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Income Tax | 6 Months Ended
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Jun. 30, 2023
Income Tax Disclosure [Abstract] |
Income Tax | Income Tax Con Edison’s income tax expense increased to $29 million for the three months ended June 30, 2023 from $17 million for the three months ended June 30, 2022. The increase in income tax expense is primarily due to a remeasurement of state deferred tax assets and liabilities as a result of the enacted New York State legislation, a decrease in renewable energy credits, higher allowance for uncollectible accounts, lower flow-through tax benefits in 2023 for plant related items, offset in part by lower income before income tax expense and lower state income taxes. CECONY’s income tax expense increased to $34 million for the three months ended June 30, 2023 from an income tax benefit of $10 million for the three months ended June 30, 2022. The increase in income tax expense is primarily due to higher income before income tax expense, higher state income taxes, a remeasurement of state deferred tax assets and liabilities as a result of the enacted New York State legislation, higher allowance for uncollectible accounts, lower research and development credits from prior years, lower flow-through tax benefits in 2023 for plant related items and a decrease in the amortization of excess deferred federal income taxes due to the TCJA. Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes for the three months ended June 30, 2023 and 2022 is as follows:
| For the Three Months Ended June 30,
| Con Edison | CECONY
(% of Pre-tax income) | 2023 | 2022 | 2023 | 2022
STATUTORY TAX RATE |  |  |  |
Federal | 21 | % | 21 | % | 21 | % | 21 | %
Changes in computed taxes resulting from: |  |  |  |
State income tax, net of federal income tax benefit | 2 |  | 7 |  | 5 |  | 5 |
Amortization of excess deferred federal income taxes | (17) |  | (17) |  | (18) |  | (27) |
Cost of removal | 4 |  | 3 |  | 4 |  | 4 |
Other plant-related items | (1) |  | (1) |  | (1) |  | (2) |
Renewable energy credits | (1) |  | (4) |  | — |  | — |
Allowance for uncollectible accounts, net of COVID-19 assistance | — |  | (2) |  | — |  | (3) |
Injuries and damages reserve | 1 |  | — |  | 1 |  | 1 |
Reserve for uncertain tax positions | — |  | 2 |  | — |  | — |
Remeasurement of deferred income taxes | 4 |  | — |  | 4 |  | — |
Research and development credits | (1) |  | (3) |  | (1) |  | (4) |
Other | — |  | — |  | — |  | (1) |
Effective tax rate | 12 | % | 6 | % | 15 | % | (6) | %
Con Edison’s income tax expense increased to $272 million for the six months ended June 30, 2023 from $171 million for the six months ended June 30, 2022. The increase in income tax expense is primarily due to higher income before income tax expense due to the gain on the sale of the Clean Energy Businesses ($202 million), a remeasurement of state deferred tax assets and liabilities as a result of the enacted New York State legislation ($10 million) and an increase in the valuation allowance on deferred state tax assets related to state NOLs ($10 million), offset in part by tax benefits from the recognition of deferred unamortized investment tax credits ($107 million) and changes in state apportionments, net of federal income taxes ($44 million), all related to the sale of the Clean Energy Businesses. CECONY’s income tax expense increased to $189 million for the six months ended June 30, 2023 from $108 million for the six months ended June 30, 2022. The increase in income tax expense is primarily due to higher income before income tax expense, higher state income taxes, lower flow-through tax benefits in 2023 for plant-related items, lower research and development credits from prior years, a remeasurement of state deferred tax assets and liabilities as a result of the enacted New York State legislation and a decrease in the amortization of excess deferred federal income taxes due to the TCJA. Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes for the six months ended June 30, 2023 and 2022 is as follows:
| For the Six Months Ended June 30,
| Con Edison | CECONY
(% of Pre-tax income) | 2023 | 2022 | 2023 | 2022
STATUTORY TAX RATE |  |  |  |
Federal | 21 | % | 21 | % | 21 | % | 21 | %
Changes in computed taxes resulting from: |  |  |  |
State income tax, net of federal income tax benefit | 4 |  | 6 |  | 5 |  | 5 |
Taxes attributable to non-controlling interest | — |  | 1 |  | — |  | — |
Cost of removal | 1 |  | 1 |  | 2 |  | 2 |
Other plant-related items | — |  | (1) |  | (1) |  | (1) |
Renewable energy credits | — |  | (2) |  | — |  | — |
Amortization of excess deferred federal income taxes | (5) |  | (9) |  | (8) |  | (12) |
Reserve for uncertain tax positions | — |  | 1 |  | — |  | — |
Remeasurement of deferred income taxes | 1 |  | — |  | 1 |  | — |
Research and development credits | — |  | (1) |  | (1) |  | (1) |
Impacts from the sale of Clean Energy Businesses: |  |  |  |
Deferred unamortized ITC recognized on sale of subsidiary | (6) |  | — |  | — |  | — |
Gain on sale of subsidiary | (2) |  | — |  | — |  | — |
Effective tax rate | 14 | % | 17 | % | 19 | % | 14 | %
On March 1, 2023, Con Edison completed the sale of the Clean Energy Businesses, that was accounted for as a stock sale for GAAP purposes and a deemed sale of assets and liquidation for tax purposes. Con Edison's pre-tax gain on the sale of the Clean Energy Businesses was $867 million ($804 million, net of tax) for the six months ended June 30, 2023. The sale included all assets, operations and projects of the Clean Energy Businesses with the exception of tax equity interests and a deferred project, that were treated as distributions to Con Edison. See Note S and Note T. In April 2023, the IRS released Revenue Procedure 2023-15 which provides a safe harbor method of accounting that taxpayers may use to determine whether certain expenditures to maintain, repair, replace, or improve natural gas transmission and distribution property must be capitalized as improvements by the taxpayer or currently deducted for federal income tax purposes. This revenue procedure also provides procedures for taxpayers to obtain automatic consent to change their method of accounting to the safe harbor method of accounting permitted by this revenue procedure. Con Edison is evaluating the potential cumulative impact of any change in accounting method for the Utilities. In May 2023, New York State passed a law that extended the increase in the corporate franchise tax rate from 6.5 percent to 7.25 percent for another three-year period, through tax year 2026, for taxpayers with taxable income greater than $5 million. The law also temporarily extended the business capital tax through tax year 2026, not to exceed an annual maximum tax liability of $5 million per taxpayer, with a corporation paying the higher of its franchise or income tax liability during the same period. New York State also passed a law establishing a permanent rate of 30 percent for the metropolitan transportation business tax surcharge. As a result of the sale of the Clean Energy Businesses in 2023, Con Edison has New York State taxable income in excess of $5 million after using its entire New York State NOL carryforward, and therefore, the group is subject to the higher 7.25 percent rate (9.425 percent with the surcharge rate) on its taxable income for tax year 2023. As a result of this legislation, CECONY remeasured its deferred tax assets and liabilities that would reverse before 2027 and recorded state deferred income tax expense (net of federal benefit) and an increase in accumulated deferred tax liabilities of $10 million in the three months ended June 30, 2023. Uncertain Tax Positions At June 30, 2023, the estimated liability for uncertain tax positions for Con Edison was $26 million ($9 million for CECONY). For the six months ended June 30, 2023, Con Edison recognized $3 million of income tax expense mostly related to research and development credits on the Clean Energy Businesses. Con Edison reasonably expects to resolve within the next twelve months approximately $23 million of various federal uncertainties due to the expected completion of ongoing tax examinations, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is $6 million, that, if recognized, would reduce CECONY’s effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edison’s effective tax rate is $26 million, with $9 million attributable to CECONY. The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. For the six months ended June 30, 2023 and 2022, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At June 30, 2023 and December 31, 2022, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

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