Letter From The Chairman

To Our Stakeholders:

The energy landscape is changing, and with it, the way we do business.

Our customers have higher expectations than ever before, and they want more choices for the energy that powers their lives. Many New Yorkers are lessening their impact on the environment by participating in our energy efficiency programs, converting their buildings from oil to natural gas, and choosing steam for heating and cooling.

There has been more interest in solar installations, microgrids, and renewable technologies that will help grow our business. At the same time, for the millions of customers who rely on our traditional pipes and wires, we must maintain the safe and excellent service and reliability we’re known for. And we must do all of this while protecting the environment and managing risks that could challenge us in the future.

As the sixth largest solar provider in the nation, Con Edison is helping to meet growing demand for cleaner energy. Wind power in Ohio, Nebraska, and South Dakota, and solar farms in California, Nevada, and Texas have broadened our reach. We’re doing our part to help us all breathe easier, reducing our own carbon footprint by approximately 45 percent in the last decade.

Closer to home, the safety of the public and our people is at the forefront of all that we do, and our focus is paying off. Both Con Edison of New York and Orange and Rockland surpassed their five-year safety goals in 2014.

We increased our commitment to educate New Yorkers about gas safety with a multilingual “Smell Gas. Act Fast.” campaign, and launched a new online map to pinpoint gas leaks. Inspections of our gas system have increased, and we’re upgrading our infrastructure by replacing miles of gas mains.

We are more than halfway through our four-year, $1 billion plan to fortify our energy infrastructure against the threat of extreme weather. We are vigilant about strengthening our physical and cyber security defenses and regularly practice cyberattack drills so we are ready to respond to any threats against our systems.

Our 15,000 dedicated women and men participated in more than 600,000 hours of training in 2014 to build a stronger workforce.

Con Edison is proud to support nonprofit organizations across our region working to build strong communities, preserve the environment, and clean up parks and waterways.

This report represents our efforts to learn and adapt to the challenges ahead so we can lead the way forward. We will continue our commitment to provide safe and reliable service, protect the environment, and brighten our communities, for the benefit of those we serve and our company.

-John McAvoy, Chairman and CEO, Consolidated Edison, Inc.

Utility of the Future

The electricity sector is in the midst of transformational change, driven by advances in distributed technology, the growth of accessible North American natural gas reserves, and increasing policy emphasis on reducing greenhouse gas emissions. Together, these trends are driving exponential growth in distributed energy resources across the country.  At the end of 2014, more than half a million homes had solar panels installed.

To keep pace with this change, utilities and regulatory agencies from coast to coast have been evaluating regulatory and rate structures, grid operations, infrastructure planning, and customer engagement strategies. Policies like net metering, renewable energy credits, community choice, and energy efficiency incentives are being reexamined to better align outcomes within this changing landscape.

Through this transformation, Con Edison sees opportunity to better serve our customers, enhance our efficiency, advance cost-effective clean energy, and create additional value for our shareholders. As we move forward, we believe our customers must remain at the center of what we do. Utilities must also do more to work hand-in-hand with third parties to develop innovative new solutions, fully integrate alternative energy resources into the grid, and unlock the potential of a more interactive customer-centric grid.

In New York, the Public Service Commission instituted the “Reforming the Energy Vision” proceeding in April 2014. This initiative takes a holistic view of the future of the electricity sector, with the goal of animating distributed energy markets, enhancing customer engagement, and enhancing power system efficiency.

Con Edison’s Utility of the Future team is working in partnership with the New York State Public Service Commission to advance these objectives and coordinate measures across the company to explore future utility models.

Five Business Overview

From our early history lighting gas lamps to today’s cutting edge electric vehicle and smart-grid technologies, Con Edison has powered New York for nearly 200 years. Nearly 10 million people depend on us to provide safe, reliable, and affordable energy to light and warm their homes, run their businesses, and help the region grow. Our five businesses’ goal of evolving for the future encompasses changing industry, customer needs, and regulatory priorities. The theme of this year’s sustainability report – Measuring for Success – is reflective of how we gauge and report on that evolution.

A breakdown of 2014 revenue for Con Edison, Inc. is provided below by business for Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R), and the competitive energy businesses (CEBs), which are comprised of Con Edison Solutions, Con Edison Development, and Con Edison Energy

Strategy

Con Edison’s strategy is to deliver reliable energy services and provide a stable foundation for supporting New York’s economy. At Con Edison, we have two strategic documents – our Integrated Long Range Plan and our Sustainability Strategy. These companion documents work together to identify ways that we can add value for all of our stakeholders through the services we provide, our different business models, and our commitment to excellence in all that we do.

Enterprise Risk

Environmental Performance

The company’s sustainability strategy is focused on two concepts regarding our environmental stewardship: mitigation and adaptation. From a mitigation standpoint, we strive to reduce our environmental footprint, making wise and effective use of natural resources. We also recognize that our climate is changing and that we must adapt our company to address the challenges of climate change and its impact on our business. We have identified five Key Sustainability Aspects related to our environmental performance and defined success in those areas as follows:

• Air: Reduce direct and indirect emissions to improve air quality
• Water: Enhance the efficiency of our water use and seek opportunities to improve water quality
• Habitat and Biodiversity: Manage our environmental legacy and minimize our impact to natural ecosystems
• Resource Conservation: Focus on reducing, reusing, and recycling to minimize consumption
• Climate Change: Design our work in consideration of climate forecasts

The following sections outline our progress in these areas, as well as the goals we look to achieve in the future as we strive to be a good environmental steward and corporate citizen.

Water

We strive to enhance the efficiency of our water use and seek opportunities to improve water quality. Con Edison is the second largest consumer of municipal water in New York, driven by Con Edison of New York’s steam business. In 2013, we consumed 3.6 billion gallons of municipal water, 3.5 billion of which were used to generate steam for heating and cooling customers throughout the city, and approximately 100 million of which was used for basic water and sewage services at our facilities.

Con Edison also uses water withdrawn from the Hudson and East Rivers for cooling at its steam generation plants. This water is returned directly to the river at quality levels specified in SPDES permits with limited to no impact to water quality or quantity as a result of this process. Our withdrawals of river water are reported to the New York State Department of Environmental Conservation on an annual basis as required.

We recognize that we face risks related to water. While parts of the country deal with droughts and concerns about water availability, flooding is a primary concern in the Northeast. Con Edison has made significant investments to mitigate the risk of infrastructure flooding, in preparation for increasingly severe and frequent storms like Hurricane Sandy, which brought historic tidal surges. To learn more, visit the Resiliency section of this report.

Resource Conservation

The wise and effective use of natural resources is one of Con Edison’s five key EH&S objectives. We have evolved our approach to resource conservation, moving from a focus on waste segregation to a more-encompassing focus on reducing, reusing, and recycling to minimize consumption. This applies to our use of materials as well as our use of energy and water.

Habitat and Biodiversity

We aim to reduce our impact on natural ecosystems in order to protect habitats and biodiversity. Our Land and Vegetation Management program was developed, in part, to encourage biological diversity along our overhead transmission rights-of-way (ROW). This is achieved by three primary objectives:

• Selective management of vegetation to provide a diversified habitat as a means to enhance and maintain a diversified mix of wildlife on the ROW
• Disposal of wood waste on-site in a manner that provides cover and protection for a variety of birds, mammals, and reptiles
• Protection of site conditions and plants to encourage reproduction and spreading of desirable grasses, forbs, and shrubs

In 2013, five fine mesh screens were installed to filter fish, eggs, and larvae from the intake of the East River Generating Station. This measure, plus the installation of a dedicated fish-return system, helped to reduce the impact of the plant on the river, in compliance with governing regulations. In 2013, the screens remained, and we monitored to verify the system’s effectiveness.

The fish-return system uses a low-pressure spray wash to gently remove any aquatic organisms trapped on the new fine mesh screens, and delicately return them to the river. The system is currently undergoing tests, and we expect the results to confirm a considerable reduction in our station’s impact on East River aquatic life.

Managing our Legacy

Hazardous substances, including asbestos, polychlorinated biphenyls (PCBs) and coal tar, have historically been used or produced by Con Edison of New York and Orange and Rockland operations. Some of these sites (many of which are no longer owned by the company) still contain measurable levels of materials that are left over from historic operations. We have made substantial investments in investigating and, when necessary, remediating these sites, and we strive to do so with minimal impact to property owners and our neighbors.

We are working closely with local, state, and federal regulatory agencies to identify and address sites that may be impacted by historic operations. A substantial number of sites are addressed under voluntary cleanup programs, where we have committed to minimize adverse impacts on health and the environment. In addition, the company is working closely with the community, keeping the public informed and aware of current projects and programs, through regular meetings, signs and notices, and an informational company website. We work hard to minimize disruptions to the local community, and monitor our impacts on a real-time basis throughout our remediation projects.

The company is held financially responsible under state and federal laws for its impacts to these sites and the remediation of impacted areas. The company sets aside money for the investigation and cleanup of these sites. For more information, please see our annual 10K report.

Many of Con Edison of New York’s current remediation sites were formerly the location of manufactured gas plants (MGP), where the company made and distributed manufactured combustible gas. From the early 1800s to the mid-1900s, Con Edison, like many other utilities of its time, manufactured gas in such plants and distributed it in parts of New York City and in Westchester County. At the time, this gas provided many benefits to the community, including heating homes and businesses, and lighting the city’s streetlamps. However, it is now known that some of the byproducts of this production may be harmful to human health and the environment. Through the end of 2014, investigations were started at all 51 Con Edison of New York MGP Sites, and were completed at all or portions of 32 of those sites. Remedial investigations have been completed at all seven Orange and Rockland MGP Sites. Orange and Rockland has received the New York State Department of Environmental Conservation’s decision regarding the remedial work to be performed at six of those sites, three of which have been completed.

During 2014, Orange and Rockland spent approximately $9 million for its remediation programs, including approximately $8 million for its MGP program, and Con Edison of New York spent approximately $20 million for its remediation programs, including approximately $9 million for its MGP program.

Safety

At Con Edison, Zero Harm is our commitment to realizing injury-free work performance and getting the job done without harm to the public, our contractors, or our employees. We coordinate a robust safety program, communicate with our employees every day about the importance of identifying and mitigating hazards, and work to empower employees to take ownership of their own safety and that of their teammates. We also rely on our employees to identify ways that we can improve safety. These combined efforts resulted in another great year of safety performance, with Con Edison of New York achieving an OSHA rate of 1.31, and Orange and Rockland reducing their rate to 1.26. Also of note, Con Edison of New York saw a 50-percent reduction in the occurrence of high severity injuries. More about our efforts to keep the public and the contractors safe are discussed in this report’s Contractor and Public Safety sections.

Public

Con Edison is committed to public safety, and we incorporate safety considerations into our system planning, design work, and system operations. We conduct formal periodic inspections, testing, and maintenance of our electric, gas, and steam transmission and distribution infrastructure to ensure that system elements will continue to provide safe and reliable service. Our work in the street meets extensive requirements for work-area protection to keep our employees and the public safe from potential hazards. Our safety teams and committees meet regularly to identify and share best practices to quickly mitigate street-work hazards.

Con Edison of New York regularly communicates safety information to customers in the quarterly Customer News bill insert. Orange and Rockland customers receive an insert titled @home four times per year. Both publications include energy safety information, seasonal safety tips, severe weather safety advice, and reminders about staying safe around downed power lines. Both companies also send separate bill inserts throughout the year regarding energy safety and gas safety, along with other messages like gas pipeline safety, Call 811, storm preparation tips, Smell Gas/Act Fast, and CO safety.

Orange and Rockland and Con Edison of New York both offer safety tips on their websites, including information about residential electric and gas use, carbon monoxide, and generator safety. In addition, both companies use paid advertising online and in print to remind people what to do if they think they smell gas. Con Edison and Orange and Rockland also send emails to customers with energy safety tips and storm safety information before and during severe weather to remind customers how to report outages. Press releases on this subject are also issued and posted on the website.

Employee

Working toward an injury-free workplace requires commitment from all levels, from the CEO to the entry-level employee. Con Edison has made gains in establishing a strong safety culture that encourages employees to internalize and apply the corporate commitment to safety every day on every job.

As a result of their personal commitment to safety, many Con Edison employees, working independently or in teams, introduce significant innovations that can be applied company-wide. These initiatives substantially reduce safety risks associated with recurring work, or common tasks. Some employee-developed technologies are so distinctive that they are awarded patents, and in certain cases, the methods and technical innovations draw interest from other utility companies nationwide. Some examples include developing a matrix of error-avoidance tools to improve job planning and work performance, engineering means for inspecting structures before entering them, rethinking efficiency opportunities in oil management, and providing equipment manufacturers with feedback and alteration requests that will led to improved performance.

Contractor

When Con Edison enters into a relationship with a service contractor (such as for excavation, construction, or system maintenance), we verify that the vendor has the financial resources and insurance to meet our needs. We then conduct a rigorous review of the vendor to validate its environment, health, and safety programs, including a review of environmental compliance violations, past safety performance, and any OSHA citations. Depending on the scope of work, we will also perform a telephone interview and ask targeted questions to ensure that the vendor can maintain compliance with applicable rules and regulations.

Contractors are expected to perform to the same level as our own workforce and must comply with Con Edison’s EH&S requirements, including the Rules We Live By and Time Out procedures. Further, Con Edison includes contractor injury incidence as a component of the Safety Index, setting a performance goal equal to that for company employees.

Contractor health and safety programs and site- and task-specific environmental, health, and safety plans (eHASPs) are reviewed by company subject matter experts and EH&S personnel before the contractor begins work. We offer several resources to help contractors develop suitable eHASPs, including online training, an eHASP template and numerous guidance documents. Where a contractor has experienced recent incidents or violations on Con Edison assignments, we may require them to hire a third-party monitor to ensure that they are performing work in accordance with applicable environment, health, and safety requirements.

Con Edison’s Supply Chain department issues a quarterly Newsletter for Contractors, covering recent violations, new regulations, and best EH&S practices employed by exemplary contractors.

Contractors regularly undergo on-site inspections by trained and experienced Con Edison personnel, whose observations form the basis of semi-annual report cards. We also maintain a Contractor Oversight System, and a special Action Line is in place for employees to report contractor environmental, health, and safety violations and potentially risky behavior. A Supply Chain committee reviews contractor violations and assesses disciplinary action (e.g. replace site manager or field personnel, undergo special training, or lose eligibility for further contracts for a specified period of time).

These steps help assure that contractors work safely on company assignments, and in compliance with applicable environment, health, and safety regulations. Achieving continuing improvement in contractor OSHA Incidence Rates is a key performance measure at Con Edison of New York. In 2014, the company’s contractors collectively had an OSHA Incidence Rate of 1.01, surpassing the goal of 1.50 or lower established for the year.

Orange and Rockland requires contractors to complete and submit an environmental, health, and safety program prior to commencement of work. These documents are reviewed and accepted by O&R’s EH&S department. This department, as well as the organizations responsible for the contractors performing the work activities, conducts field audits of work sites to ensure that the contractor is in compliance with their scope of work and associated work rules. Deficiencies or infractions are documented and entered into the Contractor Oversight System and used to negotiate future contracts.

Policy Management and Regulatory Impact

Con Edison operates in a highly regulated environment and is affected by regulatory and social policy adopted at the federal, state, and municipal level. A number of significant proceedings that may impact the sustainability of electric service in New York were initiated by or received significant focus from the New York Public Service Commission (NYPSC) in 2014.  These proceedings include: Reforming the Energy Vision (REV), which assesses the impact of distributed energy resources on the utility business model; the Clean Energy Fund (CEF) which will consider the future path of clean energy activities implemented by the New York State Energy Research & Development Authority (NYSERDA); the Renewable Portfolio Standard program which funds renewable energy projects in the state; and the New York Green Bank, which seeks to remove barriers to using private capital to fund clean energy projects in the state.  In addition, the US Environmental Protection Agency proposed a rulemaking that would seek to limit CO₂ emissions from existing electric generation plants. The NYPSC also approved a settlement for rate filings affecting Con Edison’s electric, gas, and steam services.

The company seeks to provide input on state policy management and regulatory impact as we advocate our business positions and coordinate consistent regulatory and policy communications to meet the needs of our customers and shareholders.

Reforming the Energy Vision

In April 2014 the NYPSC established the REV proceeding with the purpose of examining the electric utility regulatory and business model in the context of the potential growth of distributed electric resources and the development of new technologies. The NYPSC articulated six core policy outcomes intended to better align the role and operations of utilities to enable market- and customer-driven change:

• Customer engagement
• Distributed market animation
• System-wide efficiency
• Fuel and resource diversity
• System reliability and resiliency
• Carbon reduction

In August 2014, the NYPSC issued its Straw Proposal on “Track 1” policy issues in the REV proceeding, focusing on the operational aspects of creating energy markets at the distribution level. In the proposal, markets would operate via a Distributed System Platform, addressing distribution system planning and operations issues with inclusion of a market operations role. Other issues contemplated in Track 1 include utility ownership of distributed energy resources, sharing of customer and system information, benefit-cost analysis, demonstration projects, and clean energy programs.  Significantly, the Straw Proposal included consideration of the state’s utilities taking over the role of renewable energy procurement from NYSERDA. Con Edison has expressed interest in assuming this role, provided it is allowed to directly own renewable resources because such ownership is a less expensive way to procure renewable energy compared to long term contracts between utilities and private developers.

“Track 2” of the proceeding addresses New York’s regulatory framework and explores changes that could be made to better align utility interests with policy objectives. Issues under consideration include: rate and tariff design, alternate regulatory schemes such as the U.K.’s ‘RIIO’ regulatory model, and performance-based regulation. At a November technical conference on Track 2 sponsored by NYU for the Commission’s benefit, expert speakers counseled a measured approach to regulatory changes

Commission rulemakings have been issued on narrow and well-defined REV issues. The Commission issued an order in Track 1 on February 26, 2015.  The order confirms that the incumbent utilities will operate the Distributed System Platform, establishes a separate track to consider the issue of large scale renewable energy in the state, but only allows utilities to own distributed energy resources in the cases of energy storage on utility property, to facilitate programs for low and moderate income customers, as part of demonstration projects and as a backstop if the market does not respond.  A straw proposal on Track 2 is expected in the second quarter of 2015.

Specific issues receiving early attention include:

Deferring utility infrastructure investments-

Targeted use of distributed resources and energy efficiency has the potential to defer utility infrastructure investments. In line with the REV vision, the NYPSC recently approved a Con Edison proposal for the Brooklyn-Queens Demand Management program (BQDM) that would defer the need to build a major substation in an area with higher-than-forecast growth. The BQDM program aims to locate 52 MW of distributed resources, thus pushing the need for a new substation from 2017 until 2024. The NYPSC also approved the company’s proposal to earn a rate of return on the costs of the project and incentives related to achieving resource acquisition targets, supplier diversity, and lower costs for customer-side solutions. The NYPSC will allow Con Edison to install and own energy storage devices on its own property when directly integrated into utility distribution services as part of the program, but will only allow ownership of distributed generation if the market does not respond to requests for these types of resources.

Demonstration Projects-

Con Edison is currently developing a portfolio of demonstration projects designed to test REV concepts. Potential projects include electric vehicle charging, grid-connected community solar, multi-tenant advanced metering coupled with energy usage analysis, and variable pricing.

Stakeholder Processes-

Two stakeholder processes were launched in January 2015. The first is focusing on the technology platform needed to animate distributed energy markets, and the second is focusing on market design elements. The state’s utilities are participating in each process.

Clean Energy Fund

New York currently has ratepayer-funded public policy programs focused on energy efficiency (Energy Efficiency Portfolio Standard program, EEPS), renewable energy (Renewable Portfolio Standard program, RPS), and energy R&D (Technology and Market Development programs, T&MD). NYSERDA implements the RPS and T&MD programs entirely, and NYSERDA and the utilities implement the EEPS program.  In total, these programs collect $368 million annually from Con Edison’s and O&R’s customers via a bill surcharge. They will expire at the end of 2015 unless reauthorized by the NYPSC. In May 2014, the NYPSC proposed to consolidate these funds into a single Clean Energy Fund (CEF) and, in the process, substantially change how NYSERDA uses these funds to align with the Reforming the Energy Vision (REV) proceeding. NYSERDA issued a Clean Energy Fund proposal in September 2014, but the NYPSC has required it to issue additional information on the Clean Energy Fund, which is due on June 8, 2015. NYSERDA also proposes collecting $782 million from PSC-jurisdictional electric customers to fully capitalize the NY Green Bank at $1 billion.  NYSERDA has been reaching out to utilities and stakeholders for input on its proposed plan, and has indicated it will shift its focus to upstream market development and away from incentive-based programs. Utilities may take over energy efficiency programs and renewable energy procurement from NYSERDA.

EPA Proposed Carbon Emissions Regulations

In June 2014, the EPA proposed limits on CO₂ emissions from existing fossil fuel-fired generators above 73 MW under §111(d) of the Clean Air Act.  The proposal seeks a 30-percent reduction in CO₂ emissions from the nation’s 2005 levels by 2030. To determine achievable reductions for each state, EPA modeled a “Best System of Emissions Reduction” using four “Building Blocks”: 1) improved heat rates for coal-fired plants; 2) increased utilization of natural gas combined cycle plants; 3) generation from nuclear and renewables; and 4) energy efficiency. New York’s target is a 44-percent reduction from 2012 levels by 2030.  States do not have to follow the building blocks in their compliance strategy and have considerable flexibility in implementing the rule, including regional implementation plans. EPA highlighted RGGI as an example of a regional implementation plan.  On December 1, Con Edison submitted joint comments with other NY transmission owners, generators, and national and regional clean energy groups. We also participated in EEI and AGA comments. EPA scheduled the final rule for release in June 2015.

New York has few coal-fired plants and already relies heavily on natural gas generation; accordingly, increased renewable generation (including Canadian hydro) and energy efficiency could be the primary means for meeting the target. In its projection, EPA anticipates energy generated by non-hydro renewables in the state will increase by  approximately five times 2012 levels, and assumes energy efficiency will reduce end-use by 11 percent by 2030 when compared to business-as-usual forecasts. The NYISO has expressed concern about the implications of these changes on reliability. 

Con Edison is generally supportive of EPA’s efforts to reduce greenhouse gas emissions, while allowing for the continued reliable operation of the power grid. EPA should modify its “best system of emissions reduction” to better reflect the operational realities of the power system, ensure equity among state targets, and recognize the reductions already achieved by early-action states like New York. EPA should accept RGGI as New York’s compliance mechanism.

The rule will likely result in encouraging the development of large-scale renewable resources and expanded transmission projects within the state. NY Transco, a partnership of the state’s investor-owned transmission companies, will facilitate transmission development that can access renewable energy, and Con Edison is prepared to take on the role of procuring renewable energy for its customers.

Rate Case

At the close of 2013 parties to Con Edison’s rate cases for electric, gas, and steam agreed to a Joint Proposal (JP) resulting in a two-year electric rate plan and three-year rate plans for gas and steam effective January 1, 2014. The result was a revenue requirement freeze for electric, gas, and steam over the term of their respective rate plans.

Major components of the joint proposal include the following:

• Investment in capital projects and programs to address reliability, storm hardening and resiliency, new business and oil-to-gas conversions
• Continuation of revenue decoupling mechanisms for electric and gas
• Enhanced low-income discount programs for electric and gas customers
• Modifications and additions to the electric, gas, and steam safety and reliability performance and customer service metrics
• Additions to the leak-prone gas pipe replacement program and new reliability program to target replacement of leak-prone pipe in flood zones in New York City and Westchester County
• Improvement and expansion of the oil-to-gas conversion program
• Approval of current storm hardening projects and programs, and conditional approval of future projects that are reviewed by an ongoing stakeholder collaborative
• Consideration of non-wires alternative plan (e.g., distributed resources) for the Brownsville section of Brooklyn, expecting significant load growth
• Company study of future use of Hudson Avenue Property
• Steam customers now eligible for bill credits (in place now for electric and gas customers) in certain circumstances of a storm outage

The Joint Proposal was supported by the following signatories:

• Con Edison
• Department of Public Service Staff
• City of New York
• Consumer Power Advocates
• New York Energy Consumers Council, Inc.
• New York Power Authority
• Utility Intervention Unit (NY Department of State)
• Astoria Generating Company, L.P.
• Pace Energy and Climate Center
• Columbia Center for Climate Change Law
• Environmental Defense Fund
• NRG Energy

Subsequently, on February 21, 2014, the PSC issued an order approving the rate plans in the joint proposal with two relatively minor modifications. The full Joint Proposal and PSC Order can be found on the New York Public Service Commission Site.

Energy Highway and the Indian Point Contingency

In 2012 Governor Cuomo championed the Energy Highway Initiative promoting public-private partnerships to renew the State’s energy infrastructure while protecting the environment and creating opportunities for economic growth and job creation. Accordingly, the PSC initiated two proceedings seeking 1,000 MW of AC transmission upgrades to reduce transmission constraints from upstate to downstate, and transmission, generation, and demand side management solutions to maintain reliability in the event the nuclear power plants at Indian Point are shut down. Con Edison and the New York Power Authority (NYPA) were directed to develop an Indian Point Contingency Plan for solutions to address a possible 2016 Indian Point retirement.

In response to the Energy Highway initiative, the New York State transmission owner (NYTOs), including Con Edison and Orange and Rockland, proposed to create and jointly own a transmission company, New York Transmission Company (NY Transco) to develop, construct, and own transmission facilities in New York State. On behalf of NY Transco, the NYTOs submitted responses to the PSC proceedings. Con Edison and NYPA also submitted three Transco projects in the Indian Point proceeding. More information is available at the NY Transco website.

In November 2013, the PSC approved the three NY Transco projects proposed by Con Edison with NYPA and New York State Electric and Gas Corporation (NYSEG) to prepare for potential Indian Point shutdown in 2016. Two of the projects, Ramapo to Rock Tavern and Staten Island Unbottling, will be developed by Con Edison until they can be transferred to NY Transco. In its order, the PSC also endorsed the NY Transco cost allocation for these projects and supported the plan to file with Federal Energy Regulatory Commission (FERC) for rate recovery for the three Indian Point Projects. In a separate order in the same proceeding, the PSC approved a proposal filed by Con Edison and New York State Energy Research and Development Authority (NYSERDA) to reduce load by 100 MW by the summer of 2016 using energy efficiency and demand reduction projects, plus another 25 MW through new combined heat and power projects.

In response to the Energy Highway initiative, It was originally envisioned that New York State Transmission Owners (NYTOs) would form a public-private partnership to create and jointly own a transmission company, New York Transmission Company (NY Transco), which would develop and own transmission facilities in New York State. Legislative authority needed by NYPA and LIPA to join has not been enacted. As a result, the investor-owned NYTOs created the NY Transco in Fall 2014. The NY Transco filed with the FERC on December 4, 2014 for transmission rates, including incentives, cost allocation, and permission to assume utility assets.

• In October 2013, NY Transco filed a transmission siting application with the NYPSC to build four transmission projects totaling $1.3 billion that address congestion from upstate to downstate. The proceeding is competitive, with other developers seeking Article VII certificates to build similar upstate/downstate transmission solutions.
• In November 2013, the NYPSC approved the three NY Transco projects proposed by Con Edison, NYPA and NYSEG to prepare for potential Indian Point shutdown in 2016. In its order, the NYPSC also endorsed the NY Transco cost allocation for these projects and supported NY Transco’s plan to file with FERC for rate recovery. In a subsequent order the NYPSC endorsed a different cost allocation for projects resulting from the AC Transmission proceeding.
• Responding to a PSC request for transmission developers to revise their proposals to minimize customer impact, in January 2015 the NY Transco filed updates to its projects so that the visual impact of transmission towers will be mitigated and all transmission will be constructed on existing rights of way or utility owned property.
• More information is available at nytransco.com.

As part of the Commission’s approvals in November 2013, Con Edison was authorized to work jointly with New York State Energy Research and Development Authority (NYSERDA) to implement demand-side management and combined-heat-and-power programs, using direct financial incentives, as part of a “no regrets” solution in response to the Indian Point Contingency Plan. The company and NYSERDA now administer the Demand Management Program, targeting 125 MW of permanent, peak-coincident electric load reductions by June 2016 through energy efficiency and demand reduction projects as well as new combined-heat-and-power projects. The total investment is estimated to be $285 million (consisting of incentives and administrative costs), excluding carrying costs. The company was authorized to recover all costs from its customers on a deferred basis over a 10-year period and the company will accrue the cost to finance the deferred expenditures using its allowed pre-tax weighted cost of capital rate.

Regional Greenhouse Gas Initiative

Since 2009, Con Edison has been subject to carbon dioxide emissions regulations established by New York State as part of its participation in the Regional Greenhouse Gas Initiative (RGGI). The Initiative, a cooperative effort by nine northeastern and mid-Atlantic states (RGGI States), established a decreasing cap on carbon dioxide emissions from electricity generation that will lead to a 15-percent reduction in regional emissions between 2014 and 2020. Under RGGI, affected electric generators are required to obtain emission allowances to cover their carbon dioxide emissions, available primarily through auctions administered by participating states or a secondary market.

While Con Edison sold most of its power plants in the late 1990s, the company still owns one power plant that is subject to the RGGI cap: the East River Generating Station. Con Edison of New York met its requirement of 6.3 million allowances for the first RGGI compliance period (2009—2011) and is managing auction purchases in preparation for complying with the second compliance period (2012—2014).

In February 2013, after a comprehensive stakeholder review, the RGGI States proposed major changes to the RGGI program, including a one- time, 45-percent reduction in the regional emissions cap for 2014, and further reductions of 2.5 percent each year from 2015 to 2020. Additionally, the RGGI States implemented a new cost containment mechanism, supported by Con Edison, which will limit the impact of allowance price spikes on the supply portion of our customers’ bills. New York State adopted the new rules, and the lower, 91-million ton cap is effective as of January 1, 2014.

Under the revised RGGI emissions cap, New York will receive incremental revenues from allowance auctions, above and beyond the $728 million it has collected through the first 26 auctions. As agreed upon in the original “model rule” of the RGGI partnership, each participating state directs its own strategy to invest its auction proceeds in a manner that supports its unique policy objectives, needs, and circumstances. This policy raises redistribution concerns if states invest funds in programs outside of the electric sector. In New York, for example, more than half of the RGGI-funded investments to date were allocated to programs that either indirectly benefit electric customers, or do not benefit them at all.

Renewable Portfolio Standard

New York’s Renewable Portfolio Standard (RPS) goal is to obtain 30 percent of state electricity consumption from renewable resources by the end of 2015 (from a base of 19 percent in 2004). Currently, NYSERDA implements the RPS program for the customers of investor-owned utilities, using funding of $3 billion from electric customers. The company’s customers provide about half of the total funding. LIPA, NYPA and the voluntary green energy purchases by consumers also are expected to increase renewable energy consumption in the state.

NYSERDA administers two primary programs to provide incentives to renewable energy projects:  the ‘Customer-Sited Tier’ program funds renewable energy resources (mostly solar) installed on customer property behind the customer’s meter; the ‘Main Tier’ program competitively solicits large renewable resources, offering 20 year contracts for their renewable energy attributes.  92 percent of the program’s renewable energy comes from the Main Tier.

NYSERDA has achieved about half of its portion of the 2015 goal, but in a recent review acknowledged that it was likely to fall short of achieving the 30 percent goal by the end of 2015.  NYSERDA’s CEF proposal does not contain any funding for large renewable resources. DPS Staff has proposed having the utilities take over the Main Tier program and purchase both the renewable energy attributes and power from new renewable projects through long-term contracts.  The state’s utilities are willing to procure renewable energy, but have advocated strongly of favor of allowing utilities to own renewable energy resources as a primary procurement method.  DPS Staff will issue a large-scale renewables options paper in mid-2015.

In 2014, NYSERDA reported that the environmental benefits of electricity generated by renewable generation from 2006 through 2013, as opposed to the State’s “system-mix,” amounts to reduced emissions of approximately 5,400 tons of nitrogen oxides, 10,600 tons of sulfur dioxides, and 5.3 million tons of carbon dioxide.

NYSERDA issued one solicitation for new renewable resources in 2014, and announced in November 2014 that it would procure 164 MW of incremental renewable energy from wind and hydro resources in New York State.  NYSERDA has issued one RPS solicitation in 2015 and plans to issue another RPS solicitation in 2016.

Systems Benefit Charge

The System Benefits Charge (SBC) program funds technology and market development (T&MD) activities relevant to the energy system. The PSC uses the SBC to support research and development efforts that serve as a feeder of new technologies to be incorporated into the state’s energy- efficiency and renewable energy programs. The New York State Energy Research and Development Authority implements the program under the PSC’s supervision. 

When the program was reauthorized by the PSC in 2011 through 2016 it was estimated that collections from our customers will provide at least $150 million over the five-year term of the program. In 2013, $26.3 million in SBC charges were collected from the utilities’ electric customers.

The T&MD programs currently funded by the SBC are expected to continue after 2016, funded under the Clean Energy Fund collections once those are approved by the NYPSC.

New York Green Bank

On October 28, 2013, the companies and other investor-owned utilities in New York State made a joint filing to the PSC supporting the establishment of the New York Green Bank, an entity with the mission to advance the state’s clean energy goals by reducing or eliminating financing-related barriers to clean energy adoption by customers. Con Edison offered comments related to future funding for the Green Bank, such as using RGGI funds. On December 19, 2013, the PSC approved the establishment of the New York Green Bank, with an initial capitalization of $218 million, comprised of $165 million of funds from NYSERDA and utility energy efficiency and renewable energy budgets, and $45 million of RGGI funds allocated to the New York Green Bank by NYSERDA. The New York Green Bank has stated that it has a goal of reaching a capitalization of $1 billion, and in December 2014 NYSERDA submitted a petition to the NYPSC requesting $781 million in funds (to be provided over four years, 2015-2018) to achieve the Green Bank’s capitalization goal. The company filed comments supporting the overall goals of the Green Bank but expressed concern about the impact on customers and suggested a number of ways to mitigate that impact, including raising a portion of the funds from other electric customers who might not otherwise contribute to the Green Bank, such as LIPA and NYPA customers, and relying on RGGI funds to provide a portion of the requested capital.

Political Engagement

Public policy decisions at all levels of government can have significant implications for the companies’ customers, the energy systems we manage, and the future direction of the companies. Accordingly, Con Edison exercises its fundamental right and responsibility to participate in the political process. We adhere to all applicable national, state, and local laws and regulations governing the public policy process, and have internal policies and practices so that we adhere to applicable reporting requirements.

Our engagement in the political process is grounded in and guided by our commitment to our Standards of Business Conduct. Our efforts in this regard meet high ethical standards, are done in accordance with strict company procedures and guidelines, and in a manner that demonstrates accountability and transparency.

No corporate funds are used for political contributions to candidates or political parties. The companies do not make independent expenditures in support of or in opposition to a candidate or political party. No corporate payments have been made, nor do we intend to make payments, to influence the outcome of ballot measures.

Con Edison Political Action Committee

The Consolidated Edison Inc. Employees’ Political Action Committee (CEIPAC) is a non-partisan political action committee.

• The CEIPAC is funded entirely through voluntary contributions from eligible employees; employees are not reimbursed, directly or indirectly, for political donations or expenses. Contributions are reported to relevant federal, state and local campaign finance agencies, as required by law.
• Political disbursements made through the CEIPAC are made without regard to the personal or political preferences of Company officers and executives.
• The current members of the CEIPAC Executive Committee are the: Vice President & Controller of Con Edison of New York (CECONY), Senior Vice President Public Affairs of CECONY, Vice President Government Relations of CECONY, President and Chief Executive Officer of Consolidated Edison Solutions, and President and Chief Executive Officer of Orange and Rockland Utilities.
• The CEIPAC Executive Committee factors in many criteria when deciding whether to approve contributions, including a candidate’s position on issues; voting records; incumbents leadership on key committees; and the extent of a member company’s presence in a district.
• Con Edison’s internal auditing department conducts periodic reviews of CEIPAC’s practices and procedures, and an independent auditing firm audits the financial statements of the CEIPAC on a yearly basis.

Grassroots Advocacy Network

Con Edison’s Grassroots Advocacy Network engages employees and retirees in the evolving political landscape, educating them on issues important to them and the company. Through the Grassroots Network, employees and retirees receive monthly newsletters, updates on policy and political issues and information on elections and voting. The Grassroots Network also provides opportunities for employees and retirees to attend events on emerging topics of interest and engage their local elected officials by taking action on relevant issues that come up throughout the year.

Governance and Business Ethics

At Con Edison we recognize the need for strong corporate values. Through the years, one of the most important lessons we have learned is that having a strong financial foundation and operational excellence are only part of what it takes to continue a company’s success. We firmly believe that doing business in an open, ethical, and fair manner creates business success that benefits all our stakeholders — our investors, our customers, and our employees.

Governance

The Environment, Health, and Safety Committee of the Board of Directors governs Con Edison’s overall EH&S programs. Since its inception in 1995, this committee has met four times per year to review the status of Con Edison’s EH&S efforts. Typically, Con Edison’s chairman, utility presidents, general counsel, and EH&S vice president participate in these meetings.

Business Ethics

Strong business ethics are a core value of Con Edison. Through the years, one of the most important lessons we have learned is that having a strong financial foundation and operational excellence are only part of what it takes to continue a company’s success. We also recognize that our Standards of Business Conduct are an integral component of a sustainable company. Reflecting the company’s continuing commitment to ethical operations, the Business Ethics and Compliance group was significantly restructured and strengthened in 2012, and further expanded in 2013 and 2014. 

Con Edison’s Standards of Business Conduct are founded upon our values of service, honesty, concern, courtesy, excellence and teamwork, and our commitment to our major stakeholders: our customers, fellow employees, communities, and shareholders. The Standards set forth the basic principles that employees must follow in their day-to-day work, which allow the company to carry out our commitments to our customers, our communities, our fellow employees, our shareholders, our business partners, and the public. We completed an update of the Standards of Business Conduct, which was released to all employees of Con Edison of New York, O&R, and the competitive energy businesses in early 2013. 

Training on various ethics topics is completed annually by all employees of Con Edison of New York, O&R and the competitive energy businesses. We also conduct ethics and compliance training for new employees, new supervisors, and new managers, and administer FERC-required ethics training.

The department also increases the visibility of our ethics messages among all CEI companies through coordinated, themed communications campaigns. In 2013, Con Edison began the Values in Actions (VIA) Advisors network with 15 representatives. This network of employees, nominated by their officers, assist with the dissemination of ethics and compliance messages and act as a resource for fellow employees regarding integrity-related issues within the business units. In 2014, we expanded the VIA Advisors network to include employees from 27 company organizations and each of our major business units – providing greater representation throughout the company. 

We encourage employees to seek advice, ask questions, and report concerns. We provide several resources, including a confidential Ethics Helpline, webform, and email address, for employees to contact their ethics and compliance office. Employees may also contact their supervisors or managers, or the Corporate Ombudsman, among others, to raise issues. A group of individuals within the Business Ethics and Compliance group is dedicated to investigating allegations of employee misconduct.

Department members are active members of the Ethics and Compliance Officers Association, and the FERC group of the Edison Electric Institute. A Con Edison of New York employee has served as chair of the Ethics and Compliance Officer Association’s (ECOA) Utilities Industry Group, and others have presented and participated at the ECOA’s annual conferences. BEC employees are also representatives on the company’s Enterprise Risk Management Committee, the Compliance Risk Management team, the Contractor Compliance Committee and the Contractor Oversight Steering Committee.

Just as we keep our employees knowledgeable of their ethical responsibilities, we also work to educate our vendors and contractors on the Standards of Business Conduct. Our Vendor Outreach Program, launched in 2014, provides assistance to Con Edison vendors in developing their own ethics and compliance programs.

Auditing and ISO Certification

To ensure the effectiveness of financial systems and operational performance, our auditing department provides an independent, fair, and objective appraisal of our facilities, operations, systems, and programs. These audits are performed in accordance with priorities established by the General Auditor in consultation with the CEO and the board’s audit committee. Additionally, we recognize that third-party verification of our efforts is also of value and so we have our EH&S management system ISO-14001 certified.

Auditing

Consolidated Edison, Inc. (CEI) conducts an auditing program for all affected subsidiaries and affiliates. Both facility operations and companywide programs undergo periodic audits to determine compliance with regulations and procedures, as well as the adequacy of EH&S management systems in use.

EH&S audits are conducted by a division of Con Edison of New York’s Corporate Auditing department. Under corporate audit policy, this group audits facilities and programs. The EH&S Auditing Group is staffed with personnel experienced in auditing protocols, regulatory requirements, and company procedures. The EH&S Auditing Group has developed standard protocols tailored to each area of concern that may be encountered at facilities operated by the company to ensure comprehensive and consistent audits. Formal audit reports are prepared and distributed to all officers whose organizations have responsibilities for corrective actions based on audit findings. Senior officers receive copies of audit reports. The ombudsman, independent auditors, and the Environmental Quality Review Board also receive EH&S audit reports. The board’s audit committee receives a summary of all audits performed on a quarterly basis.

In addition, we have established a formal self-assessment program for company organizations to monitor their own compliance systematically. The EH&S Auditing Group administers this program by developing the self-assessment protocols, training personnel in their use, and monitoring compliance with program guidelines.

Iso Certification

The International Organization for Standardization (ISO) was created to standardize products, manufacturing processes, and management systems. Certification to the ISO Standards provides stakeholders a means of validating that Con Edison is operating effective management systems. Additionally, ISO Standards provide a framework for continual improvement throughout the company.

Con Edison of New York’s Environmental Management System is certified to the ISO 14001:2004(E), Environmental Management Systems Standard and the company’s Chemical Laboratory operations are certified to the ISO/IEC 17025:2005(E), general requirements for the competence of testing and calibration laboratories standard.

It is the policy of Con Edison to be a leader in protecting the environment and ensuring the health and safety of employees and the public. The company is committed to improving safety and environmental performance; strengthening environment, health and safety (EH&S) compliance; enhancing relationships with its stakeholders; identifying and reducing significant EH&S risk potential, and promoting wise and effective use of natural resources. In addition to complying with all applicable laws and regulations, Con Edison will:

1. Pursue opportunities to improve the effectiveness and efficiency of Con Edison programs that protect people, property, and the environment.
2. Be responsive to the concerns of its stakeholders, both internal and external.
3. Integrate EH&S considerations into its work and project planning.
4. Model sustainable behaviors internally, promote sustainable behavior externally, and maintain a commitment to the prevention of pollution.
5. Pursue opportunities, programs, and policies that support sustainable business practices and the reduction of EH&S risk.
6. Provide the leadership and training for employees to exercise their initiative and achieve EH&S expectations.
7. Manage an integrated health and wellness promotion program that fosters a healthy, engaged, and motivated workforce.
8. Promote a “predict and prevent” mindset through proactive self-assessment.
9. Set metrics and targets to drive continual improvement and review them on an annual basis to measure and assess Con Edison’s EH&S performance.
10. Utilize an EH&S management system to enhance its efforts.

Cost Management

As part of our promise to provide our customers with safe, reliable service, we also recognize that every dollar that we invest has an impact on their bill each month. As a responsible corporate citizen and as a competitive business, we need to invest in our system wisely, choosing which challenges to pursue, and following the most cost-effective options to overcome those challenges. Choosing the best cost-management strategies demonstrates that as a company we’re getting the best return possible on the dollars we spend.

Our excellence in cost management is achieved through communication, a collaborative approach to planning and implementation, as well as the application of ongoing and forward-looking analysis. It requires us to work each day in a more efficient and productive manner, and make a personal commitment to be accountable for the impact we have. We are also focused on cost consciousness, or the basics for productivity and cost control. We will ensure that expectations are established, communicated, and enforced, and that contracts and material costs are effectively controlled. Con Edison achieves cost-management excellence through the improvements in work volume and cost efficiencies, optimized use of overtime, reduced contractor costs, service and maintenance cost reductions, procurement of the most cost-effective energy supplies, elimination of work, and reduction in tax liabilities and other assessments.

Reliability

Maintaining our world-class service reliability is a top priority for Con Edison. Our investments in our electric, gas, and steam infrastructure demonstrates our commitment to providing reliable service for our customers today and for decades to come.

Con Edison of New York’s 2014 reliability performance on the System Average Interruption Frequency Index (SAIFI) for 2014 included 107 per 1,000 system customers served, 343 per 1,000 non-network customers served, and 25.2 per 1,000 network customers served. Performance on the Customer Average Interruption Duration Index (CAIDI) for the year included 3.02 hours, 1.83 hours, and 8.62 hours, respectively.

Electric

Con Edison is known for being one of the most reliable electric service providers in the U.S.—and has been the recipient of numerous reliability awards over the years, including PA Consulting’s 2014 ReliabilityOne award for the Northeast region.

Gas

Con Edison of New York and Orange and Rockland safely and reliably supply natural gas to more than 1.2 million gas customers. The fuel provides many benefits, including lower emissions and more moderate prices than heating oil alternatives. To meet rising customer demand, we are enhancing our infrastructure to increase capacity and to protect our customers from any reliability impact that might arise from a disruption to the interstate pipeline system.

For all its benefits, natural gas also has risks. The invisible fuel dissolves in air and can only be detected by an odorant that is added to the fuel for safety or by specialized instrumentation. To protect customers, Con Edison of New York and Orange and Rockland immediately respond to leak reports, and identify, repair, and replace leak-prone pipes, and survey the system for new damage following weather events.

Steam

Con Edison provides steam service for 1,691 accounts, representing approximately three million customers in Manhattan through an underground network of steam pipes. By generating steam primarily through cogeneration, we provide efficient steam production and reduce emissions that would otherwise be generated by customer-sited boilers and equipment. Con Edison’s steam system is evolving to reduce costs to customers, sustain optimal reliability, and help improve our environmental footprint.

Our steam system performed well in 2014, meeting a peak demand of 8.9 million pounds on January 23. The system experienced no major service disruptions, maintaining its reliability rate of 100 percent. Our focus on public safety continued in 2014, progressing with the development and integration of the remote monitoring of structures prone to impact following major weather events.

Steam Accomplishments

One steam generating station eliminated the need for the existing 1,000 gallon bulk caustic storage tank, which is currently regulated by the jurisdiction of the New York State Department of Environmental Conservation (NYSDEC), and replaced it with two 120-gallon storage units. This effort has made the station environmentally friendlier and safer for our employees, while also reducing operating costs by approximately $15,000 per year in fees and inspections. This effort also eliminated the need for hazardous bulk chemical deliveries to the station. One steam generating station was awarded third place among 84 national stations considered for Emerson’s 2014 Reliability Program of the Year. The station used new technologies and process changes to streamline preventative maintenance work and reduced the forced outage rate. These measures increased steam availability to provide customers with a more economical and sustainable energy source.

Resiliency

In November 2012, a commission was formed under the Moreland Act to investigate New York power utilities’ preparation for and response to major storms affecting their service areas over the preceding two years. While reviewing the actions taken by these utilities during times of emergency, the commission issued specific recommendations to Governor Cuomo regarding what the commission felt were opportunities for improving storm preparation and response by the power sector. In June 2013, the City of New York, through the Office of the Mayor’s Special Initiative for Rebuilding and Resiliency and PlaNYC, released a plan identifying recommendations for rebuilding communities ravaged by Superstorm Sandy, and improving the resiliency of infrastructure throughout the city going forward.

Con Edison of New York and Orange and Rockland’s safe and reliable delivery of electricity, gas, and steam rely on urban and regional infrastructure. From 2013 to 2016, Con Edison has proposed to invest approximately $1 billion to improve the resiliency of the electric and gas delivery systems and the electrical and steam generating stations. In 2014 we reached the halfway point toward meeting that goal. Con Edison’s continued dedication to improving its service delivery during and after weather emergencies is discussed in this section.

Resilience isn’t limited to our ability to withstand severe weather; we must also be ready to withstand manmade threats against our systems. Cyber and physical security are equally important to Con Edison, and in this section we discuss some proactive measures we are taking to protect our business and our stakeholders.

Continued Post-Sandy Enhancement

We have proposed $1 billion in measures to fortify and protect our systems to withstand increasingly severe weather post-Superstorm Sandy. We plan to install stronger flood barriers and more submersible equipment, raise critical equipment, and strategically bring overhead power lines underground. We will install additional state-of-the art monitoring sensors, switches, and related smart-grid technologies to improve the flexibility of our system. Our long-range investment plan remains focused on keeping our systems reliable and safe for our customers.

For Con Edison of New York’s electric substations and electric and steam generating stations, the highest risk of damage during a severe weather event is from flooding due to storm surge. Prior to Sandy, Con Edison already had a specification in place to protect new facilities and critical equipment from higher-than-expected potential flood levels. The damage caused by Sandy’s unprecedented flooding and the resulting impact to customers clearly identified the need to retrofit older facilities that were installed well before this specification was established.

Con Edison acted immediately following Sandy to protect its stations for the 2013 hurricane season. This involved, at minimum, effectively protecting each impacted station against a potential repeat event. In parallel, we developed protective plans through 2016 and presented these plans to the Public Service Commission in electric, gas, and steam rate cases, with storm hardening as a central focus. Con Edison convened a Storm Hardening Collaborative in parallel with the rate cases to provide parties an opportunity to fully examine our proposals.

A primary focus of the collaborative was the design standard for flood protection. Through discussions with the Public Service Commission, New York City officials, the Office of the Attorney General, and various other rate case parties including environmental groups, it was agreed that the company would revise its flood protection standard for the storm hardening program. Con Edison therefore established the most current FEMA 100- year flood level plus three feet as the new design standard for retrofitting stations and protecting critical equipment. This design standard will be applied to all future projects being pursued over the next three to four years.

The majority of our storm hardening work will be completed in 2016, to protect our at-risk substations and generating stations against flooding. Protective storm hardening measures will continue to be installed through 2020. Con Edison of New York will also pursue a Climate Change Vulnerability Study that will project future changes in climate, particularly in humidity, heat and heat waves, and identify mitigation options to protect equipment and maintain reliable service.

Orange and Rockland also faces reliability issues during severe weather. In Con Edison’s most-inland service territory comprising 1,350 square miles, flooding is less of an impending force against the predominantly above-ground system. With over 550 circuit miles of transmission line and 3,800 pole miles of overhead distribution line, Orange and Rockland must maintain reliable customer service threatened by high winds, falling trees, and ice and snow accumulation.

Con Edison of New York completed approximately $79 million in storm hardening investments between 2013 and 2014 to protect substations and generating stations against another severe coastal storm event. Storm hardening measures were installed at nine substations and five generating stations that were impacted by Sandy. Measures included reinforced concrete flood walls around critical equipment, submersible pumps to control water infiltration, flood doors and gates at station openings, and expansive foam sealant in cable conduits and troughs. In addition, work commenced in 2014 to install backup electric generators, additional flood walls, gates and pumps, and other protective measures.

For more information, please read on about Con Edison of New York’s plans, and Orange and Rockland’s plans to weather the next storm of the century.

Cybersecurity

Cybersecurity remains a priority at Con Edison, Orange and Rockland, and to the energy industry at large. The potential for a remote attacker to compromise customer accounts, gain access to protected information, affect physical equipment, and threaten system reliability has prompted a major change in utilities’ approach to their information networks and users over the past decade.

At Con Edison and Orange and Rockland, we continue to expand our focus on cybersecurity in 2014. We expanded our cybersecurity which is based on ISO 27000’s Cybersecurity Framework. Under that program, a suite of processes, procedures, working groups, and executive-level oversight formally manages and governs cybersecurity practices across the company. We also formally commissioned our new CyberSecurity organization comprised of dedicated cyber security professionals responsible for preventative cyber security control technologies and for continuous monitoring and response to security threats and vulnerabilities for the company’s information networks.

We continued to strengthen our network architecture by deploying state-of- the-art technologies to create layers of security that either prevent attacks or detect malicious behaviors. Our Network Operations Center was expanded in 2013 to monitor alerts. In addition, we continue segmenting networks to fully separate critical system components from basic business functions, thereby mitigating some insider threats. Through this process, we are designing our networks using industry best practices, building response capabilities in from the ground up.

We are also continuing to build user awareness of “phishing” threats, where employees are tricked into downloading malware delivered via email. We conducted several drills targeting each employee and recording their responses. When an employee clicks on a link during an unannounced drill, they are presented with a “CyberAware” message instructing them why they should not have clicked on the link. We also continue to host and participate in various corporate and regional cyber exercises which expand participant awareness of potential cyber attacks and help develop response plans for each organization.

Public-Private Partnership

Con Edison and Orange and Rockland are both working hand-in-hand with federal and state agencies to keep abreast of new and evolving threats, benchmark best practices, evaluate our current defensive posture, and drill response to a potential event. We coordinate with the U.S. Departments of Energy (DOE) and Homeland Security (DHS), the Federal Bureau of Investigation (FBI), the Federal Energy Regulatory Commission (FERC), and the North American Electric Reliability Corporation (NERC) on a range of issues related to cybersecurity. In 2014, we participated in the FBI and Department of Homeland Security’s New York City cross-sector cybersecurity drill and the co-led with the NY-ISO, the New York State electric specific cybersecurity drill.

We will continue to support and engage in public-private efforts to improve cybersecurity in our sector. More locally, we look forward to further engagement at the state level through a utility cybersecurity benchmarking group we recently helped to establish.

Physical Security

Securing our critical infrastructure from physical damage or attack is an ongoing priority for Con Edison of New York and Orange and Rockland. To adequately safeguard our facilities, we continue to incorporate comprehensive security processes to protect the Company, its employees and its assets. We utilize the conceptual approach of deter, detect, delay, respond, and recover to build the foundation for securing our infrastructure.

Our methodology focusses on multiple layers of different types of security. Many of our facilities have security guards. Security enhancements, including intrusion detection systems, closed circuit television monitored locally and remotely, card access systems, and contact alarms are already in place at key sites including substations, natural gas terminals, and control centers across our territory. We have a Security Operations Center where we monitor them, on a 24-hour, seven-day-per-week basis. This provides a central point for coordinating response protocols for security events and alarms.

In addition, we are deploying a new enterprise security suite which will provide real-time monitoring of ingress and egress points within our facilities. This will incorporate all the different security systems into one platform. We are spending more than $73 million over the next five years to further enhance physical security measures across our system.

Customers

At Con Edison, we look to offer customers opportunities to manage their energy needs cost-effectively and provide consistently excellent customer service. Our suite of energy efficiency programs, the ability to convert from oil to gas, and our competitive business solutions are helping our customers to reduce their energy use, energy costs, and carbon footprint. We are also working to help our customers integrate new technologies like distributed generation and electric vehicles. Finally, we know our customers are interested in better communication, and in 2014, we made significant strides to make it easier for our customers to talk to us, whether online, through text messages, or on social media.

Distributed Generation and Microgrids

Throughout the service territories of the regulated utilities, we are working to empower customers’ innovative energy choices, with an emphasis on targeting areas that maximize ratepayer benefits. There has been strong customer interest in distributed generation, and we are seeing rapid growth. As we strive to meet our customers’ needs and expectations, a focus on distributed generation is critical.

The primary type of distributed generation (DG) in terms of MW installed is combined heat and power (CHP). At Con Edison of New York, 90 MW of large (greater than 1 MW) CHP projects came online between 2006 and 2011. Though large project installation slowed in 2011, there are multiple projects in development and we expect and additional 100 MW of large CHP by 2018. Small CHP (less than 1 MW) has also experienced increased growth thanks to a new, modular-CHP incentive program we developed with The New York State Energy Research and Development Authority (NYSERDA). In the Orange and Rockland territories, over 24 MW of CHP has been installed.

While CHP installations have been significant, Con Edison of New York and Orange and Rockland (O&R) customers have rapidly been installing solar photovoltaic (PV) panels as well. An additional 2,872 (Con Edison of New York – 2138, O&R – 734) customers installed solar PV last year alone, growing from 53 MW (Con Edison of New York – 34.8 MW, O&R- 18.2 MW) at the start of 2014 to 84.5 MW (Con Edison of New York – 59.8 MW, O&R – 24.7 MW) by the end of year throughout Con Edison of New York and O&R’s territories. Solar power production has more than quadrupled across our service territory in the last four years, with a CAGR over 75 percent.

Additionally, more than 65 MW (CE – 45.1 MW, O&R – 19.9 MW) of solar PV development are in the queue for interconnection. Large customer solar installations are on the rise thanks to new NYSERDA incentives from the NY Sun Program, which has earmarked almost $1 Billion for solar installations across the State by 2023.

The future growth of Distributed Generation in our service territories will be closely tied to the outcomes of the Public Service Commission’s Reforming the Energy Vision (REV) Proceedings. One of the goals of REV is the creation of active markets where DG, and other forms of Distributed Energy Resources (DER), can provide services to the utility grid to help mitigate or alleviate traditional utility capital expenditures for infrastructure. An early example of these markets will be demonstrated by the Con Edison’s Brooklyn-Queens Demand Management Program, where by active solicitation and integration of customer-sided DER into Substation Planning efforts we are aiming to defer the construction of a $1 billion substation. In addition, O&R is requesting qualified and experienced vendors deliver innovative Demand Management (“DM”) solutions that provide distribution system load relief in its Pomona Load Pocket, potentially deferring the construction of a $56 million substation, which also includes the use of smart meters to allow customers to make more informed decisions about their energy use.

In addition to the REV initiatives, NY State is trying to further expand the opportunities for customer’s to develop microgrid facilities through the NYSERDA NY Prize funding opportunity. A microgrid uses a mix of DG and DER technologies to provide resilient support to a portion of the utilities load which can also operate off-the-grid in times of natural disaster or utility need to provide basic services to the community. Both Con Edison and O&R will be working with various community groups and DG Developers who are participating in NY Prize in order to coordinate our electric system planning efforts as well as to drive value for all our ratepayers. Distributed Generation will continue to be an area of focus in 2015 and beyond. We will continue to identify ways that we can partner with our customers and regulators to ensure that customers are able to produce the power they want while keeping the distribution grid reliable and affordable for all.

Oil-to-gas Conversions

In 2011, the City of New York passed regulations phasing out the use of #4 and #6 heavy fuel oils. These fuel oils are typically only used to heat large buildings. When the fuel is combusted, soot and smog-forming pollutants are released into the atmosphere. As part of the city’s goals to reduce local pollutant emissions and improve air quality, permits for the use of #6 heavy heating oil will expire by the middle of 2015, and existing permits/renewals will expire for #4 fuel oil by the end of 2030. Con Edison anticipates that many of these large buildings will want to convert their primary fuel source to natural gas supplied from the company’s gas distribution system.

Con Edison of New York estimated that 70 percent of the buildings in New York City that burn #4 or #6 heating oil were located within its gas distribution system’s service territory (as of April 2011). New demand for gas services is creating opportunities for the company to grow our gas business, but it also poses challenges to the logistics of our operations and the management of our infrastructure.

We are seeing not only an increase in customers due to the NYC regulation requirements, but also an increase in #2 conversions due to customers’ interest in a lower costing source of fuel. In 2014 we worked with customers to convert 824 New York City buildings burning #4 or #6 fuel oil and 618 from #2 oil, resulting in a reduction of 311 tons of fine particulate matter (PM2.5) since 2011. More than 4,000 conversions have occurred in New York City alone over the last three years.

Although Orange and Rockland counties in New York do not have any regulatory requirements associated with conversion, Orange and Rockland is also experiencing growth in oil-to-gas conversions. O&R converted nearly 6,000 customers in the last five years. In 2014, 266 conversions from oil or propane to natural gas were completed, representing one of the top three highest natural gas conversion rates in the last five years.

To help manage these opportunities and challenges, Con Edison is tracking and setting annual goals for the number of customers who convert from heavy fuel oil to natural gas. At Con Edison of New York, we strive to get all customers connected at zero cost. The traditional approach was to connect customers on an individual basis (85 percent of those requesting received zero cost); however, with the new Area Growth Strategy, 100 percent received zero cost connections.

Con Edison of New York’s Area Growth Strategy started in 2012 (first zones constructed in 2013) but the existing tariff was limiting. Working for more than 18 months with New York State Public Service Commission Staff, we were granted permission to use our proposed tariff amendment. Approved by the Commission in November with an effective date December 1, 2013, the new Area Growth tariff allows us to aggregate customers in a new way and evaluates projects based on their economics. Customers who previously would have a very high cost are now able to benefit from aggregating a larger area and get service for no cost. If one customer makes the entire project uneconomical, the company has flexibility to revise the boundaries of the zone. In short, this new tariff amendment allows us to apply a new revenue test and more closely align capital costs with actual anticipated revenue.

Please visit our Oil-to-Gas Conversion website for more information, including how to begin the gas conversion process for your building.

Electric Vehicles

The federal government has pledged to invest significant funds in alternative-fuel vehicles to address climate change and reduce carbon emissions. Con Edison recognizes the benefits of plug-in electric vehicles (PEVs) as a green technology, offering drivers greater fuel-economy or using no fuel at all. For these reasons, the company is committed to making the transition from gasoline to electric vehicles as simple and convenient as possible.

By end of year 2014, Con Edison had 3,622 electric vehicles throughout the Con Edison of New York and Orange and Rockland service territories – more than five times the population of 666 in 2012, and almost doubling the population of 2,040 in 2013. We anticipate that number to dramatically increase as consumer awareness rises and prices plateau. We anticipate over 5,800 electric vehicles on the system by the end of 2015, and we are preparing for over 16,400, electric vehicles to plug in by 2018.

By encouraging energy-efficiency, off-peak charging, demand response programming, and distributed generation development, we will be able to manage the new loads for these electric vehicles on our grid. Con Edison will look to offer incentives to encourage customers to charge their PEVs during off-peak hours. As a step towards this effort, the company filed a new SC1 Time of Use (TOU) rate with the PSC in January 2015. It provides an adequate amount of off-peak hours for charging all EVs and can be used by residential customers that have a dedicated service for their EV. As of March 1, 2014, Con Edison offers a one-year price guarantee for residential EV owners who switch to the new SC1 Time-of-Use Rate.

Additionally, Con Edison expanded its EV pilot program to 53 participants – 51 from Con Edison of New York, and two from O&R. The pilot focuses on evaluating the usefulness and accuracy of alternative meter technology to measure EV load separate from whole house load, as well as participants’ responsiveness to peak demand information.

Information Needs

At both Con Edison and Orange and Rockland, we are doing more than ever to better communicate with our customers where they are and in the way they prefer to hear from us.

We made a major push in 2014 to proactively notify community boards, and elected officials when our work in their neighborhoods may be disruptive. We also send this information via email to customers living nearby, to help them plan around our work to minimize inconvenience.

As our customers increasingly turn to social media to communicate with businesses, we are now monitoring our Twitter and Facebook accounts around-the-clock, ready to respond to questions and concerns. We use social media to share information about energy safety, storm-related outages, and tips to save money and energy.

We are focused on meeting our customers’ expectations and bringing them new ways to do business with us.

In 2015, we will begin rebuilding our website to improve customer interaction, improve self-service transactions, and make it easier to find information. That means improvements to welcome pages, menu structures, informational pages, secure login sections, and transactional processes. The improved online experience will cover our external website, mobile website, and mobile application interfaces.

An improved “My Account” service center will make it easier for customers to view and pay bills, review account information, and submit meter readings, among other tasks.

We also send monthly emails to customers with useful information about storm safety, energy conservation, rebate programs, and how to save money on their bills. A new video series, How Much Juice Does It Use?, was launched in 2014 to show customers how much energy is used by common household appliances. The videos are embedded in emails, shared on social media, and highlighted in customer newsletters.

Con Edison’s quarterly Customer News is inserted in paper bills and sent electronically to approximately 1.7 million customers with email addresses on file. Orange and Rockland’s newsletter, @ Home, is inserted in customer bills. Both newsletters include energy and storm-safety information, tips to conserve energy, details about energy efficiency rebate programs, and information about reporting outages.

In the aftermath of Superstorm Sandy, we are now doing more to communicate outage information during severe weather. According to their preference, customers can now opt-in to receive recorded telephone messages and text messages with estimates of when we expect to have their power restored.

Energy Affordability

We recognize the importance of energy affordability and value for our customers. Our company continues to focus on the entire customer bill as well as the value customers get from our services, including the reliability of the system. We continue to make good progress on optimizing capital investment through supporting demand side management and employing new system designs and planning process improvements.

Non-delivery costs account for roughly two thirds of the customer bill, including supply costs and taxes and fees. We recognize that we must advocate for our customers in all of these areas in order to help control costs.

Low-income customers are eligible for discounts on their electric and gas service at both Con Edison of New York and O&R. Participants in Con Edison’s low-income electric discount program receive a $9.50 discount. For the low-income gas program, participants who use gas for heating receive a discount of $7.25 on their monthly minimum charge, as well as a discount of $0.4880 per therm for usage in the 4-90 therm block. Low- income program participants who only use gas for cooking receive a $1.50 discount on their monthly minimum charge. At O&R, participants in the electric low income discount program who heat with electric receive a $17.40 bill credit while all other electric customers will receive a $8.00 bill credit. For the low-income gas program, participants receive a bill credit of $11.63 on their monthly bill.

Both Con Edison of New York and Orange and Rockland provide funding through customer and employee contributions for programs that provide financial assistance to customers who find themselves temporarily unable to pay their utility or home-heating bills because of emergency conditions. Con Edison of New York’s program is called EnergyShare, and it is administered by a local human services agency. The O&R program in New York State is called The Neighbor Fund. In New Jersey, program is called NJ Shares, and both are administered by human service agencies in the local communities.

In addition, both companies inform customers about the Home Energy Assistance Program, commonly referred to as HEAP. HEAP is a federally funded program that helps low-income residents struggling with heating costs. HEAP also offers an emergency benefit for households in a heat or heat-related energy emergency. The HEAP heating equipment repair and replacement component is available to help eligible low-income homeowners repair or replace primary heating equipment necessary to keep the home’s primary heating source functional.

Strategic Partnerships

Con Edison has a long tradition of contributing to and maintaining the social, cultural, and economic vitality of our service areas. To do this, we’ve committed ourselves to providing financial or in-kind support to organizations whose activities advance strong, vibrant, and stable communities. We choose these groups carefully who focus on Science, Technology, Engineering & Math (STEM) education, environment, civics, community, and arts and culture, looking to their ability to use education, training, and special programs and events to enrich the quality of life of all New Yorkers.

Organizations We Support

Con Edison is a proud supporter of more than 930 nonprofit organizations throughout our service territory. Our support is focused on groups that contribute to education, arts and culture, civics, the environment, and community partnerships.

The Madison Square Park Conservancy is the not-for-profit organization dedicated to keeping historic Madison Square Park and the adjacent Worth Square bright, beautiful and lively public spaces. The Conservancy works in partnership with the City of New York Parks and Recreation to operate Madison Square Park and is responsible for raising funds necessary to operate the park, including horticulture, park maintenance, sanitation, security, and free cultural programs, including two music series, rotating public art exhibitions, and children’s programming for park visitors.

Con Edison funding nurtures and heightens the quality of Madison Square Park’s horticulture by making seasonal planting changes, while honoring the park’s original Victorian design; and second, to support free, public horticulture programming for youth, and regular volunteer activities in the park, both of which facilitate community involvement.

For over 100 years, New Yorkers for Parks (NY4P) has built, protected, and promoted parks and open spaces in New York City. Today, NY4P is the citywide independent organization championing quality parks and open spaces for all New Yorkers in all neighborhoods. They achieve this mission through an integrated approach of research, advocacy, and strategic partnerships. New Yorkers for Parks conducts research and develops tangible policy recommendations around findings related to park development, management, and sustainability.

Con Edison supports NY4P Daffodil Project, founded in 2001 as a living memorial to September 11. With over five million free bulbs planted citywide by more than 100,000 school children, parks and gardening groups, civic organizations, corporate volunteers, and other New Yorkers, it is one of the largest volunteer efforts in the city’s history. In 2014, over 500,000 more daffodils were planted throughout New York City. This would not have been possible without the support of Con Edison.

Trees New York (TreesNY) is an environmental and urban forestry nonprofit organization. Their mission is to plant, preserve, and protect New York City’s urban forest through education, active citizen participation, and advocacy. TreesNY was founded in 1976 as a volunteer response to New York City’s devastating cutbacks in forestry and tree-related community services.

Con Edison supports Trees New York’s Youth Environmental Literacy Program that educates New York City youth about the urban forest through hands-on activities and classroom studies. Students expand their knowledge of the environment while advancing their reading, language, and investigative skills. When students are introduced to environmental education at a young age, it increases the chance that they will be more engaged in community and environmental activities as young adults.

Employees

Con Edison recognizes that one of our most important resources is our people. We work hard to promote inclusion, ensuring that our employees represent the full vitality of the area we serve. Con Edison’s corporate culture is built around a strong commitment to ethical business practices. We look to attract and retain our talented workforce through a competitive employee compensation program consisting of fair wages, augmented by a comprehensive benefits program.

Training

Our current workforce has a median age of 43, and in the last 10 years has become younger, with a more equal distribution of employees over the various age spans. As of 2014, 28 percent of our workforce is 35 years of age or younger. More significantly, 48 percent of our workforce has 10 years of service or less. Much of our training and development programs address those employees who are within the first 10 years of service with us. In order to develop our changing workforce the company offers numerous ways for employees to develop their careers, both in the classroom, and on-the-job.

The Learning Center is Con Edison’s training, meeting, and conference center in Long Island City, New York. The facility has 46 classrooms, 31 laboratories, a library, auditorium, and cafeteria. The Learning Center offers more than 800 classes, covering technical courses, as well as skills enhancement and leadership development for Con Edison of New York and Orange and Rockland employees. In 2014, employees spent 505,000 hours doing instructor-led skills-based and leadership training at the Learning Center. Additionally, employees spent over 100,000 hours doing eLearning on such topics as Enhancing Customer Relations, Standards of Business Conduct and Safety and Environment training. Many employees participated in multiple training courses. The Learning Center also coordinates periodic Technically Speaking Seminars and Strategic Issues Seminars which are designed to allow employees to learn more about what goes on around the company and industry related issues. Employees who attend Technically Speaking Seminars are eligible to receive Continuing Education Units (CEUs) through the Institute of Electrical and Electronic Engineers (IEEE).

We recognize that training can’t just happen at the Learning Center- some skills must be learned and refreshed on the job. Our Documented On-the- Job Training (DOJT) can be conducted at a workout location, yard, or jobsite. In 2014, our employees logged 216,000 hours of DOJT.

The company also offers three levels of mentoring programs – corporate, executive, and women-in-non-traditional-careers. These programs are designed to allow employees to share knowledge, and to foster career development at all levels of the company. In 2014, 139 employees took part in the mentorship program.

The company offers employees the benefit of a tuition-aid reimbursement program, allowing them to develop their skills in an academic setting. Employees qualify for up to 100-percent reimbursement of tuition costs after successfully completing a degree in a field related to the work of Con Edison. In 2014, 515 employees took advantage of tuition aid as they worked towards advanced degrees. Finally, the Career Center is an online site that provides employees the resources to achieve personal and professional success through Career Development. The site is designed to help employees learn how best to effectively use their strengths, how and when to network, and how to set short- and long-term career goals. In 2013, the first ever Talent Management Course Catalogue was released on the Career Center site. Designed to provide employees with key information about courses and programs that are available to help strengthen leadership and management skills, 34 courses, 12 programs, five workshops, five seminars, and four assessments are detailed as learning opportunities. This tool will be critical for employees to help themselves in their career development journey.

Diversity

Con Edison is one of the nation’s largest investor-owned energy companies. We provide a wide range of energy-related products and services to our customers through two regulated utilities and our competitive energy businesses:

• Con Edison of New York, which delivers electricity, natural gas, and steam to customers in New York City and Westchester
• Orange and Rockland Utilities, which delivers electricity and natural gas to customers in parts of New York, New Jersey, and Pennsylvania
• Con Edison Solutions, Con Edison Energy and Con Edison Development (collectively called our competitive energy businesses), which provide retail and wholesale electricity supply and energy services

As noted in its financial annual report, Con Edison had 14,601 employees in 2014. Of these employees, 46 percent are minorities and 20 percent are women. In 2014, minority representation increased from 45 to 46 percent, and the percentage of women remained steady at 20 percent. Of the 846 employees hired in 2014, 51 percent were minorities and 28 percent were women. Minorities accounted for 48 percent of all promotions in 2014. Twenty-four percent of promotions were earned by women.

Of the total women promoted, 68 percent were minorities. The percentage of minorities in officer positions increased from 26 to 32 in 2014, and women made up 25 percent of positions in officer positions.

Diversity report 2014

Corporate Culture

A company-wide Voice of the Employee survey for Con Edison of New York and Orange and Rockland employees allowed the company to identify three areas as cultural imperatives at Con Edison, Inc.:

• Openness, fairness, and trust
• Cost consciousness
• Enhancing stakeholder relationships

As the company strives to change our culture, our leadership is making significant efforts to address these three cultural imperatives. Every month, the Corporate Leadership Team meets for a full day to discuss the evolution of our culture change. A significant focus of 2014 was the integration of the business case and change management into “people systems.” For every change to programs or plans that in some way impacts our employees, leadership took special note to communicate the ”why,” or business case, behind those changes. We strive to develop messages that are clear, include facts, and reach hearts.

We will continue to strive to be open, fair, trusted, and trusting, in all our relationships, both externally and internally. The company’s efforts focus on identifying observable behaviors, recognizing how perceptions become realities and how culture change can only happen as assumptions, mindsets, and ultimately, behaviors change. Changing culture is also about cascading new behaviors down throughout the company. This change will take time because behaviors are well-rooted but we will be diligent and persistent in working to bring about this change throughout all levels of our business.

Compensation and Benefits

Con Edison offers a competitive compensation and benefits program to attract and retain management and union employees. The wages and benefits of union personnel are negotiated with their respective labor unions Local 1-2, Utility Workers Union of America, and Local 3 and 503, International Brotherhood of Electrical Workers.

In 2011, we conducted a comprehensive evaluation of our compensation and benefits programs for management employees that included: leadership interviews, focus groups, and surveys to find out our management employees preferences for their benefits programs. The ensuing changes implemented as a result of this employee feedback include everything employees perceive to be of value resulting from the employment relationship including compensation, paid holidays, vacation, sick leave, long-term disability insurance, medical insurance, a prescription drug plan, vision care, dental plan, commuter transportation reimbursement accounts, health-care and dependent-care reimbursement accounts, group term life insurance, a stock purchase and 401(k) savings program with a company match, and retirement benefits.

To promote good health and wellness, the Company offers monetary incentives to union and management employees enrolled in a Cigna plan for completing a basic medical screening and/or health assessment (if applicable).  Employees may also qualify for additional incentives if their spouse, also enrolled in a Cigna plan, completes a basic medical screening and/or health assessment (if applicable).

The company also provides wellness programs that include annual flu vaccinations, a smoking cessation program, in-house counseling services for employees and family members with substance abuse problems, outside work-home wellness counseling for employees and their families, eldercare counseling and information services, life-planning seminars, and discounted admission to cultural institutions.

Shareholders

Con Edison is one of the largest companies in New York State, and plays a major role in the economic development of the New York metropolitan area. We employ more than 14,600 people, purchase goods and services from community-based organizations, and are one of the largest taxpayers in both the city and the state. Our managers identify significant business and operational risks and liabilities to the company, ensuring that they are prudently addressed to minimize their impacts on our performance.

In 2014, Con Edison was again named winner of the 2014 Outstanding System Reliability Award by PA Consulting, top U.S. utility in the Newsweek Green Rankings, and winner of an Innovation Award from the Utility Analytics Institute for development of a software program that aids in identifying programs to reduce customer electrical usage in times of high demand.

Supply Chain

At Con Edison, we recognize that our suppliers are an important part of our value chain and their performance can impact our sustainability. While we have an established purchasing program and have made progress in a number of areas related to sustainability. In 2013, we joined the Electric Utility Industry Sustainable Supply Chain Alliance. We continue to partner with our utility peers to share and learn best practices to address sustainability issues throughout our supply chain as we look to improve our processes at Con Edison of New York and Orange Rockland, and better understand the social and environmental impact of our upstream suppliers.

Vendor Approval and Tracking

The regulated utilities have a strict vendor qualification process, ensuring that the companies we contract with are able to provide the highest quality goods and services at the most reasonable cost for our customers. Once approved, Con Edison monitors key risk indicators of all suppliers via periodic review of financial stability, sound policies and procedures regarding supplier performance and disclosure information, and monitoring of market trends and economic and financial forecasts.

Con Edison’s Purchasing department defines select “critical suppliers” as critical component suppliers and non-substitutable suppliers. For these select critical suppliers, Purchasing collaborated with the Corporate ERM team and developed specific risk profiles outlining causes and consequences of loss of these critical suppliers and specific Key Risk Indicators and are continually monitored.

Supplier Diversity

Con Edison’s award-winning supplier diversity program invites entrepreneurs and executives to partner with us in mutually beneficial business relationships. As we continue to serve the energy needs of the world’s most dynamic marketplace, we look forward to expanding our commercial relationships with New York’s vibrant community of women and minority entrepreneurs and business owners.

Our unique model is based on the premise that our company can not only have a positive impact through its direct operational and supply chain activities but also that our sustainability efforts can realize a multiplier effect through our interaction with internal and external stakeholders. Our initiative is a collaboration with the Supplier Diversity program, Public Affairs, and Energy Efficiency.

We have partnered with the non-profit organization Green City Force to develop a pipeline of employment for residents of the New York City Housing Projects to do energy efficiency related work. We have begun to receive commitments from minority-owned and women-owned business enterprises (MWBEs) to hire graduates of the Green City Force program and the first group of graduates has been hired.

We collaborated with Con Edison’s Energy Efficiency team to host a “Tech Expo,” in which we gave major real estate owners a chance to learn about Con Edison-funded incentives that can help them use less energy. We introduced them to MWBE contractors and MWBE businesses that have cutting-edge technology to dramatically reduce the cost of their buildings and enhance the value of their real estate.

We also worked with external groups to support our company’s commitment to sustainability. Working with the New York/New Jersey chapter of the National Minority Supplier Development Council we co- sponsored a major “Sustainability Summit.” This conference was organized with the purpose of identifying and promoting companies that foster a green supply chain and promote energy efficiency. Participants included representatives from major corporations, and investors interested in supporting the growth of companies in this field.

A cornerstone of the supplier diversity program is company expenditures. Goods and services purchased from minority- and women-owned business enterprises totaled more than $277 million in 2014. Including fuel and gas, expenditures with minority- and women- owned businesses totaled more than $286 million.

Green Spend

Along with a commitment to invest in our supplier diversity program, we also recognize that as a Fortune 500 company, the money we spend can also help to develop emerging markets, such as the development and supply of green products. For this reason, we have committed to spend $3 million annually on green products, which we exceeded in 2014.

Avoiding Collusion

Ethical behavior is a priority at Con Edison, but in recent years we have been victimized by company employees and retirees as a result of several kickback schemes. The company immediately initiated an internal investigation after the uncovering of the first scheme and has cooperated with both federal and local authorities in their investigations. The company terminated employment of the arrested employees and ended its contracts with the vendors.

We have made numerous procedural and organizational changes to help prevent these issues from recurring in the future. After the initial scheme was discovered in 2009, the company began to re-evaluate how critical positions in our Purchasing, Construction Management, and Energy Services departments are filled, which resulted in implementing a rotational policy to ensure that employees in these organizations periodically shift work and responsibilities.

These changes reflect the company’s commitment to maintaining the trust of our ratepayers, shareholders, and community stakeholders. Moving forward, we continue to aggressively investigate all allegations of fraud, misconduct, and unethical behavior of our employees, and will continue to work with law enforcement when necessary.

For more information on the company’s commitment to ethical behavior with suppliers, please see our Standards of Business Conduct and Business Ethics section of this report.