Income Tax

12 Months Ended

Dec. 31, 2015

Income Tax Examination [Line Items]

Income Tax

Income Tax

The components of income tax are as follows:

	Con Edison			CECONY
(Millions of Dollars)	2015	2014	2013	2015	2014	2013
State
Current	$38	$59	$151	$48	$66	$111
Deferred	93	61	(70)	82	65	(14)
Federal
Current	(86)	(9)	285	77	158	187
Deferred	569	463	115	372	271	241
Amortization of investment tax credits	(9)	(6)	(5)	(5)	(5)	(5)
Total income tax expense	$605	$568	$476	$574	$555	$520

The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:

	Con Edison		CECONY
(Millions of Dollars)	2015	2014	2015	2014
Deferred tax liabilities:
Property basis differences	$8,614	$7,510	$7,922	$6,938
Regulatory assets:
Unrecognized pension and other postretirement costs	1,562	1,968	1,490	1,872
Future income tax	947	910	899	863
Environmental remediation costs	365	376	322	333
Deferred storm costs	75	129	45	91
Other regulatory assets	367	347	308	300
Equity investments	295	168	—	—
Total deferred tax liabilities	$12,225	$11,408	$10,986	$10,397
Deferred tax assets:
Accrued pension and other postretirement costs	$982	$1,306	$857	$1,155
Regulatory liabilities	836	615	752	574
Superfund and other environmental costs	308	306	268	264
Asset retirement obligations	97	77	94	75
Loss carryforwards	29	21	—	—
Tax credits carryforward	258	—	1	—
Valuation allowance	(15)	(11)	—	—
Other	362	272	292	203
Total deferred tax assets	2,857	2,586	2,264	2,271
Net deferred tax liabilities	$9,368	$8,822	$8,722	$8,126
Unamortized investment tax credits	169	126	33	37
Net deferred tax liabilities and unamortized investment tax credits	$9,537	$8,948	$8,755	$8,163

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The Companies adopted this new pronouncement for the year ended December 31, 2015 and applied it retrospectively. As a result, Con Edison and CECONY adjusted $128 million and $94 million, respectively, from current deferred tax assets to noncurrent deferred tax income taxes and unamortized investment tax credits on the Companies' consolidated balance sheets at December 31, 2014.

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

	Con Edison						CECONY
(% of Pre-tax income)	2015		2014		2013		2015		2014		2013
STATUTORY TAX RATE
Federal	35	%	35	%	35	%	35	%	35	%	35	%
Changes in computed taxes resulting from:
State income tax	5		5		4		5		5		5
Cost of removal	(5	)	(5	)	(5	)	(5	)	(5	)	(5	)
Manufacturing deduction	—		—		(1	)	—		—		—
Other	(1	)	(1	)	(2	)	—		(1	)	(1	)
Effective tax rate	34	%	34	%	31	%	35	%	34	%	34	%

In 2015, Con Edison had a federal net operating loss, due primarily to accelerated bonus depreciation. The Company expects to carryback its 2015 net operating loss to 2013 and recover $6 million of 2013 income tax. Con Edison has $258 million in general business tax credits, which if unused will begin to expire in 2032. A deferred tax asset for this tax attribute carryforward was recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized. As a result of the extension of bonus depreciation for 2015 and 2016 (see discussion below), Con Edison recorded a full valuation allowance of $4 million in 2015 against its charitable contribution carryforwards of $1 million and $9 million from 2010 and 2011, respectively, that will expire in 2015 and 2016. In addition, an $11 million valuation allowance for New York City income tax purposes has been provided; as it is not more likely than not that the deferred tax asset will be realized.

In 2014, tax legislation was enacted in the State of New York that reduced the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $74 million ($69 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $62 million ($59 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material, and there was no impact on CECONY’s effective tax rate for the year ended December 31, 2014.

Under the Taxpayer Relief Act of 2012, 50 percent bonus depreciation expired on December 31, 2013. In December 2014, President Obama signed into law the Tax Increase Prevention Act of 2014, which extended bonus depreciation for another year through December 31, 2014. As a result of the extension of bonus depreciation to 2014, Con Edison filed a refund request with the IRS in January 2015 to recover$224 million($128 millionfor CECONY) in estimated federal tax payments and received the refund in March 2015.

In December 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015, which extends bonus depreciation for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is50 percentfor property placed in service during 2015, 2016 and 2017 and phases down to40 percentin 2018, and30 percentin 2019. As a result of the extension of bonus depreciation to 2015, Con Edison filed a refund request with the IRS in January 2016 to recover$160 millionin estimated federal tax payments. In February 2016, Con Edison received a refund of estimated taxes paid in the amount of $160 million ($143 million for CECONY).

Uncertain Tax Positions

Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows:

	Con Edison			CECONY
(Millions of Dollars)	2015	2014	2013	2015	2014		2013
Balance at January 1,	$34	$9	$86	$2		$—	$74
Additions based on tax positions related to the current year	—	—	5	—	—		—
Additions based on tax positions of prior years	1	27	253	—	2		—
Reductions for tax positions of prior years	—	(2)	(86)	—	—		(74)
Reductions from expiration of statute of limitations	(1)	—	—	—	—		—
Settlements	—	—	(249)	—	—		—
Balance at December 31,	$34	$34	$9	$2	$2			$—

As of December 31, 2015, Con Edison reasonably expects to resolve approximately $25 million ($16 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months. Favorable resolution would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $2 million ($1 million, net of federal taxes), of which the entire amount, if recognized, would reduce CECONY’s effective tax rate.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In 2015 and 2014, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. In 2013, Con Edison recognized $121 million of interest expense ($131 million related to the LILO transactions (see “Lease In/Lease Out Transactions” in Note J), less a reduction of $10 million in accrued interest expense primarily associated with repair allowance deductions and reversing other uncertain tax positions in 2013). At December 31, 2015 and 2014, the Companies recognized an immaterial amount of interest and no penalties in their consolidated balance sheets.

At December 31, 2015, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies’ effective tax rate is $34 million ($22 million, net of federal taxes) with $2 million ($1 million, net of federal taxes) attributable to CECONY.

The federal tax returns for 2012 through 2014 remain open for examinations. State income tax returns remain open for examination in New York for tax years 2006 through 2014 and in New Jersey for tax years 2008 through 2014.

CECONY

Income Tax Examination [Line Items]

Income Tax

Income Tax

The components of income tax are as follows:

	Con Edison			CECONY
(Millions of Dollars)	2015	2014	2013	2015	2014	2013
State
Current	$38	$59	$151	$48	$66	$111
Deferred	93	61	(70)	82	65	(14)
Federal
Current	(86)	(9)	285	77	158	187
Deferred	569	463	115	372	271	241
Amortization of investment tax credits	(9)	(6)	(5)	(5)	(5)	(5)
Total income tax expense	$605	$568	$476	$574	$555	$520

The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:

	Con Edison		CECONY
(Millions of Dollars)	2015	2014	2015	2014
Deferred tax liabilities:
Property basis differences	$8,614	$7,510	$7,922	$6,938
Regulatory assets:
Unrecognized pension and other postretirement costs	1,562	1,968	1,490	1,872
Future income tax	947	910	899	863
Environmental remediation costs	365	376	322	333
Deferred storm costs	75	129	45	91
Other regulatory assets	367	347	308	300
Equity investments	295	168	—	—
Total deferred tax liabilities	$12,225	$11,408	$10,986	$10,397
Deferred tax assets:
Accrued pension and other postretirement costs	$982	$1,306	$857	$1,155
Regulatory liabilities	836	615	752	574
Superfund and other environmental costs	308	306	268	264
Asset retirement obligations	97	77	94	75
Loss carryforwards	29	21	—	—
Tax credits carryforward	258	—	1	—
Valuation allowance	(15)	(11)	—	—
Other	362	272	292	203
Total deferred tax assets	2,857	2,586	2,264	2,271
Net deferred tax liabilities	$9,368	$8,822	$8,722	$8,126
Unamortized investment tax credits	169	126	33	37
Net deferred tax liabilities and unamortized investment tax credits	$9,537	$8,948	$8,755	$8,163

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The Companies adopted this new pronouncement for the year ended December 31, 2015 and applied it retrospectively. As a result, Con Edison and CECONY adjusted $128 million and $94 million, respectively, from current deferred tax assets to noncurrent deferred tax income taxes and unamortized investment tax credits on the Companies' consolidated balance sheets at December 31, 2014.

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

	Con Edison						CECONY
(% of Pre-tax income)	2015		2014		2013		2015		2014		2013
STATUTORY TAX RATE
Federal	35	%	35	%	35	%	35	%	35	%	35	%
Changes in computed taxes resulting from:
State income tax	5		5		4		5		5		5
Cost of removal	(5	)	(5	)	(5	)	(5	)	(5	)	(5	)
Manufacturing deduction	—		—		(1	)	—		—		—
Other	(1	)	(1	)	(2	)	—		(1	)	(1	)
Effective tax rate	34	%	34	%	31	%	35	%	34	%	34	%

In 2015, Con Edison had a federal net operating loss, due primarily to accelerated bonus depreciation. The Company expects to carryback its 2015 net operating loss to 2013 and recover $6 million of 2013 income tax. Con Edison has $258 million in general business tax credits, which if unused will begin to expire in 2032. A deferred tax asset for this tax attribute carryforward was recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized. As a result of the extension of bonus depreciation for 2015 and 2016 (see discussion below), Con Edison recorded a full valuation allowance of $4 million in 2015 against its charitable contribution carryforwards of $1 million and $9 million from 2010 and 2011, respectively, that will expire in 2015 and 2016. In addition, an $11 million valuation allowance for New York City income tax purposes has been provided; as it is not more likely than not that the deferred tax asset will be realized.

In 2014, tax legislation was enacted in the State of New York that reduced the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $74 million ($69 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $62 million ($59 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material, and there was no impact on CECONY’s effective tax rate for the year ended December 31, 2014.

Under the Taxpayer Relief Act of 2012, 50 percent bonus depreciation expired on December 31, 2013. In December 2014, President Obama signed into law the Tax Increase Prevention Act of 2014, which extended bonus depreciation for another year through December 31, 2014. As a result of the extension of bonus depreciation to 2014, Con Edison filed a refund request with the IRS in January 2015 to recover$224 million($128 millionfor CECONY) in estimated federal tax payments and received the refund in March 2015.

In December 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015, which extends bonus depreciation for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is50 percentfor property placed in service during 2015, 2016 and 2017 and phases down to40 percentin 2018, and30 percentin 2019. As a result of the extension of bonus depreciation to 2015, Con Edison filed a refund request with the IRS in January 2016 to recover$160 millionin estimated federal tax payments. In February 2016, Con Edison received a refund of estimated taxes paid in the amount of $160 million ($143 million for CECONY).

Uncertain Tax Positions

Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows:

	Con Edison			CECONY
(Millions of Dollars)	2015	2014	2013	2015	2014		2013
Balance at January 1,	$34	$9	$86	$2		$—	$74
Additions based on tax positions related to the current year	—	—	5	—	—		—
Additions based on tax positions of prior years	1	27	253	—	2		—
Reductions for tax positions of prior years	—	(2)	(86)	—	—		(74)
Reductions from expiration of statute of limitations	(1)	—	—	—	—		—
Settlements	—	—	(249)	—	—		—
Balance at December 31,	$34	$34	$9	$2	$2			$—

As of December 31, 2015, Con Edison reasonably expects to resolve approximately $25 million ($16 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months. Favorable resolution would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $2 million ($1 million, net of federal taxes), of which the entire amount, if recognized, would reduce CECONY’s effective tax rate.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In 2015 and 2014, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. In 2013, Con Edison recognized $121 million of interest expense ($131 million related to the LILO transactions (see “Lease In/Lease Out Transactions” in Note J), less a reduction of $10 million in accrued interest expense primarily associated with repair allowance deductions and reversing other uncertain tax positions in 2013). At December 31, 2015 and 2014, the Companies recognized an immaterial amount of interest and no penalties in their consolidated balance sheets.

At December 31, 2015, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies’ effective tax rate is $34 million ($22 million, net of federal taxes) with $2 million ($1 million, net of federal taxes) attributable to CECONY.

The federal tax returns for 2012 through 2014 remain open for examinations. State income tax returns remain open for examination in New York for tax years 2006 through 2014 and in New Jersey for tax years 2008 through 2014.