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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 O to the financial statements in Item 8. Certain financial data of Con Edison’s businesses are presented below:

Con Edison Transmission (b) 4 — % (175) (16) % 1,348 2 %

Other (c) (3) — % (4) — % 485 1 %

(a)Net income for common stock from the Clean Energy Businesses for the year ended December 31, 2020 includes $(43) million of net after-tax mark-to-market losses and reflects $32 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 R to the financial statements in Item 8.

(b)Net income for common stock from Con Edison Transmission for the year ended December 31, 2020 includes $(232) million of a net after-tax impairment loss related to its investment in Mountain Valley Pipeline, LLC. See "Application of Critical Accounting Policies - Investments" in Item 7 and "Investments" in Note A to the financial statements in Item 8.

(c)Other includes parent company and consolidation adjustments. Net income for common stock includes $9 million of income tax impact for the impairment loss related to investment in Mountain Valley Pipeline, LLC.

Coronavirus Disease 2019 (COVID-19) Impacts

The Companies continue to respond to the Coronavirus Disease 2019 (COVID-19) global pandemic by working to reduce the potential risks posed by its spread to employees, customers and other stakeholders. The Companies continue to employ an incident command structure led by a pandemic planning team. The Companies support employee health and facility hygiene through mandatory pre-entry symptom surveys for employees arriving at all company locations, regular cleaning and disinfecting of all work and common areas, promoting social distancing and directing employees to work remotely whenever possible. Employees who test positive for COVID-19 are directed to quarantine at home and are evaluated for close, prolonged contact with other employees that would require those employees to quarantine at home. Following the Centers for Disease Control and Prevention guidelines, sick or quarantined employees return to work when they can safely do so. The Utilities continue to provide critical electric, gas and steam service to customers during the pandemic. Additional safety protocols have been implemented to protect employees, customers and the public, when work at customer premises is required. As a result of COVID-19 clusters that have arisen in various areas of New York within the Utilities’ service territory, the Utilities have limited their work in customer premises in the impacted areas to only address emergency, safety-related and selected service connections requested by customers. The Companies have procured an inventory of pandemic-related materials to address anticipated future needs and maintain regular communications with key suppliers.

Below is additional information related to the effects of the COVID-19 pandemic and the Companies’ actions. Also, see “COVID-19 Regulatory Matters” in Note B to the financial statements in Item 8, which information is incorporated herein by reference.

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Impact of CARES Act and 2021 Appropriations Act on Accounting for Income Taxes

In response to the economic impacts of the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020. The CARES Act has several key business tax relief measures that may present potential cash benefits and/or refund opportunities for Con Edison and its subsidiaries, including permitting a five-year carryback of a net operating loss (NOL) for tax years 2018, 2019 and 2020, temporary removal of the 80 percent limitation of NOL carryforwards against taxable income for tax years before 2021, temporary relaxation of the limitations on interest deductions, Employee Retention Tax Credit and deferral of payments of employer payroll taxes.

Con Edison carried back its NOL of $29 million from tax year 2018 to tax year 2013. This allowed Con Edison, mostly at the Clean Energy Businesses, to receive a $2.5 million net tax refund and to recognize a discrete income tax benefit of $4 million in 2020, due to the higher federal statutory tax rate in 2013. See "Income Tax" in Note L. Con Edison and its subsidiaries did not have a federal NOL in tax years 2019 or 2020.

Con Edison and its subsidiaries benefited by the increase in the percentage for calculating the limitation on the interest expense deduction from 30 percent of Adjusted Taxable Income (ATI) to 50 percent of ATI in 2019 and 2020, which allowed the Companies to deduct 100 percent of their interest expense.

The Companies qualify for an employee retention tax credit created under the CARES Act for "eligible employers" related to governmental authorities imposing restrictions that partially suspended their operations for a portion of their workforce due to the COVID-19 pandemic and the Companies continued to pay them. For the year ended December 31, 2020, Con Edison and CECONY recognized a tax benefit to Taxes, other than income taxes of $10 million and $7 million, respectively.

The CARES Act also allows employers to defer payments of the employer share of Social Security payroll taxes that would have otherwise been owed from March 27, 2020 through December 31, 2020. The Companies deferred the payment of employer payroll taxes for the period April 1, 2020 through December 31, 2020 of approximately $71 million ($63 million of which is for CECONY). The Companies will repay half of this liability by December 31, 2021 and the other half by December 31, 2022.

In December 2020, the Consolidated Appropriations Act, 2021 (the 2021 Appropriations Act) was signed into law. The 2021 Appropriations Act, among other things, extends the expiring employee retention tax credit to include qualified wages paid in the first two quarters of 2021, increases the qualified wages paid to an employee from 50 percent up to $10,000 annually in 2020 to 70 percent up to $10,000 per quarter in 2021 and increases the maximum employee retention tax credit amount an employer can take per employee from $5,000 in 2020 to $14,000 in the first two quarters of 2021.

Accounting Considerations

Due to the COVID-19 pandemic and subsequent New York State on PAUSE and related executive orders, decline in business, bankruptcies, layoffs and furloughs, among other factors, both commercial and residential customers may have increased difficulty paying their utility bills. CECONY and O&R have existing allowances for uncollectible accounts established against their customer accounts receivable balances that are reevaluated each quarter and updated accordingly. Changes to the Utilities’ reserve balances that result in write-offs of customer accounts receivable balances are not reflected in rates during the term of the current rate plans. During 2020, the potential economic impact of the COVID-19 pandemic was also considered in forward-looking projections related to write-off and recovery rates, resulting in increases to the customer allowance for uncollectible accounts as detailed herein. CECONY’s and O&R’s allowances for uncollectible customer accounts reserve increased from $65 million and $4.6 million at December 31, 2019 to $138 million and $8.7 million at December 31, 2020, respectively. See Note A and "COVID-19 Regulatory Matters" in Note B to the Financial Statements in Item 8.

The Companies test goodwill for impairment at least annually or whenever there is a triggering event, and test long-lived and intangible assets for recoverability when events or changes in circumstances indicate that the carrying value of long-lived or intangible assets may not be recoverable. The Companies identified no triggering events or changes in circumstances related to the COVID-19 pandemic that would indicate that the carrying value of goodwill, long-lived or intangible assets may not be recoverable at December 31, 2020. See Notes A and K to the financial statements in Item 8.

Liquidity and Financing

The Companies continue to monitor the impacts of the COVID-19 pandemic on the financial markets closely, including borrowing rates and daily cash collections. The Companies have been able to access the capital markets as needed since the start of the COVID-19 pandemic in March 2020. See Notes C and D to the financial statements

CON EDISON ANNUAL REPORT 2020 55

in Item 8. However, a continued economic downturn as a result of the COVID-19 pandemic could increase the amount of capital needed by the Utilities and the costs of such capital.

The decline in business activity in the Utilities’ service territory as a result of the COVID-19 pandemic resulted in lower billed sales revenues in 2020 and a slower recovery in cash of outstanding customer accounts receivable balances and is expected to continue to do so in 2021. The Utilities’ rate plans have revenue decoupling mechanisms in their New York electric and gas businesses that largely reconcile actual energy delivery revenues to the authorized delivery revenues approved by the NYSPSC per month and accumulate the deferred balances semi-annually under CECONY's electric rate plan (January through June and July through December, respectively) and annually under CECONY's gas rate plan and O&R New York's electric and gas rate plans (January through December). Differences are accrued with interest each month for CECONY's and O&R New York’s electric customers and after the annual deferral period ends for CECONY's and O&R New York’s gas customers for refund to, or recovery from customers, as applicable. Generally, the refund to or recovery from customers begins August and February of each year over an ensuing six-month period for CECONY's electric customers and February of each year over an ensuing twelve-month period for CECONY's gas and O&R New York's electric and gas customers. Although these revenue decoupling mechanisms are in place, lower billed sales revenues and higher uncollectible accounts have reduced and is expected to continue to reduce liquidity at the Utilities. Also, in March 2020, the Utilities began suspending service disconnections, certain collection notices, final bill collection agency activity, new late payment charges and certain other fees for all customers and such suspensions may continue through 2021 or later. For the year ended December 31, 2020, the estimated foregone revenues that were not collected by the Utilities were approximately $61 million for CECONY and $3 million for O&R. These foregone revenues have reduced and may continue to reduce liquidity at the Utilities. See Note A and "COVID-19 Regulatory Matters" in Note B to the financial statements in Item 8.

Con Edison and the Utilities also have a $2,250 million credit agreement (Credit Agreement) in place under which banks are committed to provide loans on a revolving credit basis until December 2023 ($2,200 million of commitments from December 2022). Con Edison and the Utilities have not entered into any loans under the Credit Agreement. See Note D to the financial statements in Item 8.

Results of Operations

Net income for common stock and earnings per share for the years ended December 31, 2020, 2019 and 2018 were as follows:

(a)Net income for common stock from the Clean Energy Businesses for the year ended December 31, 2020 and 2019 reflects $32 million or $0.10 a share (after-tax) and $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 R to the financial statements in Item 8. Net income for common stock from the Clean Energy Businesses also includes $(43) million or $(0.13) a share, $(21) million or $(0.07) a share and $(6) million or $(0.02) a share of net after-tax mark-to-market losses in 2020, 2019 and 2018, 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 V to the financial statements in Item 8.

(c)Net income for common stock from Con Edison Transmission for the year ended December 31, 2020 includes $(232) million or $(0.69) a share of net after-tax impairment loss related to its investment in Mountain Valley Pipeline, LLC. See "Application of Critical Accounting Policies - Investments" in Item 7 and “Investments” in Note A to the financial statements in Item 8.

(d)Other includes parent company and consolidation adjustments. Net income for common stock includes $9 million or $0.03 a share of income tax impact for the impairment loss related to Con Edison Transmission’s investment in Mountain Valley Pipeline, LLC. See “Investments” in Note A to the financial statements in Item 8. 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 V to the financial statements in Item 8.

(e)Earnings per share on a diluted basis were $3.28 a share, $4.08 a share and $4.42 a share in 2020, 2019 and 2018, respectively. See "Earnings Per Common Share" in Note A to the financial statements in Item 8.

56 CON EDISON ANNUAL REPORT 2020

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, 2020 as compared with 2019, and 2019 as compared with 2018.

CON EDISON ANNUAL REPORT 2020 57

Variation for the Year Ended December 31, 2020 vs. 2019

Earningsper Share Net Incomefor Common Stock(Millions of Dollars)

CECONY (a)

O&R (a)

Total O&R — 1

Clean Energy Businesses

Total Clean Energy Businesses 0.13 42

Total Reported (GAAP basis) $(0.80) $(242)

58 CON EDISON ANNUAL REPORT 2020

Variation for the Years Ended December 31, 2019 vs. 2018

Earnings per Share Net IncomeforCommonStock (Millions of Dollars)

CECONY (a)

O&R (a)

Clean Energy Businesses

Total Clean Energy Businesses (0.52) (163)

Total Reported (GAAP basis) $(0.34) $(39)

CON EDISON ANNUAL REPORT 2020 59

The Companies’ other operations and maintenance expenses for the years ended December 31, 2020, 2019 and 2018 were as follows:

CECONY

Pensions and other postretirement benefits (103) 134 71

Regulatory fees and assessments (a) 330 464 444

Con Edison Transmission 11 9 10

Other (b) (4) — (5)

Total other operations and maintenance expenses $2,814 $3,175 $3,152

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

(b)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, 2020, 2019 and 2018 follows. For additional business segment financial information, see Note O to the financial statements in Item 8.

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The Companies’ results of operations for the years ended December 31, 2020, 2019 and 2018 were:

(a) Includes parent company and consolidation adjustments.

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

(d) For the year ended December 31, 2020, Con Edison Transmission recorded a pre-tax impairment loss of $320 million ($223 million, after tax), to reduce the carrying value of its investment in MVP from $662 million to $342 million. See “Investments” in Note A to the financial statements in Item 8.

CON EDISON ANNUAL REPORT 2020 61

Year Ended December 31, 2020 Compared with Year Ended December 31, 2019

CECONY

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Electric

CECONY’s results of electric operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

CECONY’s electric sales and deliveries in 2020 compared with 2019 were:

Millions of kWh Delivered Revenues in Millions (a)

For the Years Ended For the Years Ended

(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 6.1 percent in 2020 compared with 2019. See “Coronavirus Disease 2019 (COVID-19) Impacts,” above.

Operating revenues increased $41 million in 2020 compared with 2019 primarily due to higher purchased power expenses ($81 million), offset in part by lower fuel expenses ($24 million) and lower revenues from the electric rate plan ($16 million).

Purchased power expenses increased $81 million in 2020 compared with 2019 due to higher unit costs ($158 million), offset in part by lower purchased volumes ($77 million).

62 CON EDISON ANNUAL REPORT 2020

Fuel expenses decreased $24 million in 2020 compared with 2019 due to lower unit costs ($31 million), offset in part by higher purchased volumes from the company’s electric generating facilities ($7 million).

Other operations and maintenance expenses decreased $306 million in 2020 compared with 2019 primarily due to lower costs for pension and other postretirement benefits ($195 million), lower surcharges for assessments and fees that are collected in revenues from customers ($110 million), lower stock-based compensation ($25 million) and lower healthcare costs ($16 million), offset in part by incremental costs associated with the COVID-19 pandemic ($14 million), higher municipal infrastructure support costs ($9 million) and food and medicine spoilage claims related to outages caused by Tropical Storm Isaias ($7 million).

Depreciation and amortization increased $161 million in 2020 compared with 2019 primarily due to higher electric utility plant balances and higher depreciation rates.

Taxes, other than income taxes increased $156 million in 2020 compared with 2019 primarily due to higher property taxes ($105 million), lower deferral of under-collected property taxes ($38 million), higher state and local taxes ($11 million) and the absence in 2020 of a reduction in the sales and use tax reserve upon conclusion of the audit assessment ($5 million), offset in part by lower payroll taxes ($3 million) due to the Employee Retention Tax Credit created under the CARES Act. See “Coronavirus Disease 2019 (COVID-19) Impacts - Impact of CARES Act and 2021 Appropriations Act on Accounting for Income Taxes,” above.

Gas

CECONY’s results of gas operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

Other operations and maintenance 355 399 (44)

Taxes, other than income taxes 387 368 19

CECONY’s gas sales and deliveries, excluding off-system sales, in 2020 compared with 2019 were:

Thousands of Dt Delivered Revenues in Millions (a)

For the Years Ended For the Years Ended

Other operating revenues (d) — — — — 74 114 (40) (35.1)

(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 decreased 0.7 percent in 2020 compared with 2019. See “Coronavirus Disease 2019 (COVID-19) Impacts,” above.

(c)Includes 3,510 thousands and 5,484 thousands of Dt for 2020 and 2019, 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.

CON EDISON ANNUAL REPORT 2020 63

Operating revenues decreased $96 million in 2020 compared with 2019 primarily due to lower gas purchased for resale expense ($180 million) and certain rate plan reconciliations ($6 million), offset in part by higher gas revenues due to the gas base rates increase in January 2020 under the company's gas rate plan ($91 million).

Gas purchased for resale decreased $180 million in 2020 compared with 2019 due to lower unit costs ($110 million) and lower purchased volumes ($70 million).

Other operations and maintenance expenses decreased $44 million in 2020 compared with 2019 primarily due to lower costs for pension and other postretirement benefits ($31 million), lower stock-based compensation ($5 million), lower municipal infrastructure support costs ($5 million) and lower reserve for injuries and damages ($4 million).

Depreciation and amortization increased $63 million in 2020 compared with 2019 primarily due to higher gas utility plant balances and higher depreciation rates.

Taxes, other than income taxes increased $19 million in 2020 compared with 2019 primarily due to higher property taxes ($37 million), higher state and local taxes ($1 million) and the absence in 2020 of a reduction in the sales and use tax reserve upon conclusion of the audit assessment ($1 million), offset in part by higher deferral of under-collected property taxes ($19 million) and lower payroll taxes ($1 million) due to the Employee Retention Tax Credit created under the CARES Act. See “Coronavirus Disease 2019 (COVID-19) Impacts - Impact of CARES Act and 2021 Appropriations Act on Accounting for Income Taxes,” above.

Steam

CECONY’s results of steam operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

Other operations and maintenance 161 177 (16)

Depreciation and amortization 90 89 1

Taxes, other than income taxes 144 158 (14)

Steam operating income $5 $62 $(57)

CECONY’s steam sales and deliveries in 2020 compared with 2019 were:

Millions of Pounds Delivered Revenues in Millions

For the Years Ended For the Years Ended

Other operating revenues (a) — — — — 28 45 (17) (37.8)

(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 6.7 percent in 2020 compared with 2019. See “Coronavirus Disease 2019 (COVID-19) Impacts,” above.

Operating revenues decreased $119 million in 2020 compared with 2019 primarily due to the impact of warmer winter weather ($43 million), lower fuel expenses ($27 million), lower usage by customers due to the impact of the COVID-19 pandemic ($19 million), certain rate plan reconciliations ($15 million) and lower purchased power expenses ($6 million).

Purchasedpower expenses decreased $6 million in 2020 compared with 2019 due to lower unit costs ($3 million) and purchased volumes ($3 million).

64 CON EDISON ANNUAL REPORT 2020

Fuel expenses decreased $27 million in 2020 compared with 2019 due to lower unit costs ($14 million) and lower purchased volumes from the company’s steam generating facilities ($13 million).

Other operations and maintenance expenses decreased $16 million in 2020 compared with 2019 primarily due to lower costs for pension and other postretirement benefits ($7 million) and lower municipal infrastructure support costs ($7 million).

Depreciation and amortization increased $1 million in 2020 compared with 2019 primarily due to higher steam utility plant balances.

Taxes, other than income taxes decreased $14 million in 2020 compared with 2019 primarily due to higher deferral of under-collected property taxes ($20 million) and lower state and local taxes ($2 million), offset in part by higher property taxes ($8 million).

Taxes, Other Than Income Taxes

At $2,456 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) 2020 2019 Variation

State and local taxes related to revenue receipts 338 328 10

(a)Including sales tax on customers’ bills, total taxes other than income taxes in 2020 and 2019 were $2,989 and $2,807 million, respectively.

Other Income (Deductions)

Other income (deductions) decreased $136 million in 2020 compared with 2019 primarily due to higher costs associated with components of pension and other postretirement benefits other than service cost ($117 million) and the absence of the company’s share of gain on sale of properties in 2019 ($14 million).

Net Interest Expense

Net interest expense increased $11 million in 2020 compared with 2019 primarily due to higher interest on long-term debt ($46 million), offset in part by a decrease in interest accrued on the TCJA related regulatory liability ($13 million), lower interest expense for short-term debt ($12 million) and lower interest accrued on the system benefit charge liability ($8 million).

Income Tax Expense

Income taxes decreased $120 million in 2020 compared with 2019 primarily due to lower income before income tax expense ($39 million), an increase in the amortization of excess deferred federal income taxes due to CECONY’s electric and gas rate plans that went into effect in January 2020 ($103 million) and lower state income taxes ($13 million), offset in part by the absence of the amortization of excess deferred state income taxes in 2020 ($24 million), lower research and development credits in 2020 ($5 million) and lower flow-through tax benefits in 2020 for plant-related items ($4 million).

O&R

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

CON EDISON ANNUAL REPORT 2020 65

Electric

O&R’s results of electric operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

Other operations and maintenance 242 235 7

Depreciation and amortization 65 60 5

Taxes, other than income taxes 54 53 1

Electric operating income $99 $98 $1

O&R’s electric sales and deliveries in 2020 compared with 2019 were:

Millions of kWh Delivered Revenues in Millions (a)

For the Years Ended For the Years Ended

Other operating revenues (c) — — — — 1 14 (13) (92.9)

(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 0.7 percent in 2020 compared with 2019. See “Coronavirus Disease 2019 (COVID-19) Impacts,” above.

Operating revenues decreased $5 million in 2020 compared with 2019 primarily due to lower purchased power expenses ($19 million), offset in part by higher revenues from the New York electric rate plan ($16 million).

Purchasedpower expenses decreased $19 million in 2020 compared with 2019 due to lower unit costs.

Other operations and maintenance expenses increased $7 million in 2020 compared with 2019 primarily due to the amortization of prior deferred storm costs ($3 million) and food and medicine spoilage claims related to outages caused by Tropical Storm Isaias ($3 million).

Depreciation and amortization increased $5 million in 2020 compared with 2019 primarily due to higher electric utility plant balances.

Taxes, other than income taxes increased $1 million in 2020 compared with 2019 primarily due to higher property taxes ($2 million), offset in part by lower payroll taxes ($1 million).

Gas

O&R’s results of gas operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

66 CON EDISON ANNUAL REPORT 2020

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

Gas purchased for resale 61 90 (29)

Other operations and maintenance 68 73 (5)

Depreciation and amortization 25 24 1

Taxes, other than income taxes 31 31 —

Gas operating income $48 $41 $7

O&R’s gas sales and deliveries, excluding off-system sales, in 2020 compared with 2019 were:

Thousands of Dt Delivered Revenues in Millions (a)

For the Years Ended For the Years Ended

Generation plants 59 4 55 Large — — — —

Other gas revenues — — — — 23 28 (5) (17.9)

(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 0.6 percent in 2020 compared with 2019. See “Coronavirus Disease 2019 (COVID-19) Impacts,” above.

Operating revenues decreased $26 million in 2020 compared with 2019 primarily due to lower gas purchased for resale expense.

Gas purchased for resale decreased $29 million in 2020 compared with 2019 due to lower unit costs ($24 million) and purchased volumes ($5 million).

Other operations and maintenance expenses decreased $5 million in 2020 compared with 2019 primarily due to lower pension costs.

Depreciation and amortization increased $1 million in 2020 compared with 2019 primarily due to higher gas utility plant balances.

Taxes, Other Than Income Taxes

Taxes, other than income taxes, increased $1 million in 2020 compared with 2019. The principal components of taxes, other than income taxes, were:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

State and local taxes related to revenue receipts 10 10 —

Payroll taxes 6 8 (2)

(a)Including sales tax on customers’ bills, total taxes other than income taxes in 2020 and 2019 were $121 million and $116 million, respectively.

Income Tax Expense

Income taxes increased $4 million in 2020 compared with 2019 primarily due to higher income before income tax expense ($1 million), higher state income taxes ($1 million), lower flow-through tax benefits on plant-related items in 2020 ($1 million), and an increase in flow-through income tax expense on higher bad debt reserves in 2020 as compared with 2019 ($1 million).

CON EDISON ANNUAL REPORT 2020 67

Clean Energy Businesses

The Clean Energy Businesses’ results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019 were as follows:

For the Years Ended December 31,

(Millions of Dollars) 2020 2019 Variation

Other operations and maintenance 228 223 5

Depreciation and amortization 231 226 5

Taxes, other than income taxes 21 21 —

Operating revenues decreased $121 million in 2020 compared with 2019 primarily due to lower wholesale revenues ($136 million) and lower energy services revenues ($19 million), offset in part by higher renewable electric production revenues ($34 million).

Gas purchased for resale decreased $144 million in 2020 compared with 2019 primarily due to lower purchased volumes.

Other operations and maintenance expenses increased $5 million in 2020 compared with 2019 primarily due to an increase in general operating expenses.

Depreciation and amortization increased $5 million in 2020 compared with 2019 primarily due to an increase in renewable electric production projects in operation during 2020.

Net Interest Expense

Net interest expense increased $10 million in 2020 compared with 2019 primarily due to higher unrealized losses on interest rate swaps in the 2020 period.

Income Tax Expense

Income taxes increased $14 million in 2020 compared with 2019 primarily due to higher income before income tax expense ($1 million), lower income attributable to non-controlling interest ($13 million), and the absence of the adjustment for prior period federal income tax returns primarily due to higher research and development credits in 2019 ($13 million), offset in part by a tax benefit due to the change in the federal corporate income tax rate recognized for a loss carryback from the 2018 tax year to the 2013 tax year as allowed under the CARES Act ($4 million), a lower increase in uncertain tax position ($7 million) and higher renewable energy credits ($2 million).

Income Attributable to Non-Controlling Interest

Income attributable to non-controlling interest increased $54 million in 2020 compared with 2019 primarily due to lower losses attributable in the 2020 period to a tax equity investor in renewable electric production projects accounted for under the HLBV method of accounting. See Note R to the financial statements in Item 8.

Con Edison Transmission

Net Interest Expense

Net interest expense decreased $7 million in 2020 compared with 2019 primarily due to a reduction to short-term borrowings and rates charged under an intercompany capital funding facility.

Other Income (Deductions)

Other income (deductions) decreased $319 million in 2020 compared with 2019 primarily due to an impairment loss related to Con Edison Transmission's investment in Mountain Valley Pipeline, LLC. See "Application of Critical Account Policies - Investments" in Item 7 and "Investments" in Note A to the financial statement in Item 8.

Income Tax Expense

Income taxes decreased $87 million in 2020 compared with 2019 primarily due to the MVP impairment loss recorded in 2020 ($88 million).

68 CON EDISON ANNUAL REPORT 2020

Other

Taxes, Other Than Income Taxes

Taxes, other than income taxesincreased $7 million in 2020 compared with 2019 primarily due to adjustments made to the New York City capital tax for prior periods in the 2020 period.

Other Income (Deductions)

Other income (deductions) increased $7 million in 2020 compared with 2019 primarily due to the absence in 2020 of an elimination related to interest income under the intercompany capital funding facility.

Income Tax Expense

Income taxes decreased $17 million in 2020 compared with 2019 primarily due to lower income before income tax expense ($3 million), the reversal of a portion of a New York City valuation allowance ($9 million), and the MVP impairment loss recorded in 2020 ($9 million), offset in part by lower consolidated state income tax benefits ($4 million).

During the fourth quarter of 2020, Con Edison reversed a portion of its valuation allowance that was recorded against the deferred tax asset established for the New York City NOL. Management has reassessed its ability to realize a portion of the deferred tax benefits generated primarily by its renewable energy projects due to the future reversal of temporary differences associated with the accelerated tax depreciation and by implementing its strategy to secure tax equity financing from third parties for which certain tax deductions and amortization will be specifically allocated to members outside of the consolidated group.

CON EDISON ANNUAL REPORT 2020 69

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

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

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

Other operating revenues (c) — — — — 413 (11) 424 Large

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

(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 primarily due 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).

70 CON EDISON ANNUAL REPORT 2020

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 primarily due 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 primarily due to higher electric utility plant balances.

Taxes, other than income taxes increased $93 million in 2019 compared with 2018 primarily due 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

Other operations and maintenance 399 420 (21)

Taxes, other than income taxes 368 332 36

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

Other operating revenues (d) — — — — 114 28 86 Large

(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.

Operating revenues increased $54 million in 2019 compared with 2018 primarily due 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 2020 71

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 primarily due 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 primarily due to higher gas utility plant balances.

Taxes, other than income taxes increased $36 million in 2019 compared with 2018 primarily due 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

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

Other operating revenues (a) — — — — 45 (14) 59 Large

(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 primarily due 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).

Purchasedpower 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 primarily due 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).

72 CON EDISON ANNUAL REPORT 2020

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

Taxes, other than income taxes increased $10 million in 2019 compared with 2018 primarily due 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

State and local taxes related to revenue receipts 328 330 (2)

Payroll taxes 69 69 —

(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 primarily due 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 primarily due 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 primarily due 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

CON EDISON ANNUAL REPORT 2020 73

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

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

Other operating revenues (c) — — — — 14 (12) 26 Large

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

(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 primarily due 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 primarily due 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 primarily due to higher electric utility plant balances.

Taxes, other than income taxes increased $1 million in 2019 compared with 2018 primarily due 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:

74 CON EDISON ANNUAL REPORT 2020

For the Years Ended December 31,

(Millions of Dollars) 2019 2018 Variation

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

Generation plants 4 1 3 Large — — — —

Other gas revenues — — — — 28 (2) 30 Large

(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 primarily due 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 primarily due 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 primarily due 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

State and local taxes related to revenue receipts 10 10 —

Payroll taxes 8 8 —

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

Other Income (Deductions)

CON EDISON ANNUAL REPORT 2020 75

Other income (deductions) increased $8 million in 2019 compared with 2018 primarily due 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 primarily due 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

Purchased power — 2 (2)

Other operations and maintenance 223 287 (64)

Taxes, other than income taxes 21 13 8

Gain on acquisition of Sempra Solar Holdings, LLC (a) — 131 (131)

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

Operating revenues increased $94 million in 2019 compared with 2018 primarily due 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 primarily due 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 primarily due 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 primarily due 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 primarily due 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 V to the financial statements in Item 8.

Other Income (Deductions)

Other income (deductions) decreased $28 million in 2019 compared with 2018 primarily due 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.

76 CON EDISON ANNUAL REPORT 2020

Net Interest Expense

Net interest expense increased $123 million in 2019 compared with 2018 primarily due 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 primarily due 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 primarily due 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 R to the financial statements in Item 8.

Con Edison Transmission

Other Income (Deductions)

Other income (deductions) increased $13 million in 2019 compared with 2018 primarily due 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, LLC ($17 million). See “Con Edison Transmission - CET Gas” in Item 1.

Net Interest Expense

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

Income Tax Expense

Income taxes increased $4 million in 2019 compared with 2018 primarily due 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 taxesdecreased $8 million in 2019 compared with 2018 primarily due to lower New York State capital tax.

Other Income (Deductions)

Other income (deductions) increased $12 million in 2019 compared with 2018 primarily due to the absence in 2019 of transaction costs related to the acquisition of Sempra Solar Holdings, LLC in 2018. See Note V 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 2020 77

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.

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," “The Companies Face Risks Related to Health Epidemics And Other Outbreaks, Including The COVID-19 Pandemic,” and “The Companies Also Face Other Risks That Are Beyond Their Control” in Item 1A, and “Capital Requirements and Resources” in Item 1.

78 CON EDISON ANNUAL REPORT 2020

The Companies’ cash, temporary cash investments and restricted cash resulting from operating, investing and financing activities for the years ended December 31, 2020, 2019 and 2018 are summarized as follows:

(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 2020 79

Cash Flows from Operating Activities

The Utilities’ cash flows from operating activities primarily reflect their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is primarily affected 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 "Competition" and "Environmental Matters – Clean Energy Future – Reforming the Energy Vision" and “Environmental Matters – Climate Change” in Item 1. During 2020, the decline in business activity in the Utilities’ service territory due to the COVID-19 pandemic resulted and may continue in 2021 to result in lower billed sales revenues, a slower recovery of cash from outstanding customer accounts receivable balances and increases to the allowance for uncollectible accounts, that may further result in increases to write-offs of customer accounts. 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. The Utilities’ New York rate plans allow them to defer costs resulting from a change in legislation, regulation and related actions that have taken effect during the term of the rate plans once the costs exceed a specified threshold. Increases to the allowance for uncollectible accounts related to the COVID-19 pandemic have been deferred pursuant to the legislative, regulatory and related actions provisions of their rate plans. 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, "COVID-19 Regulatory Matters" in Note B, “Other Regulatory Matters” in Note B and Note L to the financial statements in Item 8 and "Coronavirus Disease 2019 (COVID-19) Impacts - Liquidity and Financing," above.

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, 2020 net income also included a non-cash loss recognized with respect to a partial impairment of Con Edison Transmission’s investment in Mountain Valley Pipeline, LLC.See “Investments” in Note A to the financial statements in Item 8. For Con Edison, 2018 net income 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 V to the financial statements in Item 8.

Net cash flows from operating activities in 2020 for Con Edison and CECONY were $936 million and $809 million lower, respectively, than in 2019. The changes in net cash flows for Con Edison and CECONY primarily reflects higher accounts receivable balances from customers ($566 million and $519 million, respectively) (see “COVID-19 Regulatory Matters” in Note B to the financial statements in Item 8 and “Coronavirus Disease 2019 (COVID-19) Impacts - Accounting Considerations” and “Liquidity and Financing,” above) and higher other receivables and other current assets ($188 million and $103 million, respectively) primarily due to lower reimbursement received for restoration costs related to the restoration of power in Puerto Rico in the aftermath of the September 2017 hurricanes in the 2020 period ($94 million and $88 million, respectively), higher system benefit charge ($139 million and $130 million, respectively), higher pension and retiree benefit contributions ($121 million and $113 million, respectively), deferrals for increased costs related to the COVID-19 pandemic ($115 million and $113 million, respectively), and a change in pension and retiree benefit obligations ($72 million and $77 million, respectively), offset in part by lower TCJA net benefits provided to customers in the 2020 period ($263 million and $263 million, respectively).

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 primarily reflects 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

80 CON EDISON ANNUAL REPORT 2020

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).

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 $442 million and $292 million higher, respectively, in 2020 than in 2019. The change for Con Edison primarily reflects an increase in non-utility construction expenditures at the Clean Energy Businesses ($335 million), the absence in 2020 of proceeds from the sale of properties formerly used by CECONY in its operations ($192 million), an increase in utility construction expenditures at CECONY ($84 million) and O&R ($4 million) and higher cost of removal less salvage at CECONY ($16 million), offset in part by lower investments in electric and gas transmission projects at Con Edison Transmission in the 2020 period ($202 million).

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 primarily reflects the acquisition of Sempra Solar Holdings, LLC, net of cash acquired, at the Clean Energy Businesses in 2018 ($1,488 million) (see Note V to the financial statements in Item 8) and proceeds received in 2019 from the sale of properties formerly used by CECONY in its operations ($187 million).

Cash Flows From Financing Activities

Net cash flows from financing activities in 2020 for Con Edison and CECONY were $1,386 million and $1,120 million higher, respectively, than in 2019. 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 during the years ended December 31, 2020, 2019 and 2018 reflect the following Con Edison transactions:

2020

•Issued 1,050,000 shares of its common shares for $88 million upon physical settlement of the remaining shares subject to its May 2019 forward sale agreement. Con Edison used the proceeds to invest in CECONY for funding of its capital requirements and other general corporate purposes. See Note C to the financial statements in Item 8;

•Borrowed $820 million pursuant to a credit agreement that was converted to a term loan (the “July 2020 Term Loan”). Con Edison used the proceeds from the borrowing for general corporate purposes, including repayment of short-term debt bearing interest at variable rates. The July 2020 Term Loan was prepaid in full in December 2020;

•Issued 7,200,000 common shares resulting in net proceeds of $553 million, after issuance expenses. The net proceeds from the sale of the common shares, together with the net proceeds from the sale of $650 million aggregate principal amount of 0.65 percent debentures due 2023, were used to prepay in full the July 2020 Term Loan. The remaining net proceeds from the sale of the common shares were invested by Con Edison in its subsidiaries, principally CECONY and O&R, and for other general corporate purposes; and

•Issued $650 million aggregate principal amount of 0.65 percent debentures, due 2023, with an option to redeem at par, in whole or in part, on or after December 1, 2021. The proceeds from the $650 million refinancing, together with a portion of the proceeds from the sale of common shares, were used to prepay in full the July 2020 Term Loan. See Note C to the financial statements in Item 8.

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. See Note C to the financial statements in Item 8;

•Issued 5,649,369 common shares 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 variable-rate term loan that matures in June 2021 to fund the repayment of a six-month variable-rate term loan. In June 2019 and January 2021, Con Edison optionally pre-paid $150 million and $275 million, respectively, of the amount borrowed. See Note C to the financial statements in Item 8.

CON EDISON ANNUAL REPORT 2020 81

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 variable-rate term loan that matures in June 2021. See Notes C and V to the financial statements in Item 8.

Con Edison’s cash flows from financing activities in 2020, 2019 and 2018 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 $106 million, $101 million and $100 million, respectively.

Net cash flows from financing activities during the years ended December 31, 2020, 2019 and 2018 reflect the following CECONY transactions:

2020

•Issued $600 million aggregate principal amount of 3.00 percent debentures, due 2060, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes;

•Redeemed at maturity $350 million of 4.45 percent 10-year debentures; and

•Issued $600 million aggregate principal amount of 3.35 percent debentures, due 2030 and $1,000 million aggregate principal amount of 3.95 percent debentures, due 2050, the net proceeds from the sale of which will be used to pay or reimburse the payment of, in whole or in part, existing and new qualifying eligible green expenditures, such as energy efficiency and clean transportation expenditures, that include those funded on or after January 1, 2018 until the maturity date of each series of the debentures. Pending the allocation of the net proceeds to finance or refinance eligible green expenditures, CECONY used a portion of the net proceeds for repayment of short-term debt and temporarily placed the remaining net proceeds in short-term interest-bearing instruments.

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.

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.

Net cash flows from financing activities during the years ended December 31, 2020, 2019 and 2018 also reflect the following O&R transactions:

2020

•Issued $35 million aggregate principal amount of 2.02 percent debentures, due 2030, and $40 million aggregate principal amount of 3.24 percent debentures, due 2050, the net proceeds from the sales of which were used to repay short-term borrowings and for other general corporate purposes.

82 CON EDISON ANNUAL REPORT 2020

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.

Net cash flows from financing activities during the years ended December 31, 2020, 2019 and 2018 also reflect the following Clean Energy Businesses transactions:

2020

•Borrowed $165 million under a $613 million variable-rate construction loan facility that matures no later than November 2021, secured by three of the company’s solar electric production projects. See Note D to the financial statements in Item 8.

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 variable-rate term loan that matures in June 2021 (see Note C to the financial statements in Item 8) 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 P 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.

Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at December 31, 2020, 2019 and 2018 and the average daily balances for 2020, 2019 and 2018 for Con Edison and CECONY were as follows:

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.

CON EDISON ANNUAL REPORT 2020 83

Assets, Liabilities and Equity

The Companies’ assets, liabilities and equity at December 31, 2020 and 2019 are summarized as follows:

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

(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, 2020 were $864 million higher than at December 31, 2019. The change in current assets primarily reflects increases in accounts receivables, less allowance for uncollectible accounts ($442 million) (see “COVID-19 Regulatory Matters” in Note B to the financial statements in Item 8 and “Coronavirus Disease 2019 (COVID-19) Impacts - Accounting Considerations” and “Liquidity and Financing,” above), cash and temporary cash investments ($134 million), regulatory assets ($131 million), revenue decoupling mechanism receivable ($53 million), accrued unbilled revenue ($46 million) and accounts receivables from affiliated companies ($61 million).

Investments at December 31, 2020 were $80 million higher than at December 31, 2019. The change in investments primarily reflects increases in supplemental retirement income plan assets ($68 million) and deferred income plan assets ($11 million). See "Investments" in Note A and Note E to the financial statements in Item 8.

Net plant at December 31, 2020 was $2,140 million higher than at December 31, 2019. The change in net plant primarily reflects an increase in electric ($1,338 million), gas ($692 million), steam ($95 million) and general ($314 million) plant balances and an increase in construction work in progress ($508 million), offset in part by an increase in accumulated depreciation ($807 million).

Other noncurrent assets at December 31, 2020 were $1,326 million higher than at December 31, 2019. The change in other noncurrent assets primarily 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, 2020, of the pension and other retiree benefit plans in accordance with the accounting rules for retirement benefits ($662 million). The change in the regulatory asset also reflects increases in the regulatory assets for deferred pension and other postretirement benefits ($225 million), environmental remediation costs ($144 million), deferrals for increased costs related to the COVID-19 pandemic ($113 million), deferred storm costs ($83 million) and the year's amortization of accounting costs. See Notes B, E, F and G to the financial statements in Item 8.

Current liabilities at December 31, 2020 were $1,116 million higher than at December 31, 2019. The change in current liabilities primarily reflects increases in notes payable ($523 million), debt due within one year as of December 31, 2020 ($290 million) and accounts payable ($276 million).

84 CON EDISON ANNUAL REPORT 2020

Noncurrent liabilities at December 31, 2020 were $1,057 million higher than at December 31, 2019. The change in noncurrent liabilities primarily reflects an increase in the liability for pension and retiree benefits ($702 million) as a result of the final actuarial valuation of the pension and other retiree benefit plans, as measured at December 31, 2020, in accordance with the accounting rules for retirement benefits. The change also reflects an increase in deferred income taxes and unamortized investment tax credits ($411 million), primarily due to accelerated tax depreciation and repair deductions. See Notes E, F, and L to the financial statements in Item 8.

Long-term debt at December 31, 2020 was $1,535 million higher than at December 31, 2019. The change in long-term debt primarily reflects the March and November 2020 issuance of $2,200 million of debentures, offset in part by the reclassification of $640 million of long-term debt 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, 2020 was $702 million higher than at December 31, 2019. The change in equity reflects net income for the year ($1,185 million) and capital contributions from parent ($500 million) in 2020, offset in part by common stock dividends to parent ($982 million) in 2020.

O&R

Current assets at December 31, 2020 were $34 million higher than at December 31, 2019. The change in current assets primarily reflects increases in accounts receivables, less allowance for uncollectible accounts ($16 million), revenue decoupling mechanism receivable ($8 million), regulatory assets ($8 million) and cash and temporary cash investments ($5 million).

Net plant at December 31, 2020 was $133 million higher than at December 31, 2019. The change in net plant primarily reflects an increase in electric ($111 million) and gas ($46 million) plant balances and an increase in construction work in progress ($31 million), offset in part by an increase in accumulated depreciation ($59 million).

Other noncurrent assets at December 31, 2020 were $74 million higher than at December 31, 2019. The change in other noncurrent assets primarily reflects an increase in the regulatory asset for unrecognized pension and other postretirement costs as a result of the final actuarial valuation, as measured at December 31, 2020, of the pension and other retiree benefit plans in accordance with the accounting rules for retirement benefits ($38 million) and an increase in the regulatory asset for deferred storm costs ($35 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, 2020 were $45 million higher than at December 31, 2019. The change in current liabilities primarily reflects higher accounts payable.

Noncurrent liabilities at December 31, 2020 were $76 million higher than at December 31, 2019. The change in noncurrent liabilities primarily reflects an increase in the liability for pension and retiree benefits ($37 million), as a result of the final actuarial valuation of the pension and other retiree benefit plans, as measured at December 31, 2020 in accordance with the accounting rules for retirement benefits and an increase in the regulatory liability for deferred other retiree benefit plans rate ($9 million). It also reflects an increase in deferred income taxes and unamortized investment tax credits ($24 million), primarily due to accelerated tax depreciation and repair deductions. See Notes E, F, and L to the financial statements in Item 8.

Long-term debt at December 31, 2020 was $75 million higher than at December 31, 2019. The change in long-term debt reflects the September 2020 issuance of $75 million of debentures. See "Liquidity and Capital Resources - Cash Flows From Financing Activities" above.

Equity at December 31, 2020 was $45 million higher than at December 31, 2019. The change in equity reflects net income for the year ($71 million) and capital contributions from parent ($25 million) in 2020, offset by common stock dividends to parent ($49 million) in 2020 and a decrease in other comprehensive income ($2 million).

Clean Energy Businesses

Current assets at December 31, 2020 were $26 million lower than at December 31, 2019. The change in current assets primarily reflects a decrease in restricted cash.

Net plant at December 31, 2020 was $394 million higher than at December 31, 2019. The change in net plant primarily reflects additional capital expenditures, offset in part by an increase in accumulated depreciation.

CON EDISON ANNUAL REPORT 2020 85

Other noncurrent assets at December 31, 2020 were $48 million lower than at December 31, 2019. The change in other noncurrent assets primarily reflects the amortization of the purchase power agreement intangible assets.

Current liabilities at December 31, 2020 were $195 million lower than at December 31, 2019. The change in current liabilities primarily reflects the reclassification of the company’s PG&E-related non-recourse project debt with a maturity longer than one year from long-term debt due within one year to long-term debt ($898 million), offset in part by the reclassification of an intercompany loan agreement from the parent company from long-term debt to current liabilities ($400 million) and a borrowing under a short-term construction loan facility ($165 million) (see Note D to the financial statements in Item 8) and additional working capital requirements.

Noncurrent liabilities at December 31, 2020 were $10 million higher than at December 31, 2019. The change in noncurrent liabilities primarily reflects the change in the fair value of derivative liabilities and asset retirement obligations for new projects placed in service, offset in part by the change in deferred taxes and the reduction of lease liability associated with the adoption of ASU No. 2016-02 “Leases (Topic 842)."

Long-term debt at December 31, 2020 was $376 million higher than at December 31, 2019. The change in long-term debt primarily reflects the reclassification of the company’s PG&E-related non-recourse project debt with a maturity longer than one year from long-term debt due within one year to long-term debt ($898 million), offset in part by the reclassification of an intercompany loan agreement from the parent company from long-term debt to current liabilities ($400 million).

Equity at December 31, 2020 was $129 million higher than at December 31, 2019. The change in equity primarily reflects capital contributions from parent ($100 million) in 2020, an increase in noncontrolling interest ($27 million) in 2020 and net income for common stock for the year ($24 million), offset in part by common stock dividends to parent ($21 million) in 2020.

Con Edison Transmission

Current assets at December 31, 2020 were $40 million higher than at December 31, 2019. The change in current assets primarily reflects a receivable of $38 million from Crestwood Pipeline and Storage Northeast LLC (Crestwood), the joint venture partner in Stagecoach Gas Services, LLC. The agreement between Crestwood and Con Edison Gas Pipeline and Storage, LLC (CET Gas) provides for payments from Crestwood to CET Gas for shortfalls in meeting certain earnings growth performance targets. The payment is expected to total $57 million ($19 million of which is due in March 2021 and an additional $19 million plus interest due in each of January 2022 and January 2023. The payments were recorded as a receivable by CET Gas as of December 31, 2020). See "Con Edison Transmission - CET Gas" in Item 1.

Investments at December 31, 2020 were $329 million lower than at December 31, 2019. The change in investments primarily reflects the impairment loss related to Con Edison Transmission's investment in Mountain Valley Pipeline, LLC ($320 million), the decrease in CET Gas' investment in Stagecoach Gas Services, LLC due to the receivable from Crestwood described above ($57 million) and investment income less partnership distribution from Stagecoach Services ($22 million), offset in part by investment income from Mountain Valley Pipeline, LLC ($60 million) and from NY Transco ($8 million), respectively. See "Investments" in Note A to the financial statements in Item 8.

Noncurrent assets at December 31, 2020 were $19 million higher than at December 31, 2019. The change in noncurrent assets reflects a receivable of $19 million related to the receivable from Crestwood described above.

Current liabilities at December 31, 2020 were $24 million lower than at December 31, 2019. The change in current liabilities primarily reflects a reduction in short-term borrowings under an intercompany capital funding facility.

Noncurrent liabilities at December 31, 2020 was $60 million lower than at December 31, 2019. The change in noncurrent liabilities primarily reflects a change in deferred income taxes and unamortized investment tax credits that primarily reflects timing differences associated with investments in partnerships.

Equity at December 31, 2020 was $186 million lower than at December 31, 2019. The change in equity reflects net loss for the year ($175 million) and common stock dividends to parent ($11 million) in 2020.

86 CON EDISON ANNUAL REPORT 2020

Off-Balance Sheet Arrangements

At December 31, 2020, none of the Companies’ 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, cloud computing implementation costs, derivative instruments and investments.

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, 2020 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, 2020, the regulatory assets for Con Edison and CECONY were $6,461 million and $5,989 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 2020, 2019 and 2018.

CON EDISON ANNUAL REPORT 2020 87

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.

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 2021 are increases, compared with 2020, in their pension and other postretirement benefits costs of $15 million and $13 million, respectively.

The following table illustrates the effect on 2021 pension and other postretirement costs of changing the critical actuarial assumptions, while holding all other actuarial assumptions constant:

(Millions of Dollars)

Increase in accounting cost:

Discount rate

Expected return on plan assets

Health care trend rate

Increase in projected benefit obligation:

Discount rate

Health care trend rate

A 5.0 percentage point variation in the actual annual return in 2021, 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 $29 million and $27 million, respectively, in 2022.

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 2020 under funding regulations and tax laws. However, CECONY and O&R made discretionary contributions to the pension plan in 2020 of $435 million and $40 million, respectively. In 2021, CECONY and O&R expect to make contributions to the pension plan of $441 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

88 CON EDISON ANNUAL REPORT 2020

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 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, Pacific Gas and Electric Company (PG&E) filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The output of certain of the Clean Energy Businesses' renewable electric production projects is sold to PG&E under long-term power purchase agreements. As a result of the PG&E bankruptcy, distributions from the related projects to the Clean Energy Businesses were restricted and PG&E-related project debt was reclassified on Con Edison’s consolidated balance sheet from long-term debt to long-term debt due within one year. In July 2020, PG&E’s plan of reorganization became effective and the Clean Energy Businesses began receiving previously restricted distributions and all related project debt with a maturity longer than one year was reclassified to long-term debt. See “Long-Lived and Intangible Assets” in Note A to the financial statements in Item 8.

Accounting for Cloud Computing Implementation Costs

The accounting rules for costs incurred in implementing cloud computing arrangements allow for capitalization of such costs in the same manner as prepaid assets are recorded. Depreciation on the assets is recorded as other operations and maintenance expense. See "Other Deferred Charges and Noncurrent Assets and Prepayments" in Note A 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 P 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.

Investments

The accounting rules require Con Edison to periodically evaluate its equity method investments, to determine whether they are impaired. The standard for determining whether an impairment exists and must be recorded is whether an other-than-temporary decline in carrying value has occurred. The evaluation and measurement of impairments involve uncertainties. The estimates that Con Edison makes with respect to its equity method investments are based on assumptions that management believes are reasonable, and variations in these estimates or the underlying assumptions could have a material impact on whether a triggering event is determined to exist or the amount of any such impairment. Additionally, if the projects in which Con Edison holds these investments recognize an impairment, Con Edison may record its proportionate share of that impairment loss and would evaluate its investment for an other-than-temporary decline in value.

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Con Edison evaluated its equity method investments as of December 31, 2020 and concluded that the fair value of its investment in Mountain Valley Pipeline LLC (MVP) declined below its carrying value and the decline is other-than-temporary. Accordingly, Con Edison recorded a pre-tax impairment loss of $320 million ($223 million after tax) for the year ended December 31, 2020 that reduced the carrying value of its investment in MVP from $662 million to $342 million. See “Investments” in Note A to the financial statements in Item 8.

There is risk that the carrying value of Con Edison’s investments in MVP may be further or fully impaired in the future. There are ongoing legal and regulatory matters that must be resolved favorably before the Mountain Valley Pipeline can be completed. Assumptions and estimates used to test Con Edison’s investments in MVP for impairment may change if adverse or delayed resolutions to these matters were to occur, which could have a material adverse effect on the fair value of Con Edison’s investment in MVP. Also, Con Edison is considering strategic alternatives with respect to its 50 percent interest in Stagecoach Gas Services, LLC. As such strategic alternatives are evaluated, Con Edison may be required to determine whether an other-than-temporary decline in value has occurred for its Stagecoach investment.

At December 31, 2020, Con Edison’s consolidated balance sheet included investments of $1,816 million. See “Investments” in Note A to the financial statements in Item 8.

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.

Interest Rate Risk

The Companies' interest rate risk primarily relates 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 use interest rate swaps to exchange variable-rate project financed debt for a fixed interest rate. See Note P to the financial statements in Item 8. Con Edison and CECONY estimate that at December 31, 2020, a 10 percent increase in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of $1 million. Under CECONY’s current 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 primarily relates 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 P to the financial statements in Item 8.

Con Edison estimates that, as of December 31, 2020, a 10 percent decline in market prices would result in a decline in fair value of $87 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $81 million is for CECONY and $6 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, 2020 and 2019, respectively, was as follows:

90 CON EDISON ANNUAL REPORT 2020

95% Confidence Level, One-Day Holding Period 2020 2019

(Millions of Dollars)

Average for the period $— $—

High — 1

Low — —

Investment Risk

The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. Con Edison's investment risk also relates 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 “Investments” in Note A and Notes 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, 2020, 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 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

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