of, and variations in, taxes other than income taxes were:

	For the Years Ended December 31,
(Millions of Dollars)	2018		2017		Variation
Property taxes	$1,845		$1,692		$153
State and local taxes related to revenue receipts	330		319		11
Payroll taxes	69		67		2
Other taxes	(88)		(21)		(67)
Total	$2,156	(a)	$2,057	(a)	$99

(a)	Including sales tax on customers’ bills, total taxes other than income taxes in 2018 and 2017 were $2,628 and $2,495 million, respectively.

Other Income (Deductions)

Other income (deductions) decreased $6 million in 2018 compared with 2017 due primarily to an increase in non-service costs related to pension and other postretirement benefits.

Net Interest Expense

Net interest expense increased $66 million in 2018 compared with 2017 due primarily to higher debt balances in 2018.

Income Tax Expense

Income taxes decreased $359 million in 2018 compared with 2017 due primarily to lower income before income tax expense ($56 million), a decrease in the corporate federal income tax rate due to the TCJA ($250 million), a decrease in tax benefits for plant-related flow items ($9 million) and an increase in the amortization of excess deferred federal income taxes due to the TCJA ($52 million), offset in part by non-deductible business expenses ($3 million) and a decrease in bad debt write-offs ($4 million).

O&R

	For the Year Ended December 31, 2018					For the Year Ended December 31, 2017
(Millions of Dollars)	Electric		Gas		2018 Total	Electric		Gas		2017 Total	2018-2017 Variation
Operating revenues	$642		$249		$891	$642		$232		$874	$17
Purchased power	208		—		208	191		—		191	17
Gas purchased for resale	—		86		86	—		73		73	13
Other operations and maintenance	233		72		305	232		64		296	9
Depreciation and amortization	56		21		77	51		20		71	6
Taxes, other than income taxes	52		31		83	53		29		82	1
Operating income	$93		$39		$132	$115		$46		$161	$(29)

CON EDISON ANNUAL REPORT 2019	67

Electric

O&R’s results of electric operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2018	2017	Variation
Operating revenues	$642	$642		$—
Purchased power	208	191	17
Other operations and maintenance	233	232	1
Depreciation and amortization	56	51	5
Taxes, other than income taxes	52	53	(1)
Electric operating income	$93	$115	$(22)

O&R’s electric sales and deliveries in 2018 compared with 2017 were:

	Millions of kWh Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2018		December 31, 2017		Variation		Percent Variation			December 31, 2018	December 31, 2017	Variation			Percent Variation
Residential/Religious (b)	1,713		1,567		146		9.3	%		$326	$311	$15			4.8	%
Commercial/Industrial	799		763		36		4.7			115	113	2			1.8
Retail choice customers	2,974		2,976		(2	)	(0.1	)		201	201	—			—
Public authorities	131		105		26		24.8			12	9	3			33.3
Other operating revenues (c)	—		—		—		—			(12)	8	(20)			Large
Total	5,617		5,411		206		3.8	%	(d)	$642	$642		$—		—

(a)	Revenues from New York electric delivery sales are subject to a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.

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

(c)	Other electric operating revenues generally reflect changes in the revenue decoupling mechanism current asset or regulatory liability in accordance with the company’s New York electric rate plan and changes in regulatory assets and liabilities in accordance with the company’s electric rate plans. See Note B to the financial statements in Item 8.

(d)	After adjusting for weather and other variations, electric delivery volumes in company’s service area increased 0.3 percent in 2018 compared with 2017.

Purchased power expenses increased $17 million in 2018 compared with 2017 due to higher purchased volumes ($15 million) and unit costs ($3 million).

Other operations and maintenance expenses increased $1 million in 2018 compared with 2017 due primarily to the reduction of a regulatory asset associated with certain site investigation and environmental remediation costs ($6 million), offset in part by lower surcharges for assessments and fees that are collected in revenues from customers ($3 million) and lower healthcare costs ($2 million).

Depreciation and amortization increased $5 million in 2018 compared with 2017 due primarily to higher electric utility plant balances.

Taxes, other than income taxes decreased $1 million in 2018 compared with 2017 due primarily to lower property taxes.

Gas

O&R’s results of gas operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

68	CON EDISON ANNUAL REPORT 2019

	For the Years Ended December 31,
(Millions of Dollars)	2018	2017	Variation
Operating revenues	$249	$232	$17
Gas purchased for resale	86	73	13
Other operations and maintenance	72	64	8
Depreciation and amortization	21	20	1
Taxes, other than income taxes	31	29	2
Gas operating income	$39	$46	$(7)

O&R’s gas sales and deliveries, excluding off-system sales, in 2018 compared with 2017 were:

	Thousands of Dt Delivered									Revenues in Millions (a)
	For the Years Ended									For the Years Ended
Description	December 31, 2018		December 31, 2017		Variation		Percent Variation			December 31, 2018		December 31, 2017		Variation		Percent Variation
Residential	9,860		8,296		1,564		18.9	%		$140		$115		$25		21.7	%
General	2,190		2,184		6		0.3			26		24		2		8.3
Firm transportation	9,950		9,873		77		0.8			78		74		4		5.4
Total firm sales and transportation	22,000		20,353		1,647		8.1		(b)	244		213		31		14.6
Interruptible sales	3,746		3,771		(25	)	(0.7	)		6		7		(1)		(14.3	)
Generation plants	1		9		(8	)	(88.9	)		—		—		—		—
Other	959		896		63		7.0			1		1		—		—
Other gas revenues	—		—		—		—			(2)		11		(13)		Large
Total	26,706		25,029		1,677		6.7	%		$249		$232		$17		7.3	%

(a)	Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism, as a result of which, delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.

(b)	After adjusting for weather and other variations, firm sales and transportation volumes in the company’s service area increased 2.4 percent in 2018 compared with 2017.

Operating revenues increased $17 million in 2018 compared with 2017 due primarily to the increase in gas purchased for resale ($13 million) and higher revenues from the New York gas rate plan ($12 million), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($8 million).

Gas purchased for resale increased $13 million in 2018 compared with 2017 due to higher purchased volumes ($11 million) and unit costs ($2 million).

Other operations and maintenance expenses increased $8 million in 2018 compared with 2017 due primarily to higher pension costs ($6 million) and the reduction of a regulatory asset associated with certain site investigation and environmental remediation costs ($3 million), offset in part by lower healthcare costs ($1 million).

Depreciation and amortization increased $1 million in 2018 compared with 2017 due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $2 million in 2018 compared with 2017 due primarily to higher property taxes ($1 million) and state and local taxes ($1 million).

Taxes, Other Than Income Taxes

Taxes, other than income taxes, increased $1 million in 2018 compared with 2017. The principal components of taxes, other than income taxes, were:

	For the Years Ended December 31,
(Millions of Dollars)	2018		2017		Variation
Property taxes	$65		$66		$(1)
State and local taxes related to revenue receipts	10		9		1
Payroll taxes	8		7		1
Total	$83	(a)	$82	(a)	$1

CON EDISON ANNUAL REPORT 2019	69

(a)	Including sales tax on customers’ bills, total taxes other than income taxes in 2018 and 2017 were $112 million and $109 million, respectively.

Income Tax Expense

Income taxes decreased $27 million in 2018 compared with 2017 due primarily to lower income before income tax expense ($7 million), a decrease in the corporate federal income tax rate due to the TCJA ($15 million) and an increase in the amortization of excess deferred federal income taxes due to the TCJA ($5 million).

Clean Energy Businesses

The Clean Energy Businesses’ results of operations for the year ended December 31, 2018 compared with the year ended December 31, 2017 were as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2018		2017		Variation
Operating revenues	$763		$694		$69
Purchased power	2		(3)		5
Gas purchased for resale	313		226		87
Other operations and maintenance	287		313		(26)
Depreciation and amortization	85		74		11
Taxes, other than income taxes	13		16		(3)
Gain on sale of solar electric production project (a)	—		1		(1)
Gain on acquisition of Sempra Solar Holdings, LLC (a)	131		—		131
Operating income	$194		$69		$125

(a) See Note U to the financial statements in Item 8.

Operating revenues increased $69 million in 2018 compared with 2017 due primarily to an increase in wholesale revenues ($89 million) due to higher sales volumes and revenue from projects in operation ($28 million), offset in part by a decrease in renewable revenues ($9 million) from engineering, procurement and construction services revenues ($38 million) and energy services revenues ($7 million) and a decrease in net mark-to-market values ($5 million).

Purchased power expenses increased $5 million in 2018 compared with 2017 due primarily to true-ups relating to the sale of the retail electric supply business.

Gas purchased for resale increased $87 million in 2018 compared with 2017 due to higher purchased volumes.

Other operations and maintenance expenses decreased $26 million in 2018 compared with 2017 due primarily to decreased engineering, procurement and construction costs.

Depreciation and amortization increased $11 million in 2018 compared with 2017 due to an increase in renewable electric production projects in operation during 2018.

Taxes, other than income taxes decreased $3 million in 2018 compared with 2017 due to lower property taxes.

Gain on sale of solar electric production project decreased $1 million in 2018 compared with 2017 due to the absence of gain on sale in 2018 of Upton 2. See Note U to the financial statements in Item 8.

Gain on acquisition of Sempra Solar Holdings, LLC increased $131 million in 2018 compared with 2017 due to the gain recognized with respect to jointly-owned renewable energy production projects upon completion of the acquisition of Sempra Solar Holdings, LLC. See Note U to the financial statements in Item 8.

Net Interest Expense

Net interest expense increased $20 million in 2018 compared with 2017 due primarily to the reversal of interest on uncertain tax positions in the 2017 period and higher interest rates in the 2018 period.

70	CON EDISON ANNUAL REPORT 2019

Income Tax Expense

Income taxes increased $292 million in 2018 compared with 2017 due primarily to the absence of the 2017 federal income tax benefit related to the re-measurement of the Clean Energy Businesses’ deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($269 million), higher income before income tax expense ($22 million), higher state income taxes ($6 million), a lower favorable state return-to-provision adjustment recorded in 2018 ($3 million), a reduction in the reversal of uncertain tax positions in 2018 ($3 million) and an increase in valuation allowances against state net operating loss carryforwards ($1 million), offset in part by a decrease in the corporate federal income tax rate due to the TCJA ($8 million) and an income tax benefit in 2018 related to the extension of energy efficiency programs ($3 million).

Con Edison Transmission

Net Interest Expense

Net interest expense increased $4 million in 2018 compared with 2017 due primarily to funding of increased investment in Mountain Valley Pipeline, LLC.

Other Income (Deductions)

Other income (deductions) increased $11 million in 2018 compared with 2017 due primarily to increased earnings from equity investments in Mountain Valley Pipeline, LLC.

Income Tax Expense

Income taxes increased $5 million in 2018 compared with 2017 due primarily to the absence of the 2017 federal income tax benefit related to the re-measurement of Con Edison Transmission’s deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($11 million) and the higher income before income tax expense in 2018 ($2 million), offset in part by the decrease in the corporate federal income tax rate in 2018 due to the TCJA ($8 million).

Other

Taxes, Other Than Income Taxes

Taxes, other than income taxes increased $14 million in 2018 compared with 2017 due primarily to the New York State capital tax in 2018.

Other Income (Deductions)

Other income (deductions) decreased $19 million in 2018 compared with 2017 due primarily to the transaction costs related to the acquisition of Sempra Solar Holdings, LLC. See Note U to the financial statements in Item 8.

Income Tax Expense

Income taxes increased $18 million in 2018 compared with 2017 due primarily to Con Edison’s higher 2017 federal net operating loss carryover into 2018 on the federal tax return ($42 million), the non-recurring deferred state income tax adjustment recorded in 2017 ($7 million) and a decrease in the corporate federal tax rate in 2018 due to TCJA ($2 million), offset in part by the absence of the 2017 federal income tax expense related to the re-measurement of Clean Energy Businesses’ deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($21 million), lower income before income tax expense ($6 million) and lower state income taxes ($6 million). See Note L to the financial statements in Item 8.

Liquidity and Capital Resources

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

The principal factors affecting Con Edison’s liquidity are its investments in the Utilities, the Clean Energy Businesses and Con Edison Transmission, the dividends it pays to its shareholders and the dividends it receives from the Utilities and cash flows from financing activities discussed below.

The principal factors affecting CECONY’s liquidity are its cash flows from operating activities, cash used in investing activities (including construction expenditures), the dividends it pays to Con Edison and cash flows from financing activities discussed below.

The Companies generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Companies repay their short-term borrowings using funds from long-term financings and operating activities. The Utilities’ cost of capital, including working capital, is reflected in the rates they charge to their customers.

CON EDISON ANNUAL REPORT 2019	71

Each of the Companies believes that it will be able to meet its reasonably likely short-term and long-term cash requirements. See “The Companies Require Access to Capital Markets to Satisfy Funding Requirements,” "Changes To Tax Laws Could Adversely Affect the Companies" and “The Companies Also Face Other Risks That Are Beyond Their Control” in Item 1A, and “Capital Requirements and Resources” in Item 1.

72	CON EDISON ANNUAL REPORT 2019

The Companies’ cash, temporary cash investments and restricted cash resulting from operating, investing and financing activities for the years ended December 31, 2019, 2018 and 2017 are summarized as follows:

	CECONY			O&R			Clean Energy Businesses			Con Edison Transmission							Other (a)				Con Edison (b)
(Millions of Dollars)	2019	2018	2017	2019	2018	2017	2019	2018	2017	2019			2018		2017		2019	2018		2017	2019	2018	2017
Operating activities	$2,502	$2,204	$2,866	$190	$172	$216	$199	$220	$253	$194			$87		$(4)		$49	$12		$36	$3,134	$2,695	$3,367
Investing activities	(3,124)	(3,306)	(3,080)	(218)	(198)	(196)	(258)	(1,740)	(410)	(184)			(227)		(23)		2	—		(1)	(3,782)	(5,471)	(3,710)
Financing activities	737	1,190	240	8	31	(22)	184	1,590	149	(12)			140		29		(58)	(13)		(39)	859	2,938	357
Net change for the period	115	88	26	(20)	5	(2)	125	70	(8)	(2)			—		2		(7)	(1)		(4)	211	162	14
Balance at beginning of period	818	730	704	52	47	49	126	56	64	2			2		—		8	9		13	1,006	844	830
Balance at end of period (c)	$933	$818	$730	$32	$52	$47	$251	$126	$56		$—		$2		$2		$1	$8		$9	$1,217	$1,006	$844

(a) Includes parent company and consolidation adjustments.

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

(c) See "Reconciliation of Cash, Temporary Cash Investments and Restricted Cash" in Note A to the financial statements in Item 8.

CON EDISON ANNUAL REPORT 2019	73

Cash Flows from Operating Activities

The Utilities’ cash flows from operating activities reflect primarily their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is affected primarily by factors external to the Utilities, such as growth of customer demand, weather, market prices for energy and economic conditions. Measures that promote distributed energy resources, such as distributed generation, demand reduction and energy efficiency, also affect the volume of energy sales and deliveries. See "Utility Regulation – State Utility Regulation – New York Utility Industry – Reforming the Energy Vision," "Competition" and "Environmental Matters – Climate Change" in Item 1. Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows, but generally not net income. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate plans. In general, changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows, but not net income, because the costs are recovered in accordance with rate plans. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8. Pursuant to their rate plans, the Utilities have recovered from customers a portion of the tax liability they will pay in the future as a result of temporary differences between the book and tax basis of assets and liabilities. These temporary differences affect the timing of cash flows, but not net income, as the Companies are required to record deferred tax assets and liabilities at the current corporate tax rate for the temporary differences. For the Utilities, credits to their customers of the net benefits of the TCJA, including the reduction of the corporate tax rate to 21 percent, decrease cash flows from operating activities. See “Changes To Tax Laws Could Adversely Affect the Companies,” in Item 1A, “Federal Income Tax” in Note A, “Rate Plans” in Note B, “Other Regulatory Matters” in Note B and Note L to the financial statements in Item 8.

Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges or credits include depreciation, deferred income tax expense, amortizations of certain regulatory assets and liabilities and accrued unbilled revenue. Non-cash charges or credits may also be accrued under the revenue decoupling and cost reconciliation mechanisms in the Utilities’ New York electric and gas rate plans. See “Rate Plans – CECONY– Electric and Gas" and "Rate Plans – O&R New York – Electric and Gas” in Note B to the financial statements in Item 8. For Con Edison, 2018 net income also included a non-cash gain recognized with respect to jointly-owned renewable energy production projects upon completion of the acquisition of Sempra Solar Holdings, LLC at the Clean Energy Businesses ($131 million). See Note U to the financial statements in Item 8.

Net cash flows from operating activities in 2019 for Con Edison and CECONY were $439 million and $298 million higher, respectively, than in 2018. The changes in net cash flows for Con Edison and CECONY reflect primarily lower pension and retiree benefit contributions ($122 million and $115 million, respectively), lower storm restoration costs ($192 million and $132 million, respectively), lower MTA power reliability costs ($160 million and $160 million, respectively), reimbursement received for restoration costs related to the restoration of power in Puerto Rico in the aftermath of the September 2017 hurricanes ($95 million and $89 million, respectively), and for CECONY, lower net payments of income tax to affiliated companies ($122 million), offset, in part, by higher TCJA net benefits provided to customers in the 2019 period ($379 million and $376 million, respectively).

Net cash flows from operating activities in 2018 for Con Edison and CECONY were $672 million and $662 million lower, respectively, than in 2017. The change in net cash flows for Con Edison and CECONY reflects primarily cash payments for MTA power reliability costs ($179 million and $179 million, respectively) and Puerto Rico related restoration costs ($104 million and $98 million, respectively), storm restoration costs ($193 million and $133 million, respectively), higher accounts receivable from customers ($149 million and $168 million, respectively) primarily due to an increase in billed revenues for gas, higher pension and retiree benefit obligations ($89 million and $77 million, respectively), and lower income tax refunds received, net of income taxes paid ($29 million and $87 million, respectively). The change in net cash flows for CECONY also reflects an increase in accounts receivables from affiliated companies ($195 million) primarily related to estimated federal income tax payments for 2018 exceeding the accrued income tax liability at year end and CECONY’s ability to use its 2017 net operating loss carryover in 2018. These changes are offset in part by the cash impact of the Utilities’ estimated net benefits in the 2018 period under the TCJA ($434 million and $411 million, respectively). See “Assets, Liabilities and Equity,” below.

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

Cash Flows Used in Investing Activities

Net cash flows used in investing activities for Con Edison and CECONY were $1,689 million and $182 million lower, respectively, in 2019 than in 2018. The change for Con Edison reflects primarily the acquisition of Sempra Solar Holdings, LLC, net of cash acquired, at the Clean Energy Businesses in 2018 ($1,488 million) (see Note U to the

74	CON EDISON ANNUAL REPORT 2019

financial statements in Item 8) and proceeds received in 2019 from the sale of properties formerly used by CECONY in its operations ($187 million).

Net cash flows used in investing activities for Con Edison and CECONY were $1,761 million and $226 million higher, respectively, in 2018 than in 2017. The change for Con Edison reflects primarily the acquisition of Sempra Solar Holdings, LLC, net of cash acquired, at the Clean Energy Businesses ($1,488 million) (see Note U to the financial statements in Item 8), higher new investments in electric and gas transmission projects at Con Edison Transmission ($204 million) and increased utility construction expenditures at CECONY ($211 million) and O&R ($10 million), offset in part by lower non-utility construction expenditures at the Clean Energy Businesses ($169 million).

Cash Flows From Financing Activities

Net cash flows from financing activities in 2019 for Con Edison and CECONY were $2,079 million and $453 million lower, respectively, than in 2018. Net cash flows from financing activities in 2018 for Con Edison and CECONY were $2,581 million and $950 million higher, respectively, than in 2017.

Net cash flows from financing activities during the years ended December 31, 2019, 2018 and 2017 reflect the following Con Edison transactions:

2019

•	Redeemed in advance of maturity $400 million of 2.00 percent 3-year debentures;

•

Entered into a forward sale agreement relating to 5,800,000 shares of its common stock. In June 2019, the company issued 4,750,000 shares for $400 million upon physical settlement of shares subject to the forward sale agreement. Con Edison used the proceeds to invest in CECONY for funding of its capital requirements and other general corporate purposes. At December 31, 2019, 1,050,000 shares remained subject to the forward sale agreement. In January 2020, the company issued 1,050,000 shares for $88 million upon physical settlement of the remaining shares subject to the forward sale agreement. See Note C to the financial statements in Item 8;

•	Issued 5,649,369 shares of its common stock for $425 million upon physical settlement of the remaining shares subject to its November 2018 forward sale agreements. Con Edison used the proceeds to invest in its subsidiaries for funding of their capital requirements and to repay short-term debt incurred for that purpose; and

•	Borrowed $825 million under a two-year variable-rate term loan to fund the repayment of a 6-month variable-rate term loan. In June 2019, Con Edison pre-paid $150 million of the amount borrowed.

2018

•

Issued 9,324,123 common shares for $705 million pursuant to forward sale agreements and borrowed $825 million under a 6-month variable rate term loan, which amounts, along with $79 million of other company funds, were used to pay the purchase price for the acquisition by the Clean Energy Businesses of Sempra Solar Holdings, LLC. In February 2019, the company repaid the $825 million term loan with borrowings under a two-year term loan agreement. See Notes D and U to the financial statements in Item 8.

2017

•	Issued 4,100,000 common shares resulting in net proceeds of $343 million, after issuance expenses, that were invested by Con Edison in its subsidiaries, principally CECONY and the Clean Energy Businesses, for funding of their construction expenditures and for other general corporate purposes; and

•	Issued $400 million aggregate principal amount of 2.00 percent debentures, due 2020, and prepaid the June 2016 $400 million variable rate term loan that was to mature in 2018.

Con Edison’s cash flows from financing activities in 2019, 2018 and 2017 also reflect the proceeds, and reduction in cash used for reinvested dividends, resulting from the issuance of common shares under the company’s dividend reinvestment, stock purchase and long-term incentive plans of $101 million, $100 million and $97 million, respectively.

Net cash flows from financing activities during the years ended December 31, 2019, 2018 and 2017 reflect the following CECONY transactions:

2019

•	Issued $600 million aggregate principal amount of 3.70 percent debentures, due 2059, and $700 million aggregate principal amount of 4.125 percent debentures, due 2049, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes; and

•	Redeemed at maturity $475 million of 6.65 percent 10-year debentures.

CON EDISON ANNUAL REPORT 2019	75

2018

•	Issued $500 million aggregate principal amount of 4.00 percent debentures, due 2028, and $600 million aggregate principal amount of 4.65 percent debentures, due 2048, the net proceeds from the sale of which were used to redeem at maturity $600 million of 7.125 percent 10-year debentures and other general corporate purposes, including repayment of short-term debt;

•	Issued $640 million aggregate principal amount of debentures, due 2021, at a variable interest rate of 0.40 percent above three-month LIBOR and redeemed $636 million of its tax-exempt debt for which the interest rates were to be determined pursuant to periodic auctions;

•	Issued $700 million aggregate principal amount of 4.50 percent debentures, due 2058, and $300 million aggregate principal amount of 3.80 percent debentures, due 2028, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes; and

•	Redeemed at maturity $600 million of 5.85 percent 10-year debentures.

2017

•	Issued $350 million aggregate principal amount of 3.125 percent debentures, due 2027, $350 million aggregate principal amount of 4.00 percent debentures, due 2057, and $500 million aggregate principal amount of 3.875 percent debentures, due 2047, the net proceeds from the sales of which were used to repay short-term borrowings and for other general corporate purposes.

Net cash flows from financing activities during the years ended December 31, 2019 and 2018 also reflect the following O&R transactions:

2019

•	Issued $43 million aggregate principal amount of 3.73 percent debentures, due 2049, $44 million aggregate principal amount of 2.94 percent debentures, due 2029, and $38 million aggregate principal amount of 3.46 percent debentures, due 2039, the net proceeds from the sales of which were used to repay short-term borrowings and for other general corporate purposes; and

•	Redeemed at maturity $60 million of 4.96 percent 10-year debentures.

2018

•	Redeemed at maturity $50 million of 6.15 percent 10-year debentures; and

•	Issued $150 million aggregate principal amount of 4.35 percent debentures, due 2048, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes.

O&R had no issuances of long-term debt in 2017.

Net cash flows from financing activities during the years ended December 31, 2019, 2018 and 2017 also reflect the following Clean Energy Businesses transactions:

2019

•	Issued $303 million aggregate principal amount of 3.82 percent senior notes, due 2038, secured by the company's California Solar 4 renewable electric production projects; and

•

Borrowed $464 million at a variable-rate, due 2026, secured by equity interests in solar electric production projects, the net proceeds from the sale of which were used to repay borrowings from Con Edison and for other general corporate purposes. Con Edison used a portion of the repayment to pre-pay $150 million of an $825 million two-year variable-rate term loan and the remainder to repay short-term borrowings and for other general corporate purposes. The company has entered into fixed-rate interest rate swaps in connection with this borrowing. See Note O to the financial statements in Item 8.

2018

•	Issued $140 million aggregate principal amount of 4.41 percent senior notes, due 2028, secured by the company’s Wind Holdings renewable electric production projects.

2017

•	Issued $97 million aggregate principal amount of 4.45 percent senior notes, due 2042, secured by the company’s Upton County Solar renewable electric production project.

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Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at December 31, 2019, 2018 and 2017 and the average daily balances for 2019, 2018 and 2017 for Con Edison and CECONY were as follows:

	2019				2018				2017
(Millions of Dollars, except Weighted Average Yield)	Outstanding at December 31		Daily average		Outstanding at December 31		Daily average		Outstanding at December 31		Daily average
Con Edison	$1,692		$1,074		$1,741		$889		$577		$566
CECONY	$1,137		$734		$1,192		$532		$150		$251
Weighted average yield	2.0	%	2.5	%	3.0	%	2.3	%	1.8	%	1.2	%

Common stock issuances and external borrowings are sources of liquidity that could be affected by changes in credit ratings, financial performance and capital market conditions. For information about the Companies’ credit ratings and certain financial ratios, see “Capital Requirements and Resources” in Item 1.

Capital Requirements and Resources

For information about capital requirements, contractual obligations and capital resources, see “Capital Requirements and Resources” in Item 1.

Assets, Liabilities and Equity

The Companies’ assets, liabilities and equity at December 31, 2019 and 2018 are summarized as follows:

	CECONY		O&R		Clean Energy Businesses				Con Edison Transmission		Other (a)			Con Edison (b)
(Millions of Dollars)	2019	2018	2019	2018	2019		2018		2019	2018	2019	2018		2019	2018
ASSETS
Current assets	$3,543	$3,357	$243	$263	$511		$372		$2	$32	$(27)	$(160)		$4,272	$3,864
Investments	461	385	26	25	—		—		1,585	1,362	(7)	(6)		2,065	1,766
Net plant	37,414	35,374	2,336	2,210	4,121		4,148		17	17	1	—		43,889	41,749
Other noncurrent assets	5,139	3,992	401	394	1,896		1,736		14	14	403	405		7,853	6,541
Total Assets	$46,557	$43,108	$3,006	$2,892	$6,528		$6,256		$1,618	$1,425	$370	$239		$58,079	$53,920
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities	$4,131	$4,200	$311	$392	$1,525		$1,608		$135	$5	$185	$2		$6,287	$6,207
Noncurrent liabilities	13,665	12,322	1,115	1,094	201		(32)		88	66	(17)	(71)		15,052	13,379
Long-term debt	14,614	13,676	818	694	2,400		2,330		500	500	195	295		18,527	17,495
Equity	14,147	12,910	762	712	2,402		2,350		895	854	7	13		18,213	16,839
Total Liabilities and Equity	$46,557	$43,108	$3,006	$2,892	$6,528		$6,256		$1,618	$1,425	$370	$239		$58,079	$53,920

(a) Includes parent company and consolidation adjustments.

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

CECONY

Current assets at December 31, 2019 were $186 million higher than at December 31, 2018. The change in current assets reflects an increase in cash and temporary cash investments ($115 million), accrued unbilled revenue ($85 million) and revenue decoupling mechanism receivable ($76 million), offset, in part, by a decrease in other receivables ($91 million). The decrease in other receivables reflects primarily the receipt of payments related to costs for aid provided by CECONY for the restoration of power in Puerto Rico in the aftermath of the September 2017 hurricanes ($89 million).

Investments at December 31, 2019 were $76 million higher than at December 31, 2018. The change in investments reflects primarily an increase in supplemental retirement income plan assets. See "Investments" in Note A and Note E to the financial statements in Item 8.

Net plant at December 31, 2019 was $2,040 million higher than at December 31, 2018. The change in net plant reflects primarily an increase in electric ($1,394 million) and gas ($934 million) plant balances, offset, in part, by an increase in accumulated depreciation ($502 million).

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Other noncurrent assets at December 31, 2019 were $1,147 million higher than at December 31, 2018. The change in other noncurrent assets reflects primarily the adoption of ASU No. 2016-02, “Leases (Topic 842)” ($601 million). See Note J to the financial statements in Item 8. The change also reflects primarily an increase in the regulatory asset for property tax reconciliation ($124 million), deferred derivative losses ($65 million) and MTA power reliability deferral ($19 million) which reflects costs incurred and deferred as a regulatory asset in the 2019 period. See “Regulatory Assets and Liabilities” in Note B to the financial statements in Item 8. It also reflects an increase in the regulatory asset for unrecognized pension and other postretirement costs to reflect the final actuarial valuation, as measured at December 31, 2019, of the pension and other retiree benefit plans in accordance with the accounting rules for retirement benefits ($292 million). See Notes B, E and F to the financial statements in Item 8. The change in the regulatory asset also reflects the year's amortization of accounting costs.

Current liabilities at December 31, 2019 were $69 million lower than at December 31, 2018. The change in current liabilities reflects primarily lower debt due within one year as of December 31, 2019 ($125 million), offset, in part, by an increase in the fair value of derivative liabilities ($56 million).

Noncurrent liabilities at December 31, 2019 were $1,343 million higher than at December 31, 2018. The change in noncurrent liabilities reflects primarily the adoption of ASU No. 2016-02, “Leases (Topic 842)” ($551 million). See Note J to the financial statements in Item 8. The change also reflects an increase in deferred income taxes and unamortized investment tax credits ($261 million), which reflects primarily accelerated tax depreciation and repair deductions. See Note L to the financial statements in Item 8. It also reflects an increase in the liability for pension and retiree benefits ($289 million), which primarily reflects contributions to the pension and other retiree benefit plans made by the Utilities in 2019 and the final actuarial valuation, as measured at December 31, 2019 of the plans in accordance with the accounting rules for retirement benefits. See Notes E and F to the financial statements in Item 8.

Long-term debt at December 31, 2019 was $938 million higher than at December 31, 2018. The change in long-term debt reflects primarily the May 2019 issuance of $700 million and November 2019 issuance of $600 million of debentures offset, in part, by the reclassification of $350 million of long-term debt due June 2020 to long-term debt due within one year. See "Liquidity and Capital Resources - Cash Flows From Financing Activities" above and Note C to the financial statements in Item 8.

Equity at December 31, 2019 was $1,237 million higher than at December 31, 2018. The change in equity reflects net income for the year ($1,250 million) and capital contributions from parent ($900 million) in 2019, offset, in part, by common stock dividends to parent ($912 million) in 2019.

O&R

Current assets at December 31, 2019 were $20 million lower than at December 31, 2018. The change in current assets reflects primarily a decrease in cash and temporary cash investments ($18 million) and customer accounts receivables, less allowance for uncollectible accounts ($15 million). These decreases are offset, in part, by an increase in accrued unbilled revenue ($8 million).

Net plant at December 31, 2019 was $126 million higher than at December 31, 2018. The change in net plant reflects primarily an increase in electric ($94 million) and gas ($59 million) plant balances, offset, in part, by an increase in accumulated depreciation ($37 million).

Current liabilities at December 31, 2019 were $81 million lower than at December 31, 2018. The change in current liabilities reflects primarily lower debt due within one year as of December 31, 2019.

Long-term debt at December 31, 2019 was $124 million higher than at December 31, 2018. The change in long-term debt reflects primarily the November 2019 issuance of $43 million and December 2019 issuances of $82 million of debentures. See "Liquidity and Capital Resources - Cash Flows From Financing Activities" above.

Equity at December 31, 2019 was $50 million higher than at December 31, 2018. The change in equity reflects net income for the year ($70 million) and a capital contribution from parent ($30 million) in 2019, offset, in part, by common stock dividends to parent ($47 million) in 2019 and a decrease in other comprehensive income ($4 million).

Clean Energy Businesses

Current assets at December 31, 2019 were $139 million higher than at December 31, 2018. The change in current assets reflects primarily increases in restricted cash.

78	CON EDISON ANNUAL REPORT 2019

Net plant at December 31, 2019 was $27 million lower than at December 31, 2018. The change in net plant reflects primarily depreciation for the year ended December 31, 2019, investment tax credits and the reduction in the capitalized asset and related liability for asset retirement obligations for certain property leased by renewable electric production projects, offset, in part, by additional capital expenditures.

Other noncurrent assets at December 31, 2019 were $160 million higher than at December 31, 2018. The change in other noncurrent assets reflects primarily the adoption of ASU No. 2016-02, “Leases (Topic 842).” See Note J to the to the financial statements in Item 8.

Current liabilities at December 31, 2019 were $83 million lower than at December 31, 2018. The change in current liabilities reflects primarily the repayment of a borrowing under a 6-month term loan agreement with the proceeds of a 2-year term loan agreement ($825 million) and a decrease in working capital requirements primarily due to the funding of the California Holdings 4 project debt ($187 million), offset, in part, by the reclassification of the PG&E-related project debt from long-term debt to long-term debt due within one year ($990 million). See "Long-Term Debt" in Note C to the financial statements in Item 8.

Noncurrent liabilities at December 31, 2019 were $233 million higher than at December 31, 2018. The change in noncurrent liabilities reflects primarily the adoption of ASU No. 2016-02 “Leases (Topic 842)" and a decrease in deferred income taxes and unamortized investment tax credits, which reflects primarily accelerated depreciation on renewable energy projects and the utilization of federal net operating loss carryforwards, offset, in part, by the reduction in the capitalized asset and related liability for asset retirement obligations for certain property leased by renewable electric production projects and See Note J to the financial statements in Item 8.

Long-term debt at December 31, 2019 was $70 million higher than at December 31, 2018. The change in long-term debt primarily reflects a May 2019 borrowing of $464 million, due 2026, secured by equity interests in solar electric production projects, and an October 2019 issuance of $303 million, due 2038, secured by the company's California Solar 4 renewable electric production projects, offset, in part, by the reclassification of the PG&E-related project debt to long-term debt due within one year ($990 million) and the repayment to parent of $450 million of an $825 million borrowing. See "Long-Lived and Intangible Assets" in Note A and "Long-Term Debt" in Note C to the financial statements in Item 8.

Equity at December 31, 2019 was $52 million higher than at December 31, 2018. The change in equity reflects primarily an increase in noncontrolling interest ($78 million), offset, in part, by a net loss for the for the year ($18 million) and common stock dividends to parent ($3 million) in 2019.

CET

Current assets at December 31, 2019 were $30 million lower than at December 31, 2018. The change in current assets reflects an increased investment in Mountain Valley Pipeline, LLC and a NY Transco electric transmission project. See "Con Edison Transmission - CET Gas" in Item 1.

Investments at December 31, 2019 were $223 million higher than at December 31, 2018. The change in investments reflects primarily increased investment in Mountain Valley Pipeline, LLC and a NY Transco electric transmission project. See "Investments" in Note A and Note U to the financial statements in Item 8.

Current liabilities at December 31, 2019 were $130 million higher than at December 31, 2018. The change in current liabilities reflects primarily an increase in payables to associate companies related to increased investment in Mountain Valley Pipeline, LLC.

Noncurrent liabilities at December 31, 2019 was $22 million higher than at December 31, 2018. The change in noncurrent liabilities reflects primarily an increase in deferred income taxes and unamortized investment tax credits, which reflects primarily accelerated tax depreciation and repair deductions.

Equity at December 31, 2019 was $41 million higher than at December 31, 2018. The change in equity reflects net income for the year ($52 million), offset, in part, by common stock dividends to parent ($12 million) in 2019.

Off-Balance Sheet Arrangements

In May 2019, Con Edison entered into a forward sale agreement which met the SEC definition of an off-balance sheet arrangement, which the company physically settled by issuing 4,750,000 shares of its common stock in June 2019 and 1,050,000 shares in January 2020. See Note C to the financial statements in Item 8 for more information

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on this agreement. None of the Companies’ other transactions, agreements or other contractual arrangements meet the SEC definition of off-balance sheet arrangements.

Regulatory Matters

For information about the Utilities’ rate plans and other regulatory matters affecting the Companies, see “Utility Regulation” in Item 1 and Note B to the financial statements in Item 8.

Risk Factors

The Companies’ businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect actual operating results, cash flows and financial condition. See “Risk Factors” in Item 1A.

Application of Critical Accounting Policies

The Companies’ financial statements reflect the application of their accounting policies, which conform to accounting principles generally accepted in the United States of America. The Companies’ critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits, contingencies, long-lived assets, goodwill and derivative instruments.

Accounting for Regulated Public Utilities

The Utilities are subject to the accounting rules for regulated operations and the accounting requirements of the FERC and the state public utility regulatory commissions having jurisdiction.

The accounting rules for regulated operations specify the economic effects that result from the causal relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs would be recorded as deferred charges, or “regulatory assets,” under the accounting rules for regulated operations. If revenues are recorded for costs that are expected to be incurred in the future, these revenues would be recorded as deferred credits, or “regulatory liabilities,” under the accounting rules for regulated operations.

The Utilities’ principal regulatory assets and liabilities are listed in Note B to the financial statements in Item 8. The Utilities are receiving or being credited with a return on all of their regulatory assets for which a cash outflow has been made. The Utilities are paying or being charged with a return on all of their regulatory liabilities for which a cash inflow has been received. The Utilities' regulatory assets and liabilities at December 31, 2019 are recoverable from customers, or to be applied for customer benefit, in accordance with rate provisions that have been approved by the applicable public utility regulatory commission.

In the event that regulatory assets of the Utilities were no longer probable of recovery, as required by the accounting rules for regulated operations, these regulatory assets would be charged to earnings. At December 31, 2019, the regulatory assets for Con Edison and CECONY were $4,987 million and $4,600 million, respectively.

Accounting for Pensions and Other Postretirement Benefits

The Utilities provide pensions and other postretirement benefits to substantially all of their employees and retirees. The Clean Energy Businesses and Con Edison Transmission also provide such benefits to transferred employees who previously worked for the Utilities. The Companies account for these benefits in accordance with the accounting rules for retirement benefits. In addition, the Utilities apply the accounting rules for regulated operations to account for the regulatory treatment of these obligations (which, as described in Note B to the financial statements in Item 8, reconciles the amounts reflected in rates for the costs of the benefit to the costs actually incurred). In applying these accounting policies, the Companies have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, health care cost trends and future compensation. See Notes A, E and F to the financial statements in Item 8 for information about the Companies’ pension and other postretirement benefits, the actuarial assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2019, 2018 and 2017.

The discount rate for determining the present value of future period benefit payments is determined using a model to match the durations of highly-rated (Aa or higher by either Moody’s or S&P) corporate bonds with the projected stream of benefit payments.

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In determining the health care cost trend rate, the Companies review actual recent cost trends and projected future trends.

The cost of pension and other postretirement benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions and benefit experience. Con Edison’s and CECONY’s current estimates for 2020 are increases, compared with 2019, in their pension and other postretirement benefits costs of $160 million and $151 million, respectively.

The following table illustrates the effect on 2020 pension and other postretirement costs of changing the critical actuarial assumptions, while holding all other actuarial assumptions constant:

Actuarial Assumption	Change in Assumption		Pension			Other Postretirement Benefits	Total
			(Millions of Dollars)
Increase in accounting cost:
Discount rate
Con Edison	(0.25	)%	$62			$3	$65
CECONY	(0.25	)%	$59			$2	$61
Expected return on plan assets
Con Edison	(0.25	)%	$35			$2	$37
CECONY	(0.25	)%	$34			$2	$36
Health care trend rate
Con Edison	1.00	%		$—		$9	$9
CECONY	1.00	%		$—		$4	$4
Increase in projected benefit obligation:
Discount rate
Con Edison	(0.25	)%	$666			$39	$705
CECONY	(0.25	)%	$631			$31	$662
Health care trend rate
Con Edison	1.00	%		$—		$61	$61
CECONY	1.00	%		$—		$34	$34

A 5.0 percentage point variation in the actual annual return in 2020, as compared with the expected annual asset return of 7.00 percent, would change pension and other postretirement benefit costs for Con Edison and CECONY by approximately $27 million and $25 million, respectively, in 2021.

Pension benefits are provided through a pension plan maintained by Con Edison to which CECONY, O&R, the Clean Energy Businesses and Con Edison Transmission make contributions for their participating employees. Pension accounting by the Utilities includes an allocation of plan assets.

The Companies’ policy is to fund their pension and other postretirement benefit accounting costs to the extent tax deductible, and for the Utilities, to the extent these costs are recovered under their rate plans. The Companies were not required to make cash contributions to the pension plan in 2019 under funding regulations and tax laws. However, CECONY and O&R made discretionary contributions to the pension plan in 2019 of $318 million and $32 million, respectively. In 2020, CECONY and O&R expect to make contributions to the pension plan of $433 million and $39 million, respectively. See “Expected Contributions” in Notes E and F to the financial statements in Item 8.

Accounting for Contingencies

The accounting rules for contingencies apply to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Known material contingencies, which are described in the notes to the financial statements, include certain regulatory matters (Note B), the Utilities’ responsibility for hazardous substances, such as asbestos, PCBs and coal tar that have been used or generated in the course of operations (Note G) and other contingencies (Note H). In accordance with the accounting rules, the Companies have accrued estimates of losses relating to the

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contingencies as to which loss is probable and can be reasonably estimated, and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated.

The Utilities recover costs for asbestos lawsuits, workers’ compensation and environmental remediation pursuant to their current rate plans. Generally, changes during the terms of the rate plans to the amounts accrued for these contingencies would not impact earnings.

Accounting for Long-Lived and Intangible Assets

The accounting rules for certain long-lived assets and intangible assets with definite lives require testing for recoverability whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. The carrying amount of a long-lived asset or intangible asset with a definite life is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Under the accounting rules, an impairment loss is recognized if the carrying amount is not recoverable from such cash flows, and exceeds its fair value, which approximates market value.

In January 2019, PG&E filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The output of certain of the Clean Energy Businesses' PG&E Projects is sold under PG&E PPAs. At December 31, 2019, Con Edison’s consolidated balance sheet included $819 million of net non-utility plant relating to the PG&E Projects, $1,057 million of intangible assets relating to the PG&E PPAs, $282 million of net non-utility plant of additional projects that secure the related project debt and $1,001 million of related project debt. Con Edison has tested whether its net non-utility plant relating to the PG&E Projects and intangible assets relating to the PG&E PPAs have been impaired. Based on the test, Con Edison has determined that there was no impairment. For other long-lived assets or intangible assets with definite lives, Con Edison recorded $2 million of impairment charges in 2018, and no impairment charges were recorded in 2019 or 2017. See “Clean Energy Businesses - Renewable Electric Production,” in Item 1 and “Long-Lived and Intangible Assets” in Note A and "Long-term Debt" in Note C to the financial statements in Item 8.

Accounting for Goodwill

In accordance with the accounting rules for goodwill and intangible assets, Con Edison is required to test goodwill for impairment annually or whenever there is a triggering event. The company has an option to first make a qualitative assessment that evaluates relevant events and circumstances, such as industry and market conditions, regulatory environment and financial performance. If, after applying the optional qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company then applies a two-step, quantitative goodwill impairment test. At December 31, 2019, Con Edison’s consolidated balance sheet included goodwill of $446 million. No material impairment charges on goodwill were recognized in 2019, 2018 or 2017. See “Goodwill” in Note A and Note K to the financial statements in Item 8.

Accounting for Derivative Instruments

The Companies apply the accounting rules for derivatives and hedging to their derivative financial instruments. The Companies use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase and sale of electricity and gas. The Utilities are permitted by their respective regulators to reflect in rates all reasonably incurred gains and losses on these instruments. The Clean Energy Businesses have also hedged interest rate risk on certain debt securities. See “Financial and Commodity Market Risks,” below and Note O to the financial statements in Item 8.

Where the Companies are required to make mark-to-market estimates pursuant to the accounting rules, the estimates of gains and losses at a particular period end do not reflect the end results of particular transactions, and will most likely not reflect the actual gain or loss at the conclusion of a transaction. Substantially all of the estimated gains or losses are based on prices supplied by external sources such as the fair value of exchange-traded futures and options and the fair value of positions for which price quotations are available through or derived from brokers or other market sources.

Financial and Commodity Market Risks

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

82	CON EDISON ANNUAL REPORT 2019

Interest Rate Risk

The Companies' interest rate risk relates primarily to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities, and variable-rate debt. Con Edison and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. The Clean Energy Businesses also use interest rate swaps. See Note O to the financial statements in Item 8. Con Edison and CECONY estimate that at December 31, 2019, a 10 percent increase in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of $7 million and $4 million, respectively. Under CECONY’s current electric, gas and steam rate plans, variations in actual variable rate tax-exempt debt interest expense, including costs associated with the refinancing of the variable-rate tax-exempt debt, are reconciled to levels reflected in rates.

Commodity Price Risk

Con Edison’s commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and the Clean Energy Businesses apply risk management strategies to mitigate their related exposures. See Note O to the financial statements in Item 8.

Con Edison estimates that, as of December 31, 2019, a 10 percent decline in market prices would result in a decline in fair value of $81 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $76 million is for CECONY and $5 million is for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers, including gains and losses on certain derivative instruments used to hedge energy purchased and related costs. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8.

The Clean Energy Businesses use a value-at-risk (VaR) model to assess the market price risk of their portfolio of electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts, generating assets and commodity derivative instruments. VaR represents the potential change in fair value of the portfolio due to changes in market prices for a specified time period and confidence level. These businesses estimate VaR across their portfolio using a delta-normal variance/covariance model with a 95 percent confidence level, compare the measured VaR results against performance due to actual prices and stress test the portfolio each quarter using an assumed 30 percent price change from forecast. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for the portfolio, assuming a one-day holding period, for the years ended December 31, 2019 and 2018, respectively, was as follows:

95% Confidence Level, One-Day Holding Period	2019			2018
	(Millions of Dollars)
Average for the period		$—			$—
High	1			1
Low	—			—

Investment Risk

The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans and to the investments of Con Edison Transmission that are accounted for under the equity method. See “Application of Critical Accounting Policies – Accounting for Pensions and Other Postretirement Benefits,” above and Notes A, E and F to the financial statements in Item 8.

The Companies’ current investment policy for pension plan assets includes investment targets of 45 to 55 percent equity securities, 33 to 43 percent debt securities and 10 to 14 percent real estate. At December 31, 2019, the pension plan investments consisted of 51 percent equity securities, 38 percent debt securities and 11 percent real estate.

For the Utilities’ pension and other postretirement benefit plans, regulatory accounting treatment is generally applied in accordance with the accounting rules for regulated operations. In accordance with the Statement of Policy issued by the NYSPSC and its current electric, gas and steam rate plans, CECONY defers for payment to or recovery from

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customers the difference between the pension and other postretirement benefit expenses and the amounts for such expenses reflected in rates. O&R also defers such difference pursuant to its New York rate plans.

Environmental Matters

For information concerning climate change, environmental sustainability, potential liabilities arising from laws and regulations protecting the environment and other environmental matters, see “Environmental Matters” in Item 1 and Note G to the financial statements in Item 8.

Impact of Inflation

The Companies are affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits the Utilities to recover through depreciation only the historical cost of their plant assets even though in an inflationary economy the cost to replace the assets upon their retirement will substantially exceed historical costs. The impact is, however, partially offset by the repayment of the Companies’ long-term debt in dollars of lesser value than the dollars originally borrowed.

Material Contingencies

For information concerning potential liabilities arising from the Companies’ material contingencies, see “Application of Critical Accounting Policies – Accounting for Contingencies,” above, and Notes B, G and H to the financial statements in Item 8.