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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/x/ | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For The Quarterly Period Ended March 31, 2001 | |
or | |
/ / | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number | Exact name of registrant as specified in its charter and principal office address and telephone number | State of Incorporation | I.R.S. Employer ID. Number | |||
---|---|---|---|---|---|---|
1-14514 | Consolidated Edison, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600 | New York | 13-3965100 | |||
1-1217 | Consolidated Edison Company of New York, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600 | New York | 13-5009340 | |||
1-4315 | Orange and Rockland Utilities, Inc. One Blue Hill Plaza, Pearl River, New York 10965 (914) 352-6000 | New York | 13-1727729 |
Indicate by check mark whether each Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes/x/ No/ /
As of the close of business on April 30, 2001, Consolidated Edison, Inc. (Con Edison) had outstanding 212,096,481 Common Shares ($.10 par value). Con Edison owns all of the outstanding common equity of Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R).
O&R meets the conditions specified in general instruction H(1)(a) and (b) of form 10-Q
and is therefore filing this form with the reduced disclosure format.
1
* O&R is omitting this information pursuant to General Instruction H of Form 10-Q.
2
This Quarterly Report on Form 10-Q is a combined report being filed separately by three different registrants: Consolidated Edison, Inc. (Con Edison), Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R). Neither Con Edison of New York nor O&R makes any representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.
O&R, a wholly-owned subsidiary of Con Edison, meets the conditions specified in General Instruction H of Form 10-Q and is permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, such as Con Edison, that are reporting companies under the Securities Exchange Act of 1934. Accordingly, O&R has omitted from this report the information called for by Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and has included in this report its Management's Narrative Analysis of the Results of Operations. In accordance with general instruction H, O&R has also omitted from this report the information, if any, called for by Part I, Item 3, Quantitative and Qualitative Disclosure About Market Risk; Part II, Item 2, Changes in Securities and Use of Proceeds; Part II, Item 3, Defaults Upon Senior Securities; and Part II, Item 4, Submission of Matters to a Vote of Security Holders.
This Quarterly Report on Form 10-Q includes forward-looking statements, which are statements of future expectation and not facts. Words such as "estimates," "expects," "anticipates," "intends," "plans" and similar expressions identify forward-looking statements. Actual results or developments might differ materially from those included in the forward-looking statements because of factors such as competition and industry restructuring, developments relating to Indian Point 2 (see Note C to the Con Edison financial statements in Part I, Item 1 of this report), developments relating to Northeast Utilities (see Note D to the Con Edison financial statements in Part I, Item 1 of this report), developments in wholesale energy markets, technological developments, changes in economic conditions, changes in historical weather patterns, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, and other presently unknown or unforeseen factors.
3
Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As at | ||||||||
---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | |||||||
| (Thousands of Dollars) | ||||||||
ASSETS | |||||||||
UTILITY PLANT, AT ORIGINAL COST | |||||||||
Electric | $ | 11,752,292 | $ | 11,808,102 | |||||
Gas | 2,327,139 | 2,300,055 | |||||||
Steam | 742,840 | 740,189 | |||||||
General | 1,393,541 | 1,388,602 | |||||||
Unregulated generating assets | 279,156 | 279,060 | |||||||
TOTAL | 16,494,968 | 16,516,008 | |||||||
Less: Accumulated depreciation | 5,210,338 | 5,234,701 | |||||||
NET | 11,284,630 | 11,281,307 | |||||||
Construction work in progress | 538,022 | 504,471 | |||||||
Nuclear fuel assemblies and components, less accumulated amortization | 104,087 | 107,641 | |||||||
NET UTILITY PLANT | 11,926,739 | 11,893,419 | |||||||
CURRENT ASSETS | |||||||||
Cash and temporary cash investments | 59,566 | 94,828 | |||||||
Accounts receivable - customer, less allowance for uncollectible accounts of $32,282 and $33,714 | 926,503 | 910,344 | |||||||
Other receivables | 118,190 | 168,415 | |||||||
Fuel, at average cost | 16,106 | 29,148 | |||||||
Gas in storage, at average cost | 49,190 | 82,419 | |||||||
Materials and supplies, at average cost | 125,041 | 131,362 | |||||||
Prepayments | 664,539 | 524,377 | |||||||
Other current assets | 87,451 | 75,094 | |||||||
TOTAL CURRENT ASSETS | 2,046,586 | 2,015,987 | |||||||
INVESTMENTS | |||||||||
Nuclear decommissioning trust funds | 335,355 | 328,969 | |||||||
Other | 256,136 | 238,871 | |||||||
TOTAL INVESTMENTS | 591,491 | 567,840 | |||||||
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | |||||||||
Goodwill | 485,388 | 488,702 | |||||||
Regulatory assets | |||||||||
Future federal income tax | 668,685 | 676,527 | |||||||
Recoverable energy costs | 184,691 | 340,495 | |||||||
Real estate sale costs - First Avenue properties | 103,348 | 103,009 | |||||||
Deferred special retirement program costs | 86,949 | 88,633 | |||||||
Divestiture - capacity replacement reconciliation | 73,850 | 73,850 | |||||||
Workers' compensation reserve | 54,097 | 47,097 | |||||||
Accrued unbilled revenues | 66,196 | 72,619 | |||||||
Deferred revenue taxes | 32,535 | 43,879 | |||||||
Deferred environmental remediation costs | 54,648 | 49,056 | |||||||
Other | 126,357 | 112,604 | |||||||
TOTAL REGULATORY ASSETS | 1,451,356 | 1,607,769 | |||||||
Other deferred charges and noncurrent assets | 181,880 | 193,528 | |||||||
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | 2,118,624 | 2,289,999 | |||||||
TOTAL | $ | 16,683,440 | $ | 16,767,245 | |||||
The accompanying notes are an integral part of these financial statements.
4
Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As at | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | ||||||||
| (Thousands of Dollars) | |||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||
CAPITALIZATION | ||||||||||
Common stock, authorized 500,000,000 shares; outstanding 212,070,531 shares and 212,027,131 shares | $ | 1,482,341 | $ | 1,482,341 | ||||||
Retained earnings | 5,102,746 | 5,040,931 | ||||||||
Treasury stock, at cost; 23,417,563 shares and 23,460,963 shares | (1,010,947 | ) | (1,012,919 | ) | ||||||
Capital stock expense | (35,749 | ) | (35,817 | ) | ||||||
Accumulated other comprehensive income | (17,546 | ) | (2,147 | ) | ||||||
TOTAL COMMON SHAREHOLDERS' EQUITY | 5,520,845 | 5,472,389 | ||||||||
Preferred stock subject to mandatory redemption | 37,050 | 37,050 | ||||||||
Other preferred stock | 212,563 | 212,563 | ||||||||
Long-term debt | 5,135,175 | 5,415,409 | ||||||||
TOTAL CAPITALIZATION | 10,905,633 | 11,137,411 | ||||||||
NONCURRENT LIABILITIES | ||||||||||
Obligations under capital leases | 30,727 | 31,504 | ||||||||
Accumulated provision for injuries and damages | 168,541 | 160,671 | ||||||||
Pension and benefits reserve | 197,274 | 181,346 | ||||||||
Other noncurrent liabilities | 38,806 | 40,456 | ||||||||
TOTAL NONCURRENT LIABILITIES | 435,348 | 413,977 | ||||||||
CURRENT LIABILITIES | ||||||||||
Long-term debt due within one year | 459,590 | 309,590 | ||||||||
Notes payable | 438,062 | 255,042 | ||||||||
Accounts payable | 756,887 | 1,020,401 | ||||||||
Customer deposits | 204,710 | 202,888 | ||||||||
Accrued taxes | 91,182 | 64,345 | ||||||||
Accrued interest | 88,521 | 85,276 | ||||||||
Accrued wages | 87,486 | 70,951 | ||||||||
Other current liabilities | 302,648 | 328,686 | ||||||||
TOTAL CURRENT LIABILITIES | 2,429,086 | 2,337,179 | ||||||||
DEFERRED CREDITS AND REGULATORY LIABILITIES | ||||||||||
Accumulated deferred federal income tax | 2,323,842 | 2,302,764 | ||||||||
Accumulated deferred investment tax credits | 127,791 | 131,429 | ||||||||
Regulatory liabilities | ||||||||||
Gain on divestiture | 88,321 | 50,000 | ||||||||
NY state tax law revisions | 56,671 | 59,523 | ||||||||
Deposit from sale of First Avenue properties | 50,000 | 50,000 | ||||||||
Accrued electric rate reduction | 38,018 | 38,018 | ||||||||
NYPA revenue increase | 37,368 | 35,021 | ||||||||
Other | 191,007 | 211,706 | ||||||||
TOTAL REGULATORY LIABILITIES | 461,385 | 444,268 | ||||||||
Other deferred credits | 355 | 217 | ||||||||
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES | 2,913,373 | 2,878,678 | ||||||||
TOTAL | $ | 16,683,440 | $ | 16,767,245 | ||||||
The accompanying notes are an integral part of these financial statements.
5
Consolidated Edison, Inc.
CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||
---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||
OPERATING REVENUES | ||||||||
Electric | $ | 1,707,374 | $ | 1,512,249 | ||||
Gas | 701,819 | 469,473 | ||||||
Steam | 258,252 | 170,258 | ||||||
Non-utility | 218,819 | 166,611 | ||||||
TOTAL OPERATING REVENUES | 2,886,264 | 2,318,591 | ||||||
OPERATING EXPENSES | ||||||||
Purchased power | 1,015,885 | 730,188 | ||||||
Fuel | 170,316 | 85,238 | ||||||
Gas purchased for resale | 463,485 | 266,298 | ||||||
Other operations | 261,604 | 312,098 | ||||||
Maintenance | 128,446 | 106,832 | ||||||
Depreciation and amortization | 134,998 | 142,722 | ||||||
Taxes, other than income tax | 307,750 | 290,735 | ||||||
Income tax | 117,298 | 101,771 | ||||||
TOTAL OPERATING EXPENSES | 2,599,782 | 2,035,882 | ||||||
OPERATING INCOME | 286,482 | 282,709 | ||||||
OTHER INCOME (DEDUCTIONS) | ||||||||
Investment income | 1,465 | 4,399 | ||||||
Allowance for equity funds used during construction | 243 | (577 | ) | |||||
Other income less miscellaneous deductions | (3,116 | ) | (262 | ) | ||||
Income tax | 5,595 | (1,200 | ) | |||||
TOTAL OTHER INCOME (DEDUCTIONS) | 4,187 | 2,360 | ||||||
INCOME BEFORE INTEREST CHARGES | 290,669 | 285,069 | ||||||
Interest on long-term debt | 99,208 | 83,313 | ||||||
Other interest | 10,487 | 11,978 | ||||||
Allowance for borrowed funds used during construction | (1,538 | ) | (1,755 | ) | ||||
NET INTEREST CHARGES | 108,157 | 93,536 | ||||||
PREFERRED STOCK DIVIDEND REQUIREMENTS | 3,398 | 3,398 | ||||||
NET INCOME FOR COMMON STOCK | $ | 179,114 | $ | 188,135 | ||||
COMMON SHARES OUTSTANDING - AVERAGE (000) | 212,160 | 212,641 | ||||||
BASIC EARNINGS PER SHARE | $ | 0.84 | $ | 0.88 | ||||
DILUTED EARNINGS PER SHARE | $ | 0.84 | $ | 0.88 | ||||
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK | $ | 0.550 | $ | 0.545 | ||||
The accompanying notes are an integral part of these financial statements.
6
Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | |||||
---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | ||||||
NET INCOME | $ | 179,114 | $ | 188,135 | |||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | |||||||
Investment in Marketable Equity Securities, net of $295 taxes | (212 | ) | - | ||||
Minimum pension liability adjustments, net of $1,362 taxes | (2,348 | ) | - | ||||
Unrealized gains (losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $6,765 taxes | (8,900 | ) | - | ||||
Unrealized gains (losses) on derivatives qualified as hedges, net of $406 taxes | (2,013 | ) | - | ||||
Less: Reclassification adjustment for losses (gains) included in net income, net of ($1,037) taxes | 1,926 | - | |||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | (15,399 | ) | - | ||||
COMPREHENSIVE INCOME | $ | 163,715 | $ | 188,135 | |||
The accompanying notes are an integral part of these financial statements.
7
Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income for common stock | $ | 179,114 | $ | 188,135 | ||||||||
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME | ||||||||||||
Depreciation and amortization | 134,998 | 142,722 | ||||||||||
Income tax deferred (excluding taxes resulting from divestiture of plant) | 5,623 | 67,211 | ||||||||||
Common equity component of allowance for funds used during construction | 243 | (577 | ) | |||||||||
Prepayments - accrued pension credits | (80,635 | ) | (51,021 | ) | ||||||||
Other non-cash charges | 17,607 | 27,701 | ||||||||||
CHANGES IN ASSETS AND LIABILITIES | ||||||||||||
Accounts receivable - customer, less allowance for uncollectibles | (16,159 | ) | (58,508 | ) | ||||||||
Materials and supplies, including fuel and gas in storage | 44,940 | 12,219 | ||||||||||
Prepayments (other than pensions), other receivables and other current assets | (21,659 | ) | (76,615 | ) | ||||||||
Deferred recoverable energy costs | 155,804 | (23,303 | ) | |||||||||
Cost of removal less salvage | (21,456 | ) | (18,800 | ) | ||||||||
Accounts payable | (263,514 | ) | (4,994 | ) | ||||||||
Other-net | 30,819 | (5,003 | ) | |||||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES | 165,725 | 199,167 | ||||||||||
INVESTING ACTIVITIES INCLUDING CONSTRUCTION | ||||||||||||
Utility construction expenditures | (203,096 | ) | (180,226 | ) | ||||||||
Nuclear fuel expenditures | (4,069 | ) | (21,124 | ) | ||||||||
Contributions to nuclear decommissioning trust | (5,325 | ) | (5,325 | ) | ||||||||
Common equity component of allowance for funds used during construction | (243 | ) | 577 | |||||||||
Divestiture of utility plant (net of federal income tax) | 100,041 | - | ||||||||||
Investments by unregulated subsidiaries | (6,802 | ) | (9,237 | ) | ||||||||
Unregulated subsidiary utility plant | 2,179 | (734 | ) | |||||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES INCLUDING CONSTRUCTION | (117,315 | ) | (216,069 | ) | ||||||||
FINANCING ACTIVITIES INCLUDING DIVIDENDS | ||||||||||||
Repurchase of common stock | - | (68,524 | ) | |||||||||
Net proceeds from short-term debt | 183,020 | 14,737 | ||||||||||
Retirement of long-term debt | (150,000 | ) | (225,000 | ) | ||||||||
Issuance and refunding costs | (76 | ) | (49 | ) | ||||||||
Common stock dividends | (116,616 | ) | (115,708 | ) | ||||||||
NET CASH FLOWS USED IN FINANCING ACTIVITIES INCLUDING DIVIDENDS | (83,672 | ) | (394,544 | ) | ||||||||
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS | (35,262 | ) | (411,446 | ) | ||||||||
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 | 94,828 | 485,050 | ||||||||||
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 | $ | 59,566 | $ | 73,604 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 81,284 | $ | 93,563 | ||||||||
Income taxes | 42,600 | - | ||||||||||
The accompanying notes are an integral part of these financial statements.
8
NOTES TO FINANCIAL STATEMENTS - CON EDISON
Note A - General
These footnotes accompany and form an integral part of the interim consolidated financial statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries, including the regulated utility Consolidated Edison Company of New York, Inc. (Con Edison of New York), the regulated utility Orange and Rockland Utilities, Inc. (O&R) and several non-utility subsidiaries. These financial statements are unaudited but, in the opinion of Con Edison's management, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These financial statements should be read together with the audited Con Edison financial statements (including the notes thereto) included in the combined Con Edison, Con Edison of New York and O&R Annual Reports on Form 10-K for the year ended December 31, 2000 (the Form 10-K).
Note B - Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of Con Edison's utility subsidiaries and may be present in their facilities and equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.
At March 31, 2001, Con Edison had accrued $121.3 million as its best estimate of the utility subsidiaries' liability for sites as to which they have received process or notice alleging that hazardous substances generated by them (and, in most instances, other potentially responsible parties) were deposited. There will be additional liability at these sites and other sites, the amount of which is not presently determinable but may be material to Con Edison's financial position, results of operations or liquidity.
Con Edison's utility subsidiaries are permitted under current rate agreements to defer for subsequent recovery through rates certain site investigation and remediation costs with respect to hazardous waste. At March 31, 2001, $54.6 million of such costs had been deferred as regulatory assets.
Suits have been brought in New York State and federal courts against Con Edison's utility subsidiaries and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the utility subsidiaries. Many of these suits have been disposed of without any payment by the utility subsidiaries, or for immaterial amounts. The amounts specified in all the remaining suits total billions of dollars but Con Edison believes that these amounts are greatly exaggerated, as were the claims already
9
disposed of. Based on the information and relevant circumstances known to Con Edison at this time, it does not believe that these suits will have a material adverse effect on its financial position, results of operations or liquidity.
Note C - Nuclear Generation
The Indian Point 2 nuclear generating unit, which Con Edison of New York owns and has agreed to sell, was out of service from February 2000 to January 2001. The New York State Public Service Commission (PSC) is investigating the Indian Point 2 outage and its causes and the prudence of the company's actions regarding the operation and maintenance of Indian Point 2. An appeal is pending in the United States Court of Appeals for the Second Circuit of the October 2000 decision by the United States District Court for the Northern District of New York, in an action entitled Consolidated Edison Company of New York, Inc. v. Pataki, et al., in which the court determined that the law that directed the PSC to prohibit the company from recovering Indian Point 2 replacement power costs from customers was unconstitutional and granted the company's motion for a permanent injunction to prevent its implementation. The staff of the Nuclear Regulatory Commission is monitoring Indian Point 2 with heightened oversight. The company is unable to predict whether or not any Indian Point 2-related proceedings, lawsuits, legislation or other actions will have a material adverse effect on its financial position, results of operations or liquidity. For additional information about Indian Point 2, its pending sale and the outage, see Note G to Con Edison's financial statements included in Item 8 of the Form 10-K.
Note D - Northeast Utilities
On March 6, 2001, Con Edison commenced an action in the United States District Court for the Southern District of New York, entitled Consolidated Edison, Inc. v. Northeast Utilities, seeking a declaratory judgment that Northeast Utilities has failed to meet certain conditions precedent to Con Edison's obligation to complete its acquisition of Northeast Utilities pursuant to their agreement and plan of merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000 (the merger agreement). The action also seeks the court's declaration that under the merger agreement Con Edison has no further or continuing obligations to Northeast Utilities, and that Northeast Utilities has no further or continuing rights as against Con Edison.
On March 12, 2001, Northeast Utilities commenced an action in the same court claiming that Con Edison materially breached the merger agreement by repudiating its obligations under the merger agreement and refusing to proceed with the transaction on the terms set forth in the merger agreement. The action also claims that, as a result of Con Edison's breach of the merger agreement, Northeast Utilities and its shareholders have suffered substantial damages, including the difference between the consideration to be paid to Northeast Utilities shareholders pursuant to the merger agreement and the current market value of Northeast Utilities common stock, expenditures in connection with regulatory approvals and lost business opportunities. Pursuant to the merger agreement, Con Edison agreed to acquire Northeast Utilities for $26.00 per share (an estimated aggregate of not more than $3.9 billion) plus $0.0034 per share for each day after August 5, 2000 through the day prior to the completion of the transaction, payable 50 percent in cash and 50 percent in stock.
10
Con Edison believes that it is not obligated to acquire Northeast Utilities because Northeast Utilities does not meet the merger agreement's conditions that Northeast Utilities perform all of its obligations under the merger agreement, including the obligation that it carry on its businesses in the ordinary course consistent with past practice; that the representations and warranties made by it in the merger agreement were true and correct when made and remain true and correct; and that there be no material adverse change with respect to Northeast Utilities. Con Edison believes that it has not materially breached the merger agreement. Con Edison is unable to predict whether or not any Northeast Utilities-related lawsuits or other actions will have a material adverse effect on Con Edison's financial position, results of operations or liquidity.
Note E - Derivative Instruments and Hedging Activities
As of January 2001, Con Edison adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" (SFAS No. 133).
Neither Con Edison nor any of its subsidiaries, other than Consolidated Edison Energy, Inc., enters into derivative transactions that will not qualify for deferred accounting treatment. At March 31, 2001, deferred gains or losses were not material. Con Edison Energy, as discussed below, is an "energy trading organization."
Energy Trading
Con Edison's subsidiaries use derivative instruments to hedge purchases or sales of electricity and gas against adverse market price fluctuations.
Con Edison's utility subsidiaries, pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), defer recognition in income of hedging gains and losses until the electricity or gas is purchased or sold. Pursuant to rate provisions that permit the recovery of the cost of purchased power and gas, Con Edison's utility subsidiaries credit or charge to their customers hedging gains or losses and related transaction costs. See "Recoverable Energy Costs" in Note A to the company's financial statements included in Item 8 of the Form 10-K. Where SFAS No. 71 does not allow deferred recognition in income, Con Edison's utility subsidiaries have elected special hedge accounting pursuant to SFAS No. 133 to defer recognition of unrealized hedging gains and losses. Upon adoption of SFAS No. 133, Con Edison's utility subsidiaries had no transition adjustments to recognize in other comprehensive income. At March 31, 2001, the utility subsidiaries had $1.4 million of net hedging losses deferred as regulatory assets.
Consolidated Edison Solutions, Inc., a wholly-owned subsidiary of Con Edison (which provides competitive gas and electric supply and energy-related products and services), defers recognition in income of hedging gains and losses until the related electricity or gas is purchased or sold. Pursuant to SFAS No. 133, Con Edison Solutions has elected cash flow hedging for most such transactions and defers any changes in fair value of the transactions in other comprehensive income until the hedging transactions are
11
terminated. Any hedge ineffectiveness is recognized in income in the period in which it occurs. Upon adoption of SFAS No. 133, Con Edison Solutions recognized transition adjustments of $1.9 million in other comprehensive income and $0.4 million in income. In the quarter ended March 31, 2001, the company reclassified $1.9 million of accumulated other comprehensive income to income and recognized in income a pre-tax loss of $1.0 million relating to hedge ineffectiveness. At March 31, 2001, the company had deferred net hedging losses of $0.2 million in other comprehensive income.
Consolidated Edison Energy, Inc., a wholly-owned subsidiary of Con Edison (which markets specialized energy supply services to wholesale customers), enters into over-the-counter and exchange traded contracts for the purchase and sale of electricity or gas (which may provide for either physical or financial settlement) and is considered an "energy trading organization" required to account for such trading activities in accordance with FASB Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (98-10). Con Edison Energy recognized in income a pre-tax gain of $0.5 million in the quarter ended March 31, 2001, reflecting mark to market gains relating to its outstanding contracts at March 31, 2001. During the quarter ended March 31, 2001, Con Edison Energy entered into transactions for another subsidiary of Con Edison, as to which the company recognized in income a pre-tax mark to market gain of $7.4 million pursuant to 98-10.
Interest Rate Hedging
In connection with its $55 million promissory note issued to the New York State Energy Research and Development Authority for the net proceeds of the Authority's variable rate Pollution Control Refunding Revenue Bonds (O&R Projects), 1994 Series A (the 1994 Bonds), O&R has a swap agreement pursuant to which it pays interest at a fixed rate of 6.09 percent and is paid interest at the same variable rate as is paid on the 1994 Bonds. Upon adoption of SFAS No. 133, O&R recognized transition adjustments of $13.9 million in other comprehensive income. In the quarter ended March 31, 2001, the company did not reclassify any comprehensive income to income. If the swap agreement had been terminated on March 31, 2001, O&R would have been required to pay approximately $14.5 million. In connection with $95 million of variable rate loans undertaken relating to the Lakewood electric generating plant, Consolidated Edison Development, Inc., a wholly-owned subsidiary of Con Edison (which invests in and manages energy infrastructure projects), has swap agreements pursuant to which it pays interest at a fixed rate of 6.68 percent and is paid interest at a variable rate equal to the three-month London Interbank Offered Rate. Upon adoption of SFAS No. 133, Con Edison Development recognized transition adjustments of $2.6 million in other comprehensive income. In the quarter ended March 31, 2001, the company did not reclassify any comprehensive income to income. If these swap agreements had been terminated on March 31, 2001, Con Edison Development would have been required to pay approximately $4.7 million. Pursuant to SFAS No. 133, the O&R and Con Edison Development swap agreements are accounted for as cash flow hedges and changes in their fair value are recorded in other comprehensive income. The fair value of these swap agreements is calculated based upon current market conditions.
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Note F - Financial Information by Business Segment
Consolidated Edison, Inc.
SEGMENT FINANCIAL INFORMATION
$000's
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | Electric | Gas | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||||||
Operating revenues | $ | 1,707,374 | $ | 1,512,249 | $ | 701,819 | $ | 469,473 | ||||
Intersegment revenues | 3,529 | 18,743 | 719 | 2,331 | ||||||||
Depreciation and amortization | 106,098 | 117,179 | 17,741 | 16,884 | ||||||||
Operating income | 149,126 | 153,455 | 97,930 | 100,614 |
| Steam | Other | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | |||||||||
Operating revenues | $ | 258,252 | $ | 170,258 | $ | 218,819 | $ | 166,611 | |||||
Intersegment revenues | 467 | 417 | 2,336 | 369 | |||||||||
Depreciation and amortization | 4,405 | 4,592 | 6,754 | 4,067 | |||||||||
Operating income | 39,880 | 30,425 | (454 | ) | (1,785 | ) |
| Total | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | | | ||||||
Operating revenues | $ | 2,886,264 | $ | 2,318,591 | ||||||
Intersegment revenues | 7,051 | 21,860 | ||||||||
Depreciation and amortization | 134,998 | 142,722 | ||||||||
Operating income | 286,482 | 282,709 |
13
Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As at | ||||||||
---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | |||||||
| (Thousands of Dollars) | ||||||||
ASSETS | |||||||||
UTILITY PLANT, AT ORIGINAL COST | |||||||||
Electric | $ | 11,077,066 | $ | 11,135,764 | |||||
Gas | 2,044,476 | 2,020,395 | |||||||
Steam | 742,840 | 740,189 | |||||||
General | 1,283,884 | 1,282,254 | |||||||
TOTAL | 15,148,266 | 15,178,602 | |||||||
Less: Accumulated depreciation | 4,785,401 | 4,819,626 | |||||||
NET | 10,362,865 | 10,358,976 | |||||||
Construction work in progress | 511,659 | 476,379 | |||||||
Nuclear fuel assemblies and components, less accumulated amortization | 104,087 | 107,641 | |||||||
NET UTILITY PLANT | 10,978,611 | 10,942,996 | |||||||
CURRENT ASSETS | |||||||||
Cash and temporary cash investments | 35,780 | 70,273 | |||||||
Accounts receivable - customer, less allowance for uncollectible accounts of $25,019 and $25,800 | 777,662 | 743,883 | |||||||
Other receivables | 129,385 | 155,656 | |||||||
Fuel, at average cost | 16,106 | 28,455 | |||||||
Gas in storage, at average cost | 39,406 | 64,144 | |||||||
Materials and supplies, at average cost | 112,781 | 118,344 | |||||||
Prepayments | 631,792 | 497,884 | |||||||
Other current assets | 53,760 | 50,977 | |||||||
TOTAL CURRENT ASSETS | 1,796,672 | 1,729,616 | |||||||
INVESTMENTS | |||||||||
Nuclear decommissioning trust funds | 335,355 | 328,969 | |||||||
Other | 18,724 | 19,155 | |||||||
TOTAL INVESTMENTS | 354,079 | 348,124 | |||||||
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | |||||||||
Regulatory assets | |||||||||
Future federal income tax | 634,851 | 642,868 | |||||||
Recoverable energy costs | 124,751 | 274,288 | |||||||
Real estate sale costs - First Avenue properties | 103,348 | 103,009 | |||||||
Divestiture - capacity replacement reconciliation | 73,850 | 73,850 | |||||||
Workers' compensation reserve | 54,097 | 47,097 | |||||||
Deferred special retirement program costs | 45,605 | 46,743 | |||||||
Accrued unbilled gas revenue | 43,594 | 43,594 | |||||||
Deferred revenue taxes | 23,640 | 36,542 | |||||||
Other | 120,670 | 100,843 | |||||||
TOTAL REGULATORY ASSETS | 1,224,406 | 1,368,834 | |||||||
Other deferred charges and noncurrent assets | 161,997 | 158,371 | |||||||
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | 1,386,403 | 1,527,205 | |||||||
TOTAL | $ | 14,515,765 | $ | 14,547,941 | |||||
The accompanying notes are an integral part of these financial statements.
14
Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As at | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | ||||||||
| (Thousands of Dollars) | |||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||
CAPITALIZATION | ||||||||||
Common stock | $ | 1,482,341 | $ | 1,482,341 | ||||||
Repurchased Consolidated Edison, Inc. common stock | (962,092 | ) | (962,092 | ) | ||||||
Retained earnings | 4,051,034 | 3,995,825 | ||||||||
Capital stock expense | (35,749 | ) | (35,817 | ) | ||||||
Accumulated other comprehensive income | (3,085 | ) | (673 | ) | ||||||
TOTAL COMMON SHAREHOLDER'S EQUITY | 4,532,449 | 4,479,584 | ||||||||
Preferred stock | ||||||||||
Subject to mandatory redemption | ||||||||||
6-1/8% Series J | 37,050 | 37,050 | ||||||||
TOTAL SUBJECT TO MANDATORY REDEMPTION | 37,050 | 37,050 | ||||||||
Other preferred stock | ||||||||||
$5 Cumulative Preferred | 175,000 | 175,000 | ||||||||
4.65% Series C | 15,330 | 15,330 | ||||||||
4.65% Series D | 22,233 | 22,233 | ||||||||
TOTAL OTHER PREFERRED STOCK | 212,563 | 212,563 | ||||||||
TOTAL PREFERRED STOCK | 249,613 | 249,613 | ||||||||
Long-term debt | 4,615,666 | 4,915,108 | ||||||||
TOTAL CAPITALIZATION | 9,397,728 | 9,644,305 | ||||||||
NONCURRENT LIABILITIES | ||||||||||
Obligations under capital leases | 30,672 | 31,432 | ||||||||
Accumulated provision for injuries and damages | 155,657 | 148,047 | ||||||||
Pension and benefits reserve | 116,834 | 105,124 | ||||||||
Other noncurrent liabilities | 14,822 | 14,822 | ||||||||
TOTAL NONCURRENT LIABILITIES | 317,985 | 299,425 | ||||||||
CURRENT LIABILITIES | ||||||||||
Long-term debt due within one year | 450,000 | 300,000 | ||||||||
Notes payable | 337,944 | 139,969 | ||||||||
Accounts payable | 633,830 | 879,602 | ||||||||
Customer deposits | 197,618 | 195,762 | ||||||||
Accrued taxes | 81,824 | 49,509 | ||||||||
Accrued interest | 80,564 | 78,230 | ||||||||
Accrued wages | 82,436 | 70,951 | ||||||||
Other current liabilities | 246,939 | 237,634 | ||||||||
TOTAL CURRENT LIABILITIES | 2,111,155 | 1,951,657 | ||||||||
DEFERRED CREDITS AND REGULATORY LIABILITIES | ||||||||||
Accumulated deferred federal income tax | 2,153,639 | 2,134,973 | ||||||||
Accumulated deferred investment tax credits | 120,949 | 124,532 | ||||||||
Regulatory liabilities | ||||||||||
Gain on divestiture | 88,321 | 50,000 | ||||||||
NY state tax law revisions | 56,671 | 59,523 | ||||||||
Deposit from sale of First Avenue properties | 50,000 | 50,000 | ||||||||
Accrued electric rate reduction | 38,018 | 38,018 | ||||||||
NYPA revenue increase | 37,368 | 35,021 | ||||||||
Other | 143,931 | 160,487 | ||||||||
TOTAL REGULATORY LIABILITIES | 414,309 | 393,049 | ||||||||
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES | 2,688,897 | 2,652,554 | ||||||||
TOTAL | $ | 14,515,765 | $ | 14,547,941 | ||||||
The accompanying notes are an integral part of these financial statements.
15
Consolidated Edison Company of New York, Inc.
CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||||||
OPERATING REVENUES | ||||||||||||
Electric | $ | 1,583,199 | $ | 1,423,160 | ||||||||
Gas | 597,441 | 393,643 | ||||||||||
Steam | 258,252 | 170,258 | ||||||||||
TOTAL OPERATING REVENUES | 2,438,892 | 1,987,061 | ||||||||||
OPERATING EXPENSES | ||||||||||||
Purchased power | 781,987 | 618,243 | ||||||||||
Fuel | 170,316 | 85,198 | ||||||||||
Gas purchased for resale | 365,027 | 159,552 | ||||||||||
Other operations | 215,297 | 257,099 | ||||||||||
Maintenance | 121,214 | 100,684 | ||||||||||
Depreciation and amortization | 120,001 | 131,540 | ||||||||||
Taxes, other than income tax | 288,195 | 270,303 | ||||||||||
Income tax | 109,234 | 95,957 | ||||||||||
TOTAL OPERATING EXPENSES | 2,171,271 | 1,718,576 | ||||||||||
OPERATING INCOME | 267,621 | 268,485 | ||||||||||
OTHER INCOME (DEDUCTIONS) | ||||||||||||
Investment income | 155 | 732 | ||||||||||
Allowance for equity funds used during construction | 243 | (626 | ) | |||||||||
Other income less miscellaneous deductions | (1,172 | ) | 18 | |||||||||
Income tax | 4,635 | (390 | ) | |||||||||
TOTAL OTHER INCOME (DEDUCTIONS) | 3,861 | (266 | ) | |||||||||
INCOME BEFORE INTEREST CHARGES | 271,482 | 268,219 | ||||||||||
Interest on long-term debt | 89,677 | 76,749 | ||||||||||
Other interest | 7,894 | 11,470 | ||||||||||
Allowance for borrowed funds used during construction | (1,307 | ) | (1,680 | ) | ||||||||
NET INTEREST CHARGES | 96,264 | 86,539 | ||||||||||
NET INCOME | 175,218 | 181,680 | ||||||||||
PREFERRED STOCK DIVIDEND REQUIREMENTS | 3,398 | 3,398 | ||||||||||
NET INCOME FOR COMMON STOCK | $ | 171,820 | $ | 178,282 | ||||||||
CON EDISON OF NEW YORK SALES | ||||||||||||
Electric (thousands of kilowatthours) | ||||||||||||
Con Edison of New York customers | 7,747,989 | 7,616,450 | ||||||||||
Delivery service for Retail Choice | 2,439,562 | 2,254,849 | ||||||||||
Delivery service to NYPA and others | 2,557,351 | 2,474,889 | ||||||||||
Total sales in service territory | 12,744,902 | 12,346,188 | ||||||||||
Off-system and ESCO sales | 392,908 | 1,566,554 | ||||||||||
Gas (dekatherms) | ||||||||||||
Firm sales and transportation | 45,456,863 | 41,698,003 | ||||||||||
Off-peak firm/interruptible | 5,827,063 | 4,855,049 | ||||||||||
Total sales to Con Edison of New York customers | 51,283,926 | 46,553,052 | ||||||||||
Transportation of customer-owned gas | ||||||||||||
NYPA | 29,969 | 3,224,517 | ||||||||||
Other | 6,609,906 | 20,321,571 | ||||||||||
Off-system sales | 1,644,926 | 8,898,564 | ||||||||||
Total sales and transportation | 59,568,727 | 78,997,704 | ||||||||||
Steam (thousands of pounds) | 10,482,696 | 10,225,610 | ||||||||||
The accompanying notes are an integral part of these financial statements.
16
Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | |||||
---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | ||||||
NET INCOME | $ | 171,820 | $ | 178,282 | |||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | |||||||
Minimum pension liability adjustments, net of $1,299 taxes | (2,412 | ) | - | ||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | (2,412 | ) | - | ||||
COMPREHENSIVE INCOME | $ | 169,408 | $ | 178,282 | |||
The accompanying notes are an integral part of these financial statements.
17
Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 175,218 | $ | 181,680 | ||||||||
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME | ||||||||||||
Depreciation and amortization | 120,001 | 131,540 | ||||||||||
Income tax deferred (excluding taxes resulting from divestiture of plant) | (2,923 | ) | 70,582 | |||||||||
Common equity component of allowance for funds used during construction | 243 | (626 | ) | |||||||||
Prepayments - accrued pension credits | (80,635 | ) | (51,021 | ) | ||||||||
Other non-cash charges | 11,055 | 3,520 | ||||||||||
CHANGES IN ASSETS AND LIABILITIES | ||||||||||||
Accounts receivable - customer, less allowance for uncollectibles | (33,779 | ) | (47,804 | ) | ||||||||
Materials and supplies, including fuel and gas in storage | 34,998 | 11,405 | ||||||||||
Prepayments (other than pensions), other receivables and other current assets | (29,785 | ) | (106,860 | ) | ||||||||
Deferred recoverable energy costs | 149,537 | (27,947 | ) | |||||||||
Cost of removal less salvage | (21,242 | ) | (18,800 | ) | ||||||||
Accounts payable | (245,772 | ) | 858 | |||||||||
Other-net | 64,827 | 2,874 | ||||||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES | 141,743 | 149,401 | ||||||||||
INVESTING ACTIVITIES INCLUDING CONSTRUCTION | ||||||||||||
Construction expenditures | (194,525 | ) | (169,386 | ) | ||||||||
Nuclear fuel expenditures | (4,069 | ) | (21,124 | ) | ||||||||
Contributions to nuclear decommissioning trust | (5,325 | ) | (5,325 | ) | ||||||||
Divestiture of utility plant (net of federal income tax) | 100,041 | - | ||||||||||
Common equity component of allowance for funds used during construction | (243 | ) | 626 | |||||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES INCLUDING CONSTRUCTION | (104,121 | ) | (195,209 | ) | ||||||||
FINANCING ACTIVITIES INCLUDING DIVIDENDS | ||||||||||||
Repurchase of common stock | - | (29,447 | ) | |||||||||
Net proceeds from short-term debt | 197,975 | (14,743 | ) | |||||||||
Retirement of long-term debt | (150,000 | ) | (125,000 | ) | ||||||||
Issuance and refunding costs | (76 | ) | (49 | ) | ||||||||
Common stock dividends | (116,616 | ) | (115,708 | ) | ||||||||
Preferred stock dividends | (3,398 | ) | (3,398 | ) | ||||||||
NET CASH FLOWS USED IN FINANCING ACTIVITIES INCLUDING DIVIDENDS | (72,115 | ) | (288,345 | ) | ||||||||
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS | (34,493 | ) | (334,153 | ) | ||||||||
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 | 70,273 | 349,033 | ||||||||||
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 | $ | 35,780 | $ | 14,880 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 79,745 | $ | 83,651 | ||||||||
Income taxes | 34,701 | - | ||||||||||
The accompanying notes are an integral part of these financial statements.
18
NOTES TO FINANCIAL STATEMENTS - CON EDISON OF NEW YORK
Note A - General
These footnotes accompany and form an integral part of the interim consolidated financial statements of Consolidated Edison Company of New York, Inc. (Con Edison of New York) and its subsidiaries. Consolidated Edison, Inc. (Con Edison) owns all of the outstanding common stock of Con Edison of New York. These financial statements are unaudited but, in the opinion of Con Edison of New York's management, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These financial statements should be read together with the audited Con Edison of New York financial statements (including the notes thereto) included in the combined Con Edison, Con Edison of New York and Orange and Rockland Utilities, Inc. Annual Reports on Form 10-K for the year ended December 31, 2000 (the Form 10-K).
Note B - Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of Con Edison of New York and may be present in its facilities and equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.
At March 31, 2001, Con Edison of New York had accrued $89.6 million as its best estimate of its liability for sites as to which it has received process or notice alleging that hazardous substances generated by the company and, in most instances, other potentially responsible parties) were deposited. There will be additional liability at these sites and other sites, the amount of which is not presently determinable but may be material to the company's financial position, results of operations or liquidity.
Under Con Edison of New York's current electric, gas and steam rate agreements, site investigation and remediation costs in excess of $5 million annually incurred with respect to hazardous waste for which it is responsible are to be deferred and subsequently reflected in rates. At March 31, 2001, $20.5 million of such costs had been deferred as regulatory assets.
Suits have been brought in New York State and federal courts against Con Edison of New York and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the company. Many of these suits have been disposed of without any payment by the company, or for immaterial amounts. The amounts specified in all the remaining suits total billions of dollars but the company believes that these amounts are greatly exaggerated, as were the claims already disposed of.
19
Based on the information and relevant circumstances known to the company at this time, it does not believe that these suits will have a material adverse effect on its financial position, results of operations or liquidity.
Note C - Nuclear Generation
The Indian Point 2 nuclear generating unit, which Con Edison of New York owns and has agreed to sell, was out of service from February 2000 to January 2001. The New York State Public Service Commission (PSC) is investigating the Indian Point 2 outage and its causes and the prudence of the company's actions regarding the operation and maintenance of Indian Point 2. An appeal is pending in the United States Court of Appeals for the Second Circuit of the October 2000 decision by the United States District Court for the Northern District of New York, in an action entitled Consolidated Edison Company of New York, Inc. v. Pataki, et al., in which the court determined that the law that directed the PSC to prohibit the company from recovering Indian Point 2 replacement power costs from customers was unconstitutional and granted the company's motion for a permanent injunction to prevent its implementation. The staff of the Nuclear Regulatory Commission is monitoring Indian Point 2 with heightened oversight. The company is unable to predict whether or not any Indian Point 2-related proceedings, lawsuits, legislation or other actions will have a material adverse effect on its financial position, results of operations or liquidity. For additional information about Indian Point 2, its pending sale and the outage, see Note G to Con Edison's financial statements included in Item 8 of the Form 10-K.
Note D - Derivative Instruments and Hedging Activities
As of January 2001, Con Edison of New York adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133" (SFAS No. 133).
Con Edison of New York does not enter into derivative transactions that will not qualify for deferred accounting treatment. At March 31, 2001, deferred gains or losses were not material.
Con Edison of New York uses derivative instruments to hedge purchases or sales of electricity and gas against adverse market price fluctuations.
Pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), the company defers recognition in income of hedging gains and losses until the electricity or gas is purchased or sold. Pursuant to rate provisions that permit the recovery of the cost of purchased power and gas, the company credits or charges its customers hedging gains or losses and related transaction costs. See "Recoverable Energy Costs" in Note A to the company's financial statements included in Item 8 of the Form 10-K. Where SFAS No. 71 does not allow deferred recognition in income, the company has elected special hedge accounting pursuant to SFAS No. 133 to defer recognition of unrealized hedging gains and losses. Upon adoption of SFAS No. 133, the company had no transition adjustments to recognize in other comprehensive income. At March 31, 2001, the company had $1.4 million of net hedging losses deferred as regulatory assets.
20
Note E - Financial Information by Business Segment
Consolidated Edison Company of New York, Inc.
SEGMENT FINANCIAL INFORMATION
$000's
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | Electric | Gas | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||||||
Operating revenues | $ | 1,583,199 | $ | 1,423,160 | $ | 597,441 | $ | 393,643 | ||||
Intersegment revenues | 2,663 | 3,185 | 719 | 703 | ||||||||
Depreciation and amortization | 99,915 | 112,217 | 15,681 | 14,731 | ||||||||
Operating income | 140,243 | 146,737 | 87,498 | 91,323 |
| Steam | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||
Operating revenues | $ | 258,252 | $ | 170,258 | $ | 2,438,892 | $ | 1,987,061 | ||||
Intersegment revenues | 467 | 417 | 3,849 | 4,305 | ||||||||
Depreciation and amortization | 4,405 | 4,592 | 120,001 | 131,540 | ||||||||
Operating income | 39,880 | 30,425 | 267,621 | 268,485 |
21
Orange and Rockland Utilities, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As At | ||||||||
---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | |||||||
| (Thousands of Dollars) | ||||||||
ASSETS | |||||||||
UTILITY PLANT, AT ORIGINAL COST | |||||||||
Electric | $ | 675,226 | $ | 672,338 | |||||
Gas | 282,663 | 279,661 | |||||||
Common | 109,657 | 106,348 | |||||||
TOTAL | 1,067,546 | 1,058,347 | |||||||
Less: Accumulated depreciation | 374,018 | 366,432 | |||||||
NET | 693,528 | 691,915 | |||||||
Construction work in progress | 26,362 | 28,091 | |||||||
NET UTILITY PLANT | 719,890 | 720,006 | |||||||
CURRENT ASSETS: | |||||||||
Cash and cash equivalents | 3,740 | 8,483 | |||||||
Customer accounts receivable, less allowance for uncollectable accounts of $2,950 and $3,845 | 98,133 | 82,183 | |||||||
Other accounts receivable, less allowance for uncollectable accounts of $963 and $818 | 7,845 | 7,551 | |||||||
Accrued utility revenue | 22,602 | 29,025 | |||||||
Gas in storage, at average cost | 9,680 | 16,567 | |||||||
Materials and supplies, at average cost | 4,999 | 4,815 | |||||||
Prepayments | 22,949 | 23,854 | |||||||
Other current assets | 18,929 | 20,735 | |||||||
TOTAL CURRENT ASSETS | 188,877 | 193,213 | |||||||
INVESTMENTS | |||||||||
Non-utility property - net of accumulated depreciation and amortization | 3,251 | 3,249 | |||||||
Other | 6 | 6 | |||||||
TOTAL INVESTMENTS | 3,257 | 3,255 | |||||||
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | |||||||||
Regulatory assets | |||||||||
Deferred pension and other postretirement benefits | 41,344 | 41,890 | |||||||
Recoverable fuel costs | 59,940 | 66,207 | |||||||
Deferred environmental remediation costs | 34,128 | 34,056 | |||||||
Future federal income tax | 33,833 | 33,659 | |||||||
Other regulatory assets | 26,297 | 26,761 | |||||||
Deferred revenue taxes | 8,895 | 7,337 | |||||||
TOTAL REGULATORY ASSETS | 204,437 | 209,910 | |||||||
Other deferred charges and noncurrent assets | 11,699 | 12,273 | |||||||
TOTAL DEFERRED CHARGES, REGULATORY ASSET AND NONCURRENT ASSETS | 216,136 | 222,183 | |||||||
TOTAL | $ | 1,128,160 | $ | 1,138,657 | |||||
The accompanying notes are an integral part of these financial statements.
22
Orange And Rockland Utilities, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| As At | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2001 | December 31, 2000 | ||||||||
| (Thousands of Dollars) | |||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||
CAPITALIZATION: | ||||||||||
Common stock | $ | 5 | $ | 5 | ||||||
Additional paid in capital | 194,499 | 194,498 | ||||||||
Retained earnings | 145,785 | 139,610 | ||||||||
Accumulated comprehensive income | (10,114 | ) | (1,473 | ) | ||||||
TOTAL COMMON SHAREHOLDERS' EQUITY | 330,175 | 332,640 | ||||||||
Long term debt | 350,199 | 335,656 | ||||||||
TOTAL CAPITALIZATION | 680,374 | 668,296 | ||||||||
NON-CURRENT LIABILITIES: | ||||||||||
Pension and benefit reserve | 80,439 | 76,222 | ||||||||
Other noncurrent liabilities | 25,542 | 26,974 | ||||||||
TOTAL NON-CURRENT LIABILITIES | 105,981 | 103,196 | ||||||||
CURRENT LIABILITIES: | ||||||||||
Notes payable | 30,750 | 40,820 | ||||||||
Accounts payable | 42,907 | 58,664 | ||||||||
Accounts payable to affiliated companies | 16,286 | 9,169 | ||||||||
Accrued federal income and other taxes | 10,761 | 4,863 | ||||||||
Customer deposits | 7,092 | 7,126 | ||||||||
Accrued interest | 7,997 | 7,087 | ||||||||
Accrued environmental costs | 32,944 | 32,852 | ||||||||
Other current liabilities | 25,415 | 27,756 | ||||||||
TOTAL CURRENT LIABILITIES | 174,152 | 188,337 | ||||||||
DEFERRED CREDITS AND REGULATORY LIABILITIES | ||||||||||
Accumulated deferred federal income tax | 113,602 | 120,497 | ||||||||
Deferred investment tax credits | 6,842 | 6,897 | ||||||||
Regulatory liabilities | ||||||||||
Pension and other benefits | 12,899 | 15,587 | ||||||||
Gas recoveries and pipeline refunds | 12,138 | 15,076 | ||||||||
Industry restructuring collections | 15,108 | 14,198 | ||||||||
Other current liabilities | 6,712 | 6,358 | ||||||||
TOTAL REGULATORY LIABILITIES | 46,857 | 51,219 | ||||||||
Other deferred credits | 352 | 215 | ||||||||
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES | 167,653 | 178,828 | ||||||||
TOTAL | $ | 1,128,160 | $ | 1,138,657 | ||||||
The accompanying notes are an integral part of these financial statements.
23
Orange and Rockland Utilities, Inc.
CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||||
OPERATING REVENUES | ||||||||||
Electric | $ | 125,036 | $ | 104,643 | ||||||
Gas | 104,378 | 77,458 | ||||||||
Non-utility | 34 | 95 | ||||||||
TOTAL OPERATING REVENUES | 229,448 | 182,196 | ||||||||
OPERATING EXPENSES | ||||||||||
Purchased power | 69,662 | 54,557 | ||||||||
Fuel | - | 39 | ||||||||
Gas purchased for resale | 73,619 | 48,326 | ||||||||
Other operations | 27,803 | 28,911 | ||||||||
Maintenance | 7,233 | 6,149 | ||||||||
Depreciation and amortization | 8,165 | 7,116 | ||||||||
Taxes, other than income tax | 14,923 | 16,116 | ||||||||
Income tax | 8,889 | 5,212 | ||||||||
TOTAL OPERATING EXPENSES | 210,294 | 166,426 | ||||||||
OPERATING INCOME | 19,154 | 15,770 | ||||||||
OTHER INCOME (DEDUCTIONS) | ||||||||||
Investment income | 934 | 3,105 | ||||||||
Allowance for equity funds used during construction | - | 50 | ||||||||
Other income and deductions | (322 | ) | (348 | ) | ||||||
Income tax | (175 | ) | (875 | ) | ||||||
TOTAL OTHER INCOME (DEDUCTIONS) | 437 | 1,932 | ||||||||
INCOME BEFORE INTEREST CHARGES | 19,591 | 17,702 | ||||||||
Interest on long-term debt | 5,493 | 6,563 | ||||||||
Other interest | 1,154 | 504 | ||||||||
Allowance for borrowed funds used during construction | (231 | ) | (75 | ) | ||||||
TOTAL INTEREST CHARGES | 6,416 | 6,992 | ||||||||
NET INCOME FOR COMMON STOCK | 13,175 | 10,710 | ||||||||
ORANGE AND ROCKLAND SALES & DELIVERIES | ||||||||||
Electric - (thousands of killowatthours) | ||||||||||
Orange And Rockland customers | 1,093,054 | 1,022,124 | ||||||||
Delivery service for Retail Choice | 136,548 | 171,917 | ||||||||
Total sales in service territory | 1,229,602 | 1,194,041 | ||||||||
Off-system sales | 45 | - | ||||||||
Gas - (dekatherms) | ||||||||||
Firm sales and transportation | 9,851,039 | 10,137,658 | ||||||||
Off-peak firm/interruptible | 2,218,347 | 2,176,324 | ||||||||
Total sales to Orange And Rockland customers | 12,069,386 | 12,313,982 | ||||||||
Transportation of Customer Owned Gas | 1,010,554 | 2,800,259 | ||||||||
Off-system sales | 847,693 | 2,320,107 | ||||||||
Total sales and transportation | 13,927,663 | 17,434,348 | ||||||||
The accompanying notes are an integral part of these financial statements.
24
Orange and Rockland Utilities, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2001 and 2000 | 2001 | 2000 | |||||
---|---|---|---|---|---|---|---|
(Unaudited) | (Thousands of Dollars) | ||||||
NET INCOME | $ | 13,175 | $ | 10,170 | |||
OTHER COMPREHENSIVE INCOME (LOSS) | |||||||
Investment in Marketable Equity Securities, net of $295 taxes | (212 | ) | - | ||||
Minimum pension liability adjustments, net of $63 taxes | 63 | - | |||||
Unrealized gains (losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $5,751 taxes | (8,107 | ) | - | ||||
Unrealized gains (losses) on derivatives qualified as hedges, net of $272 taxes | (384 | ) | - | ||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES | (8,640 | ) | - | ||||
COMPREHENSIVE INCOME | $ | 4,535 | $ | 10,170 | |||
The accompanying notes are an integral part of these financial statements.
25
Orange and Rockland Utilities, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000 (Unaudited) | 2001 | 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Thousands of Dollars) | |||||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $ | 13,175 | $ | 10,710 | ||||||
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME | ||||||||||
Depreciation and amortization | 8,165 | 7,116 | ||||||||
Amortization of investment tax credit | (56 | ) | (114 | ) | ||||||
Federal and state income tax deferred | (689 | ) | (11,186 | ) | ||||||
Common equity component of allowance for funds used during construction | - | (50 | ) | |||||||
Other non-cash changes | (787 | ) | (1,914 | ) | ||||||
CHANGES IN ASSETS AND LIABILITIES | ||||||||||
Accounts receivable - net, and accrued utility revenue | (9,528 | ) | (5,235 | ) | ||||||
Materials and supplies, including fuel and gas in storage | 6,704 | 9,913 | ||||||||
Prepayments, other receivables and other current assets | 2,417 | 11,203 | ||||||||
Deferred recoverable fuel costs | 4,494 | 20,822 | ||||||||
Accounts payable | (8,641 | ) | (8,640 | ) | ||||||
Refunds to customers | (1,693 | ) | 118 | |||||||
Other - net | 7,337 | (5,077 | ) | |||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES | 20,898 | 27,666 | ||||||||
INVESTING ACTIVITIES INCLUDING CONSTRUCTION | ||||||||||
Construction expenditures | (8,571 | ) | (10,840 | ) | ||||||
Common equity component of allowance for funds used during construction | - | 50 | ||||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES INCLUDING CONSTRUCTION | (8,571 | ) | (10,790 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||
Retirement of long-term debt | - | (100,020 | ) | |||||||
Short-term debt arrangements | (10,070 | ) | 29,500 | |||||||
Dividend to parent | (7,000 | ) | - | |||||||
NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS | (17,070 | ) | (70,520 | ) | ||||||
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS | (4,743 | ) | (53,644 | ) | ||||||
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 | 8,483 | 78,927 | ||||||||
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 | $ | 3,740 | $ | 25,283 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||
Cash paid during the period for: | ||||||||||
Interest | $ | 1,539 | $ | 9,911 | ||||||
Income Taxes | $ | - | $ | 4,487 | ||||||
The accompanying notes are an integral part of these financial statements.
26
NOTES TO FINANCIAL STATEMENTS - O&R
Note A - General
These footnotes accompany and form an integral part of the interim consolidated financial statements of Orange and Rockland Utilities, Inc. (O&R), a wholly-owned subsidiary of Consolidated Edison, Inc. (Con Edison). These financial statements are unaudited but, in the opinion of O&R's management, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These financial statements should be read together with the audited O&R financial statements (including the notes thereto) included in the combined Con Edison, Consolidated Edison Company of New York, Inc. and O&R Annual Reports on Form 10-K for the year ended December 31, 2000.
Note B - Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of O&R and may be present in its facilities and equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.
At March 31, 2001, O&R had accrued $31.7 million as its best estimate of its liability for sites as to which it has received process or notice alleging that hazardous substances generated by the company (and, in most instances, other potentially responsible parties) were deposited. There will be additional liability at these sites and other sites, including the costs of investigating and remediating sites where the company or its predecessors manufactured gas. The total amount of liability is not presently determinable but may be material to the company's financial position, results of operations or liquidity.
Under O&R's current gas rate agreement, O&R may defer for subsequent recovery through rates the cost of investigating and remediating manufactured gas sites. At March 31, 2001, $34.1 million of such costs had been deferred as a regulatory asset.
Suits have been brought in New York State and federal courts against O&R and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the company. Many of these suits have been disposed of without any payment by O&R, or for immaterial amounts. The amounts specified in all the remaining suits totals billions of dollars but the company believes that these amounts are greatly exaggerated, as were the claims already disposed of. Based on the information and relevant circumstances known to the company at this time, it does not believe that these suits will have a material adverse effect on its financial position, results of operation or liquidity.
27
In May 2000, the New York State Department of Environmental Conservation (DEC) issued notices of violation to O&R and four other companies that have operated coal-fired electric generating facilities in New York State. The notices allege violations of the federal Clean Air Act and the New York State Environmental Conservation law resulting from the alleged failure of the companies to obtain DEC permits for physical modifications to their generating facilities and to install pollution control equipment that would have reduced harmful emissions. The notice of violation received by O&R relates to the Lovett Generating Station that it sold in June 1999. O&R is unable to predict whether or not the alleged violations will have a material adverse effect on its financial position, results of operations or liquidity.
Note C - Related Party Transactions
Each month O&R is invoiced by Con Edison and its affiliates for the cost of any services they render to O&R. These services, provided primarily by Con Edison of New York, include substantially all administrative support operations such as corporate directorship and associated ministerial duties, accounting, treasury, investor relations, information resources, legal, human resources, fuel supply and energy management services. The cost of these services totaled $3.3 million during the first three months of 2001. In addition, O&R purchased $71.7 million of gas from Con Edison of New York during this period.
O&R provides certain recurring services to Con Edison of New York on a monthly basis, including cash receipts processing and certain other services. The cost of these services totaled $3.0 million during the first three months of 2001.
Note D - Derivative Instruments and Hedging Activities
As of January 2001, O&R adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133" (SFAS No. 133).
In connection with its $55 million promissory note issued to the New York State Energy Research and Development Authority for the net proceeds of the Authority's variable rate Pollution Control Refunding Revenue Bonds (O&R Projects), 1994 Series A (the 1994 Bonds), O&R has a swap agreement pursuant to which it pays interest at a fixed rate of 6.09 percent and is paid interest at the same variable rate as is paid on the 1994 Bonds. Upon adoption of SFAS No. 133, O&R recognized transition adjustments of $13.9 million in other comprehensive income. In the quarter ended March 31, 2001, the company did not reclassify any comprehensive income to income. If the swap agreement had been terminated on March 31, 2001, O&R would have been required to pay approximately $14.5 million. Pursuant to SFAS No. 133, the swap agreement is accounted for as a cash flow hedge and changes in its fair value are recorded in other comprehensive income. The fair value of the swap agreement is calculated based upon current market conditions.
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Note E - Financial Information by Business Segment
ORANGE AND ROCKLAND UTILITIES, INC.
SEGMENT FINANCIAL INFORMATION
$000's
For The Three Months Ended March 31, 2001 and 2000 | Electric | Gas | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||||||
Sales Revenues | $ | 125,031 | $ | 104,639 | $ | 104,378 | $ | 77,458 | ||||
Intersegment Revenues | 5 | 4 | - | - | ||||||||
Depreciation and amortization | 6,104 | 4,962 | 2,060 | 2,153 | ||||||||
Operating Income | 8,882 | 6,701 | 10,432 | 9,291 |
| Other | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||
Sales Revenues | $ | 34 | $ | 95 | $ | 229,443 | $ | 182,192 | ||||
Intersegment Revenues | - | - | 5 | 4 | ||||||||
Depreciation and amortization | 1 | 1 | 8,165 | 7,116 | ||||||||
Operating Income | (160 | ) | (222 | ) | 19,154 | 15,770 |
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CON EDISON
Consolidated Edison, Inc. (Con Edison) is a holding company that operates only through its subsidiaries and has no material assets other than the stock of its subsidiaries. Con Edison's principal subsidiaries are regulated utilities: Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R). Con Edison also has several unregulated subsidiaries.
The following discussion and analysis, which relates to the interim consolidated financial statements of Con Edison and its subsidiaries (including Con Edison of New York and O&R) included in Part I, Item 1 of this report, should be read in conjunction with Con Edison's Management's Discussion and Analysis of Financial Condition and Results of Operations (Con Edison's Form 10-K MD&A) in Item 7 of the combined Con Edison, Con Edison of New York and O&R Annual Reports on Form 10-K for the year ended December 31, 2000 (File Nos. 1-14514, 1-1217 and 1-4315, the Form 10-K). Reference is also made to the notes to the Con Edison financial statements in Part I, Item 1 of this report, which notes are incorporated herein by reference.
Liquidity and Capital Resources
Cash and temporary cash investments and outstanding notes payable (principally commercial paper) at March 31, 2001 and December 31, 2000 were (amounts shown in millions):
| March 31, 2001 | December 31, 2000 | ||||
---|---|---|---|---|---|---|
Cash and temporary cash investments | $ | 59.6 | $ | 94.8 | ||
Notes payable | $ | 438.1 | $ | 255.0 |
The decrease in cash and temporary cash investments at March 31, 2001 compared with December 31, 2000 reflects net cash flows from operating activities and net cash flows used in investing and financing activities.
Cash Flows from Operating Activities
Net cash flows from operating activities during the first quarter of 2001 decreased $33.4 million compared with the first quarter of 2000, reflecting principally lower net income (including increased non-cash pension credits), decreased accounts payable and increased accounts receivable, offset in part by decreased deferred recoverable energy costs.
Accounts receivable - customer, less allowance for uncollectible accounts increased $16.2 million at March 31, 2001 compared with year-end 2000 due primarily to increased customer billings by Con Edison's utility subsidiaries, reflecting higher energy sales and energy costs, and the timing of customer payments. Con Edison of New York's equivalent number of days of revenue outstanding (ENDRO) of customer accounts receivable was 30.2 days at March 31, 2001 compared with 29.7 days at December 31, 2000. For O&R, the ENDRO was 43.6 days at March 31, 2001 and 35.4 days at December 31, 2000. The changes in ENDRO reflect increased use by customers of level billing and alternative payment arrangements and the timing of customer payments.
30
Prepayments include cumulative credits to pension expense for Con Edison of New York amounting to $447.4 million at March 31, 2001 compared with $366.7 million at December 31, 2000. Pension credits, which result primarily from favorable performance by the company's pension fund in past years, increase net income but do not provide cash for the company's operations. See Note D to the Con Edison financial statements included in Item 8 of the Form 10-K.
Prepayments at March 31, 2001 also include prepaid property tax for Con Edison of New York of $137.2 million compared with $11.6 million at December 31, 2000. Property taxes are generally prepaid on January 1 and July 1 of each year.
Deferred recoverable energy costs decreased $155.8 million at March 31, 2001 compared with year-end 2000, due primarily to the ongoing recovery of previously deferred amounts, offset in part by the deferral for future recovery of additional purchased power and gas costs. See "Recoverable Energy Costs" in Note A to the Con Edison financial statements included in Item 8 of the Form 10-K.
Unfunded pension and other post-employment benefit (OPEB) obligations (shown as pension and benefit reserve on the balance sheet) increased $15.9 million at March 31, 2001 compared with year-end 2000. Con Edison of New York's policy is to fund its pension and OPEB costs to the extent deductible under current tax regulations. O&R's policy is to fund its pension and OPEB costs to the extent of its rate recovery. The reserve also includes a minimum liability for supplemental executive retirement programs, a portion of which liability has been included in other comprehensive income. See Note E to the Con Edison financial statements included in Item 8 of the Form 10-K.
The accumulated provision for injuries and damages increased $7.9 million at March 31, 2001 compared with year-end 2000, due primarily to increased workers' compensation claims.
Accounts payable decreased $263.5 million at March 31, 2001 compared with year-end 2000, due primarily to lower energy purchases in March 2001 as compared to December 2000.
Accrued taxes increased $26.8 million at March 31, 2001 compared with year-end 2000, due principally to timing differences and the gain on the sale of Con Edison of New York's interest in the Roseton generating station. See Note I to the Con Edison financial statements in Item 8 of the Form 10-K.
Other regulatory liabilities decreased $20.7 million at March 31, 2001 compared with year-end 2000, reflecting an $18 million refund to gas customers of previously deferred credits pursuant to the Con Edison of New York gas rate agreement approved by the PSC in November 2000. See "Rate and Restructuring Agreements" in Note A to the Con Edison financial statements in Item 8 of the Form 10-K.
Cash Flows Used in Investing and Financing Activities
Cash flows used in investing activities during the first quarter of 2001 decreased $98.8 million compared with the first quarter of 2000, reflecting the completion of the sale of Con Edison of New York's 480 MW interest in the Roseton generating station (proceeds of $100.0 million, net of federal income tax) and decreased nuclear fuel expenditures ($17.1 million), offset in part by increased utility construction
31
expenditures ($22.9 million). Nuclear fuel expenditures decreased because refueling was conducted in the 2000 period but not in the 2001 period. Construction expenditures increased principally to meet load growth on Con Edison of New York's electric distribution system.
Cash flows used in financing activities during the first quarter of 2001 decreased $310.9 million compared with the first quarter of 2000, reflecting principally increased net proceeds from commercial paper ($168.2 million), the repurchase of common stock in the 2000 period ($68.5 million) and the retirement of long-term debt ($150 million in the 2001 period compared with $225 million in the 2000 period).
Capital Resources
Con Edison's ratio of earnings to fixed charges (for the 12 months ended on the date indicated) and common equity ratio (as of the date indicated) were:
| March 31, 2001 | December 31, 2000 | ||
---|---|---|---|---|
Earnings to fixed charges (SEC basis) | 3.03 | 3.10 | ||
Common equity ratio* | 50.6 | 49.1 |
* Common shareholders' equity as a percentage of total capitalization
Con Edison's ratio of earnings to fixed charges decreased for the 12-month period ending March 31, 2001 compared to the 12-month period ending December 31, 2000 as a result of decreased earnings and increased interest expense. Excluding the $130 million charge for replacement power costs incurred in connection with an outage at the Indian Point nuclear plant and the $33.6 million charge for merger-related expenses (see Notes G and P, respectively, to the Con Edison financial statements included in Item 8 of the Form 10-K), Con Edison's ratio of earnings to fixed charges would have been 3.39 and 3.47 for the 12-month periods ended March 31, 2001 and December 31, 2000, respectively. The change in the equity ratio reflects decreased long-term debt.
Financial Market Risks
Reference is made to "Financial Market Risks" in Con Edison's Form 10-K MD&A and to Note E to the Con Edison financial statements included in Part I, Item 1 of this report. At March 31, 2001 neither the fair value of derivatives outstanding nor potential derivative losses from reasonably possible near-term changes in market prices were material to the financial position, results of operations or liquidity of the company.
Environmental Matters
For information concerning potential liabilities of the company arising from laws and regulations protecting the environment, including the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund), see the notes to Con Edison's financial statements included in Part I, Item 1 of this report and also see Part II, Item 3 of this report.
32
Results of Operations
First Quarter of 2001 Compared with First Quarter of 2000
Con Edison's net income for common stock for the first quarter of 2001 was $179.1 million or $.84 a share (based upon an average of 212.2 million common shares outstanding) compared with $188.1 million or $.88 a share (based upon an average of 212.6 million common shares outstanding) for the first quarter of 2000. The decrease in the company's net income reflects rate reductions and higher maintenance expenses, offset in part by higher sales volumes and decreased other operations expenses.
Earnings for the quarters ended March 31, 2001 and 2000 were as follows:
(Millions of dollars) | 2001 | 2000 | ||||||
---|---|---|---|---|---|---|---|---|
Con Edison of New York | $ | 171.8 | $ | 178.3 | ||||
O&R | 13.2 | 10.7 | ||||||
Nonregulated subsidiaries | (0.3 | ) | 2.3 | |||||
Other* | (5.6 | ) | (3.2 | ) | ||||
Con Edison | $ | 179.1 | $ | 188.1 |
* Includes parent company expenses, goodwill amortization and inter-company eliminations.
A comparison of the results of operations of Con Edison for the first quarter of 2001 compared to the first quarter of 2000 follows.
Three Months Ended March 31, 2001 Compared With Three Months Ended March 31, 2000
(Millions of dollars) | Increases (Decreases) Amount | Increases (Decreases) Percent | ||||
---|---|---|---|---|---|---|
Operating revenues | $ | 567.7 | 24.5 | % | ||
Purchased power - electric and steam | 285.7 | 39.1 | ||||
Fuel - electric and steam | 85.1 | 99.8 | ||||
Gas purchased for resale | 197.2 | 74.0 | ||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) | (0.3 | ) | - | |||
Other operations and maintenance | (28.9 | ) | (6.9 | ) | ||
Depreciation and amortization | (7.7 | ) | (5.4 | ) | ||
Taxes, other than income tax | 17.0 | 5.9 | ||||
Income tax | 15.5 | 15.3 | ||||
Operating income | 3.8 | 1.3 | ||||
Other income less deductions and related federal income tax | 1.8 | 77.4 | ||||
Net interest charges | 14.6 | 15.6 | ||||
Net income for common stock | $ | (9.0 | ) | (4.8 | )% |
A discussion of Con Edison's operating revenues and operating income by business segment follows. Con Edison's principal business segments are its electric, gas and steam utility businesses. For additional information about the segments, see the notes to the Con Edison financial statements included in Part I, Item 1 of this report.
Electric
Con Edison's electric operating revenues in the first quarter of 2001 increased $195.1 million compared with the first quarter of 2000, reflecting increased purchased power costs and electric sales, offset by the
33
effects of electric rate reductions of approximately $44.6 million. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the Con Edison financial statements included in Item 8 of the Form 10-K.
Electricity sales volumes for Con Edison's utility subsidiaries increased 3.2 percent in the first quarter of 2001 compared with the first quarter of 2000. Con Edison of New York and O&R electric sales volumes for these periods are shown at the bottom of their consolidated income statements included in Part I, Item 1 of this report. After adjusting for variations, principally weather and billing days, in each period, electricity sales volumes for Con Edison of New York and O&R increased 2.7 percent and 1.6 percent, respectively, in the 2001 period. Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed.
Purchased power costs increased $266.0 million in the first quarter of 2001 compared with the first quarter of 2000, due primarily to an increase in the price of purchased power, offset in part by decreased purchased volumes. Fuel costs increased $40.4 million as a result of an increase in the unit cost of fuel. In general, Con Edison's utility subsidiaries recover prudently incurred purchased power costs pursuant to rate provisions approved by the relevant state public utility commission. See "Recoverable Energy Costs" in Note A to the Con Edison financial statements included in Item 8 of the Form 10-K.
Con Edison's electric operating income decreased $4.3 million for the first quarter of 2001 compared with the first quarter of 2000. The principal components of this variation were a decrease in net revenues (operating revenues less fuel and purchased power) of $34.3 million, increased maintenance expenses ($18.9 million) and increased property taxes ($14.4 million), offset in part by reduced other operations expenses ($37.1 million) and lower Federal income tax ($12.5 million). Other operations and maintenance expenses in the 2001 period reflect increased transmission and distribution expenses resulting from the 2000-2001 winter weather conditions, relocation of company facilities to avoid interference with municipal infrastructure projects and preparations for summer 2001 ($18.7 million), increased pension credits ($24.8 million) and lower insurance premiums, net of policy distributions ($6.3 million).
Gas
Con Edison's gas operating revenues increased $232.3 million and gas operating income decreased $2.7 million in the first quarter of 2001 compared with the first quarter of 2000. The higher revenues reflect an increased cost of purchased gas, offset in part by a reduction in customer bills of $14.3 million, reflecting a refund of previously deferred credits, and other provisions of the Con Edison of New York gas rate agreement approved by the PSC in November 2000. See "Rate and Restructuring Agreements" and "Recoverable Energy Costs" in Note A to the Con Edison financial statements included in Item 8 of the Form 10-K. The decrease in operating income of $2.7 million reflects primarily increased transmission and distribution expenses ($1.0 million) and increased customer service expenses ($1.1 million).
Firm gas sales and transportation volumes for Con Edison's utility subsidiaries increased 6.5 percent in the first quarter of 2001 compared with the first quarter of 2000. Con Edison of New York and O&R gas sales and transportation volumes for these periods are shown at the bottom of their consolidated income statements included in Part I, Item 1 of this report. After adjusting for variations, principally weather and
34
billing days, in each period, firm gas sales and transportation volumes in the 2001 period increased 2.6 percent for Con Edison of New York and decreased 9.8 percent for O&R. Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed.
A weather-normalization provision that applies to the gas business of Con Edison's utility subsidiaries operating in New York moderates, but does not eliminate, the effect of weather-related changes on gas operating income.
Steam
Con Edison's steam operating revenues increased $88.0 million and steam operating income increased $9.5 million for the first quarter of 2001 compared with the first quarter of 2000, reflecting an October 2000 rate increase and increased sales volumes. The higher revenues also reflect increased fuel and purchased power costs. See "Rate and Restructuring Agreements" and "Recoverable Energy Costs" in Note A to the company's financial statements included in Item 8 of the Form 10-K.
Steam sales volume (see bottom of Con Edison of New York's consolidated income statement included in Part I, Item 1 of this report) increased 2.5 percent in the 2001 period compared with the 2000 period. After adjusting for variations, principally weather and billing days, in each period, steam sales volume decreased 1.0 percent.
Other Income
Income tax decreased $6.8 million in the 2001 period compared with the 2000 period, due primarily to the recognition of deferred federal income tax credits relating to the Roseton generating station sale. Investment income decreased $2.9 million, due principally to O&R's use of proceeds from their 1999 divestiture to retire long-term debt in March 2000.
Net Interest Charges
Net interest charges increased $14.6 million in the 2001 period compared with the 2000 period, reflecting $15.9 million of interest on increased long-term debt and a decrease of $0.8 million of interest related to short-term borrowings.
35
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CON EDISON OF NEW YORK
Consolidated Edison Company of New York, Inc. (Con Edison of New York) is a regulated utility that provides electric service to over three million customers and gas service to over one million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan. All of the common stock of Con Edison of New York is owned by Consolidated Edison, Inc. (Con Edison).
This discussion and analysis should be read in conjunction with Con Edison of New York's Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7 of the combined Con Edison, Con Edison of New York and Orange and Rockland Utilities, Inc. (O&R) Annual Reports on Form 10-K for the year ended December 31, 2000 (File Nos. 1-14514, 1-1217 and 1-4315, the Form 10-K). Reference is also made to the notes to the financial statements in Part I, Item 1 of this report, which notes are incorporated herein by reference.
Liquidity and Capital Resources
Cash and temporary cash investments and outstanding commercial paper (shown as notes payable on the balance sheet) at March 31, 2001 and December 31, 2000 were (amounts shown in millions):
| March 31, 2001 | December 31, 2000 | ||||
---|---|---|---|---|---|---|
Cash and temporary cash investments | $ | 35.8 | $ | 70.3 | ||
Commercial paper | $ | 337.9 | $ | 140.0 |
The decrease in cash and temporary cash investments at March 31, 2001 compared with December 31, 2000 reflects net cash flows from operating activities and net cash flows used in investing and financing activities.
Cash Flows from Operating Activities
Net cash flows from operating activities during the first quarter of 2001 decreased $7.7 million compared with the first quarter of 2000, reflecting principally lower net income (including increased non-cash pension credits), decreased accounts payable and increased accounts receivable, offset in part by decreased deferred recoverable energy costs.
Con Edison of New York's accounts receivable - customer, less allowance for uncollectible accounts increased $33.8 million at March 31, 2001 compared with year-end 2000 due primarily to increased customer billings, reflecting higher energy sales and energy costs, and the timing of customer payments. The company's equivalent number of days of revenue outstanding (ENDRO) of customer accounts receivable was 30.2 days at March 31, 2001 compared with 29.7 days at December 31, 2000. The changes in ENDRO reflect increased use by customers of level billing and alternative payment arrangements and the timing of customer payments.
Prepayments include cumulative credits to pension expense amounting to $447.4 million at March 31, 2001 compared with $366.7 million at December 31, 2000. Pension credits, which result primarily from
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favorable performance by the company's pension fund in past years, increase net income but do not provide cash for the company's operations. See Note D to the Con Edison of New York financial statements included in Item 8 of the Form 10-K.
Prepayments at March 31, 2001 also include prepaid property taxes of $137.2 million compared with $11.6 million at December 31, 2000. Property taxes are generally prepaid on January 1 and July 1 of each year.
Deferred recoverable energy costs decreased $149.5 million at March 31, 2001 compared with year-end 2000, due primarily to the recovery of previously deferred amounts, offset in part by the deferral for future recovery of additional purchased power and gas costs. See "Recoverable Energy Costs" in Note A to the Con Edison of New York financial statements included in Item 8 of the Form 10-K.
Unfunded pension and other post-employment benefit (OPEB) obligations (shown as pension and benefit reserve on the balance sheet) increased $11.7 million at March 31, 2001 compared with year-end 2000. The company's policy is to fund its pension and OPEB costs to the extent deductible under current tax regulations. The reserve also includes a minimum liability for the company's supplemental executive retirement program, a portion of which liability has been included in other comprehensive income. See Note E to the Con Edison of New York financial statements included in Item 8 of the Form 10-K.
The accumulated provision for injuries and damages increased $7.6 million at March 31, 2001 compared with year-end 2000, due primarily to increased workers' compensation claims.
Accounts payable decreased $245.8 million at March 31, 2001 compared with year-end 2000, due primarily to lower energy purchases in March 2001 as compared to December 2000.
Accrued taxes increased $32.3 million at March 31, 2001 compared with year-end 2000, due principally to timing differences and the gain on the sale of the company's interest in the Roseton generating station. See Note I to the Con Edison of New York financial statements in Item 8 of the Form 10-K.
Other regulatory liabilities decreased $16.6 million at March 31, 2001 compared with year-end 2000, reflecting an $18 million refund to gas customers of previously deferred credits pursuant to the gas rate agreement approved by the PSC in November 2000. See "Rate and Restructuring Agreements" in Note A to the Con Edison of New York financial statements in Item 8 of the Form 10-K.
Cash Flows Used in Investing and Financing Activities
Cash flows used in investing activities during the first quarter of 2001 decreased $91.1 million compared with the first quarter of 2000, reflecting the completion of the sale of the company's 480 MW interest in the Roseton generating station (proceeds of $100.0 million, net of federal income tax) and decreased nuclear fuel expenditures ($17.1 million), offset in part by increased construction expenditures ($25.1 million). Nuclear fuel expenditures decreased because refueling was conducted in the 2000 period but not in the 2001 period. Construction expenditures increased principally to meet load growth on the company's electric distribution system.
Cash flows used in financing activities during the first quarter of 2001 decreased $216.2 million compared with the first quarter of 2000, reflecting principally increased net proceeds from commercial
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paper ($212.7 million), the repurchase of common stock in the 2000 period ($29.4 million) and the retirement of long-term debt ($150 million in the 2001 period compared with $125 million in the 2000 period).
Capital Resources
Con Edison of New York's ratio of earnings to fixed charges (for the 12 months ended on the date indicated) and common equity ratio (as of the date indicated) were:
| March 31, 2001 | December 31, 2000 | ||
---|---|---|---|---|
Earnings to fixed charges (SEC basis) | 3.18 | 3.23 | ||
Common equity ratio* | 48.2 | 46.4 |
* Common shareholder's equity as a percentage of total capitalization
Con Edison of New York's ratio of earnings to fixed charges decreased for the 12-month period ending March 31, 2001 compared to the 12-month period ending December 31, 2000 as a result of decreased earnings and increased interest expense. Excluding the $130 million charge for replacement power costs incurred in connection with an outage at the Indian Point nuclear plant (see Note G to the Con Edison of New York financial statements included in Item 8 of the Form 10-K), Con Edison of New York's ratio of earnings to fixed charges would have been 3.50 and 3.56 for the 12-month periods ended March 31, 2001 and December 31, 2000, respectively. The change in the equity ratio reflects decreased long-term debt.
Financial Market Risks
Reference is made to "Financial Market Risks" in Con Edison of New York's Form 10-K MD&A and to Note D to the Con Edison of New York financial statements included in Part I, Item 1 of this report. At March 31, 2001 neither the fair value of derivatives outstanding nor potential derivative losses from reasonably possible near-term changes in market prices were material to the financial position, results of operations or liquidity of the company.
Environmental Matters
For information concerning potential liabilities of Con Edison of New York arising from laws and regulations protecting the environment, including the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund), see the notes to the Con Edison of New York financial statements included in Part I, Item 1 of this report and also see Part II, Item 3 of this report.
Results of Operations
First Quarter of 2001 Compared with First Quarter of 2000
Con Edison of New York's net income for common stock for the first quarter of 2001 was $171.8 million compared with $178.3 million for the first quarter of 2000. The decrease in the company's net income reflects rate reductions and higher maintenance expenses, offset in part by higher sales volumes and decreased other operations expenses.
A comparison of the results of operations of Con Edison of New York for the first quarter of 2001 compared with the first quarter of 2000 follows.
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Three Months Ended March 31, 2001 Compared With Three Months Ended March 31, 2000
(Millions of dollars) | Increases (Decreases) Amount | Increases (Decreases) Percent | ||||
---|---|---|---|---|---|---|
Operating revenues | $ | 451.8 | 22.7 | % | ||
Purchased power - electric and steam | 163.7 | 26.5 | ||||
Fuel - electric and steam | 85.1 | 99.9 | ||||
Gas purchased for resale | 205.5 | (A | ) | |||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) | (2.5 | ) | (0.2 | ) | ||
Other operations and maintenance | (21.3 | ) | (5.9 | ) | ||
Depreciation and amortization | (11.5 | ) | (8.8 | ) | ||
Taxes, other than income tax | 17.9 | 6.6 | ||||
Income tax | 13.3 | 13.8 | ||||
Operating income | (0.9 | ) | (0.3 | ) | ||
Other income less deductions and related federal income tax | 4.1 | (A | ) | |||
Net interest charges | 9.7 | 11.2 | ||||
Net income for common stock | $ | (6.5 | ) | (3.6 | )% |
- (A)
- Amounts in excess of 100 percent
A discussion of Con Edison of New York's operating revenues and operating income by business segment follows. Con Edison of New York's principal business segments are its electric, gas and steam utility businesses. For additional information about the segments, see the notes to the Con Edison of New York financial statements included in Part I, Item 1 of this report.
Electric
Con Edison of New York's electric operating revenues in the first quarter of 2001 increased $160.0 million compared with the first quarter of 2000. The increase reflects increased purchased power costs and electric sales, offset by the effects of electric rate reductions of approximately $43.9 million. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the Con Edison of New York financial statements included in Item 8 of the Form 10-K.
Con Edison of New York's electric sales, excluding off-system sales, for the first quarter of 2001 compared with the first quarter of 2000 were:
| Millions of kwhrs. | | |||||||
---|---|---|---|---|---|---|---|---|---|
Description | Three Months Ended March 31, 2001 | Three Months Ended March 31, 2000 | Variation | Percent Variation | |||||
Residential/Religious | 2,850 | 2,798 | 52 | 1.9 | % | ||||
Commercial/Industrial | 4,860 | 4,682 | 178 | 3.8 | |||||
Other | 38 | 136 | (98 | ) | (72.1 | ) | |||
TOTAL FULL SERVICE CUSTOMERS | 7,748 | 7,616 | 132 | 1.7 | |||||
Retail Choice Customers | 2,348 | 2,255 | 93 | 4.1 | |||||
SUB-TOTAL | 10,096 | 9,871 | 225 | 2.3 | |||||
NYPA, Municipal Agency and Other Sales | 2,649 | 2,477 | 172 | 6.9 | |||||
TOTAL SERVICE AREA | 12,745 | 12,348 | 397 | 3.2 | % |
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Electricity sales volume in Con Edison of New York's service territory increased 3.2 percent in the first quarter of 2001 compared with the first quarter of 2000. The increase in sales volume reflects the continued strength of the New York City economy. After adjusting for variations, principally weather and billing days, in each period, electricity sales volume in the service territory increased 2.7 percent in the 2001 period. Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed.
Con Edison of New York's purchased power costs increased $144.0 million in the first quarter of 2001 compared with the first quarter of 2000, due primarily to an increase in the price of purchased power, offset in part by decreased purchased volumes. Fuel costs increased $40.4 million as a result of an increase in the unit cost of fuel. In general, Con Edison of New York recovers prudently incurred purchased power costs pursuant to rate provisions approved by the PSC. See "Recoverable Energy Costs" in Note A to the Con Edison of New York financial statements included in Item 8 of the Form 10-K.
Con Edison of New York's electric operating income decreased $6.5 million in the first quarter of 2001 compared with the first quarter of 2000. The principal components of the decrease were a reduction in net revenues (operating revenues less fuel and purchased power) of $24.3 million, increased maintenance expenses ($18.3 million) and increased property taxes ($14.3 million), offset in part by reduced other operations expenses ($36.8 million) and lower Federal income tax ($11.8 million). Other operations and maintenance expenses in the 2001 period reflect increased transmission and distribution expenses resulting from the 2000-2001 winter weather conditions, relocation of company facilities to avoid interference with municipal infrastructure projects and preparations for summer 2001 ($18.3 million), increased pension credits ($24.8 million) and lower insurance premiums, net of policy distributions ($6.3 million).
Gas
Con Edison of New York's gas operating revenues increased $203.8 million and gas operating income decreased $3.8 million in the first quarter of 2001 compared with the first quarter of 2000. The higher revenues reflect an increased cost of purchased gas, offset in part by a reduction in customer bills of $14.3 million, reflecting a refund of previously deferred credits, and other provisions of the gas rate agreement approved by the PSC in November 2000. See "Rate and Restructuring Agreements" and "Recoverable Energy Costs" in Note A to the Con Edison of New York financial statements included in Item 8 of the Form 10-K. The decrease in operating income of $3.8 million reflects primarily increased transmission and distribution expenses ($0.9 million) and increased customer service expenses ($1.1 million).
Con Edison of New York's gas sales and transportation volumes for firm customers (see bottom of the company's consolidated income statement included in Part I, Item 1 of this report) increased 9.0 percent in the first quarter of 2001 compared with the 2000 period. After adjusting for variations, principally weather and billing days, in each period, firm gas sales and transportation volumes in the company's service territory increased 2.6 percent in the 2001 period. Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed.
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A weather-normalization provision that applies to Con Edison of New York's gas business moderates, but does not eliminate, the effect of weather-related changes on gas operating income.
Steam
Con Edison of New York's steam operating revenues increased $88.0 million and steam operating income increased $9.5 million for the first quarter of 2001 compared with the first quarter of 2000, reflecting an October 2000 rate increase and increased sales volumes. The higher revenues also reflect increased fuel and purchased power costs. See "Rate and Restructuring Agreements" and "Recoverable Energy Costs" in Note A to the company's financial statements included in Item 8 of the Form 10-K.
Con Edison of New York's steam sales volume (see bottom of the company's consolidated income statement included in Part I, Item 1 of this report) increased 2.5 percent in the 2001 period compared with the 2000 period. After adjusting for variations, principally weather and billing days, in each period, steam sales volume decreased 1.0 percent.
Net Interest Charges
Net interest charges increased $9.7 million in the first quarter of 2001 compared to the 2000 period, principally reflecting $13.0 million of interest on increased long-term debt, offset by a $3.0 million decrease in interest related to short-term borrowings.
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O&R MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
Orange and Rockland Utilities, Inc. (O&R), a wholly-owned subsidiary of Consolidated Edison, Inc. (Con Edison), meets the conditions specified in General Instruction H to Form 10-Q and is permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, such as Con Edison, that are reporting companies under the Securities Exchange Act of 1934. Accordingly, this O&R Management's Narrative Analysis of the Results of Operations is included in this report, and O&R has omitted from this report the information called for by Part I, Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations).
O&R's net income for common stock for the three-month period ended March 31, 2001 was $13.2 million, $2.5 million higher than the corresponding 2000 period. This increase was due primarily to a 3.0 percent increase in electric sales and the recognition in income in the 2001 period of $2.9 million of previously deferred credits pursuant to its New York gas rate agreement, offset in part by $0.7 million of electric rate reductions in the 2001 period pursuant to its New Jersey utility subsidiary's electric restructuring plan and $0.2 million of purchased power costs of its Pennsylvania subsidiary that are not recoverable from customers. See "Rate Regulation" in Note A to the O&R financial statements in Item 8 of the combined O&R, Con Edison and Consolidated Edison Company of New York, Inc. Annual Reports on Form 10-K for the year ended December 31, 2000 (File Nos. 1- 4315, 1-14514 and 1-1217, the Form 10-K).
A comparison of the results of operations of O&R for the three months ended March 31, 2001 to the three months ended March 31, 2000, follows.
(Millions of dollars) | Increases (Decreases) Amount | Increases (Decreases) Percent | ||||
---|---|---|---|---|---|---|
Operating revenues | $ | 47.3 | 25.9 | % | ||
Purchased power - electric | 15.1 | 27.7 | ||||
Gas purchased for resale | 25.3 | 52.3 | ||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) | 6.9 | 8.7 | ||||
Depreciation and amortization | 1.0 | 14.7 | ||||
Taxes, other than income tax | (1.2 | ) | (7.4 | ) | ||
Income tax | 3.7 | 70.5 | ||||
Operating income | 3.4 | 21.5 | ||||
Other income less deductions and related income tax | (1.5 | ) | (77.3 | ) | ||
Net interest charges | (0.6 | ) | (8.2 | ) | ||
Net income for common stock | $ | 2.5 | 23.0 | % |
A discussion of O&R's operating revenues by business segment follows. O&R's principal business segments are its electric and gas utility businesses. For additional information about O&R's business segments, see the notes to the O&R financial statements included in Part I, Item 1 of this report.
Electric operating revenues increased $20.4 million in the first quarter of 2001 compared to the 2000 period. This increase was attributable primarily to an increase in sales volume and the billing to customers of higher purchased power costs in the 2001 period.
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Electric sales volumes for the 2001 and 2000 periods are shown at the bottom of its consolidated income statement for those periods included in Part I, Item 1 of this report. Electric sales volumes in the three months ended March 31, 2001 increased 3.0 percent compared to the 2000 period. After adjusting for variations, principally weather and billing days, electricity sales volumes were 1.6 percent higher in the 2001 period, reflecting the continued strength of the economy in the company's service area. (Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed).
Purchased power costs increased $15.1 million during the first quarter of 2001 compared to the 2000 period. This increase is attributable primarily to increases in the cost of purchased power and higher customer sales. O&R and its New Jersey utility subsidiary recover all of their prudently incurred purchased power in accordance with rate provisions approved by their state public utility commissions. For O&R, the difference between the actual purchased power costs for a given month and the amounts billed to customers for that month is deferred for recovery from or refund to customers during the next billing cycle (normally within one or two months). For O&R's New Jersey utility subsidiary, differences between actual and billed electricity costs (which amounted to a cumulative excess of actual over billed costs of $35.9 million at March 31, 2001) are deferred for future charge or refund to customers, as the case may be. For O&R's Pennsylvania utility subsidiary, recovery of purchased power costs is limited to a predetermined fixed price and, as a result, in the first quarter of 2001 it incurred $0.2 million of purchased power costs that are not subject to recovery from customers. See "Rate Regulation" in Note A to the O&R financial statements in Item 8 of the Form 10-K.
Gas operating revenues increased $26.9 million in the 2001 period, compared to the 2000 period. The increase was due primarily to recovery from customers of higher gas costs and increases in firm transportation volumes in the 2001 period.
Gas sales volumes for the 2001 and 2000 periods are shown at the bottom of O&R's consolidated income statement for those periods included in Part I, Item 1 of this report. O&R's revenues from gas sales in New York are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on gas operating income. After adjusting for variations, principally weather and billing days, in each period, gas sales and transportation volumes to firm customers were 9.8 percent lower for the 2001 period, compared to the 2000 period.
Gas purchased for resale increased $25.3 million in the first quarter of 2001 compared to the 2000 period, due primarily to higher gas costs.
Taxes other than income tax decreased by $1.2 million in the first quarter of 2001 compared to the 2000 period and state income taxes increased by a like amount, reflecting a change in New York law that effectively transferred the tax liability from a revenue based tax to a net income tax.
Income tax increased $3.7 million in the 2001 period compared to the 2000 period due primarily to the change in New York law and to higher income from operations.
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Other income decreased $1.5 million in the first quarter of 2001 compared to the 2000 period. The 2000 period included a market gain of $1.9 million in relation to O&R's supplemental employee retirement plan. Excluding the impact of the gain, investment income increased $0.4 million, due primarily to more interest income earned on short-term investments, offset by an increase in income tax.
Interest charges decreased $0.6 million in the 2001 period compared to the 2000 period, due primarily to lower debt outstanding.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Con Edison
For information about Con Edison's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial Market Risks" in Con Edison's Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this report and Item 7A of the combined Con Edison, Con Edison of New York and O&R Annual Reports on Form 10-K for the year ended December 31, 2000 (the Form 10-K), which information is incorporated herein by reference.
Con Edison of New York
For information about Con Edison of New York's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial Market Risks" in Con Edison of New York's Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this report and Item 7A of the Form 10-K, which information is incorporated herein by reference.
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PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings |
Con Edison
Northeast Utilities Litigation
For information about legal proceedings relating to Con Edison's October 1999 agreement to acquire Northeast Utilities, see Note D to the Con Edison financial statements included in Part I, Item 1 of this report (which information is incorporated herein by reference).
Item 6. | Exhibits and Reports on Form 8-K | |
(a) Exhibits |
Con Edison
Exhibit 12.1 | Statement of computation of Con Edison's ratio of earnings to fixed charges for the twelve-month periods ended March 31, 2001 and 2000. |
Con Edison of New York
Exhibit 10.2.1 | Con Edison of New York Executive Incentive Plan, as amended and restated as of August 1, 2000. | |
Exhibit 10.2.2 | Amendment No. 1 to the Con Edison of New York Deferred Income Plan, effective as of September 1, 2000. | |
Exhibit 12.2 | Statement of computation of Con Edison of New York's ratio of earnings to fixed charges for the twelve-month periods ended March 31, 2001 and 2000. |
O&R
Exhibit 12.3 | Statement of computation of O&R's ratio of earnings to fixed charges for the twelve-month periods ended March 31, 2001 and 2000. |
- (b)
- Reports on Form 8-K
Con Edison
Con Edison filed no Current Reports on Form 8-K during the quarter ended March 31, 2001.
Con Edison of New York
Con Edison of New York filed no Current Reports on Form 8-K during the quarter ended March 31, 2001.
O&R
O&R filed no Current Reports on Form 8-K during the quarter ended March 31, 2001.
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Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Consolidated Edison, Inc. | ||||
Consolidated Edison Company of New York, Inc. | ||||
Date: May 14, 2001 | By | /s/ JOAN S. FREILICH Joan S. Freilich Executive Vice President, Chief Financial Officer and Duly Authorized Officer | ||
Orange and Rockland Utilities, Inc. | ||||
Date: May 14, 2001 | By | /s/ EDWARD J. RASMUSSEN Edward J. Rasmussen Vice President, Chief Financial Officer and Duly Authorized Officer |
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