<Page>
Exhibit 99.1
CONSOLIDATED BALANCE SHEET CONSOLIDATED EDISON, INC.
<Table>
<Caption>
ASSETS
AT DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Utility plant, at original cost (Note A)
Electric $11,145,400 $11,808,102
Gas 2,405,730 2,300,055
Steam 758,600 740,189
General 1,354,099 1,388,602
- -----------------------------------------------------------------------------------------------------------------
Total 15,663,829 16,236,948
Less: Accumulated depreciation 4,472,994 5,186,058
- -----------------------------------------------------------------------------------------------------------------
Net 11,190,835 11,050,890
Construction work in progress 654,107 504,471
Nuclear fuel assemblies and components, less accumulated amortization -- 107,641
- -----------------------------------------------------------------------------------------------------------------
NET UTILITY PLANT 11,844,942 11,663,002
- -----------------------------------------------------------------------------------------------------------------
NON-UTILITY PLANT
Unregulated generating assets, less accumulated depreciation
of $21,289 and $48,643 in 2001 and 2000, respectively 291,039 230,416
Non-utility property, less accumulated depreciation of $8,606 and $5,516
in 2001 and 2000 respectively 112,394 41,752
- -----------------------------------------------------------------------------------------------------------------
NET PLANT 12,248,375 11,935,170
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Unrestricted cash and temporary cash investments (Note A) 271,356 94,828
Restricted cash (Note C) 69,823 --
Accounts receivable - customer, less allowance for uncollectible accounts of
$34,775 and $33,714 in 2001 and 2000, respectively 613,733 910,344
Other receivables 124,343 168,411
Fuel, at average cost 18,216 28,455
Gas in storage, at average cost 111,507 83,112
Materials and supplies, at average cost 90,976 131,362
Prepayments 79,687 157,634
Other current assets 50,454 69,200
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,430,095 1,643,346
- -----------------------------------------------------------------------------------------------------------------
INVESTMENTS
Nuclear decommissioning trust funds (Note I) -- 328,969
Other (Note J) 216,979 197,120
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (NOTE A) 216,979 526,089
- -----------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
GOODWILL 443,547 488,702
INTANGIBLE ASSETS 85,783 --
ACCRUED PENSION CREDITS 697,807 366,743
REGULATORY ASSETS
Future federal income tax (Note A) 659,891 676,527
Recoverable energy costs (Note A) 210,264 340,495
Sale of nuclear generating plant (Note I) 170,241 --
Real estate sale costs - First Avenue properties 105,407 103,009
Deferred special retirement program costs (Note D) 81,796 88,633
Accrued unbilled revenue (Note A) 64,249 72,619
Deferred environmental remediation costs (Note F) 62,559 49,056
Workers' compensation (Note F) 62,109 47,097
Divestiture - capacity replacement reconciliation (Note I) 58,850 73,850
Deferred revenue taxes 41,256 43,880
World Trade Center restoration costs (Note Q) 32,933 --
Other 88,260 112,603
- -----------------------------------------------------------------------------------------------------------------
TOTAL REGULATORY ASSETS 1,637,815 1,607,769
- -----------------------------------------------------------------------------------------------------------------
Other deferred charges and noncurrent assets 235,710 199,426
- -----------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS 3,100,662 2,662,640
- -----------------------------------------------------------------------------------------------------------------
TOTAL $16,996,111 $16,767,245
- -----------------------------------------------------------------------------------------------------------------
</Table>
<Page>
CONSOLIDATED BALANCE SHEET CONSOLIDATED EDISON, INC.
Capitalization and Liabilities
<Table>
<Caption>
AT DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000
- ---------------------------------------------------------------------------------------------
Capitalization (see Statement of Capitalization)
Common shareholders' equity $ 5,666,268 $ 5,472,389
Preferred stock subject to mandatory redemption (Note B) 37,050 37,050
Other preferred stock (Note B) 212,563 212,563
Long-term debt 5,501,217 5,415,409
- ---------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION 11,417,098 11,137,411
- ---------------------------------------------------------------------------------------------
MINORITY INTERESTS 9,522 8,416
NONCURRENT LIABILITIES
Obligations under capital leases 41,088 31,504
Accumulated provision for injuries and damages 175,665 160,671
Pension and benefits reserve 187,739 181,346
Other noncurrent liabilities 30,159 21,702
- ---------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 434,651 395,223
- ---------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Long-term debt due within one year 310,950 309,590
Notes payable 343,722 255,042
Accounts payable 665,342 1,020,402
Customer deposits 214,121 202,888
Accrued taxes 146,657 64,343
Accrued interest 80,238 85,276
Accrued wages 77,131 70,951
Other current liabilities 372,404 307,541
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,210,565 2,316,033
- ---------------------------------------------------------------------------------------------
DEFERRED CREDITS AND REGULATORY LIABILITIES
ACCUMULATED DEFERRED INCOME TAX (NOTE L) 2,235,295 2,302,764
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS (NOTE A) 118,350 131,429
REGULATORY LIABILITIES
NYISO reconciliation (Note A) 92,504 --
World Trade Center casualty loss (Note Q) 81,483 --
Gain on divestiture (Note I) 59,030 60,338
Deposit from sale of First Avenue properties 50,000 50,000
Recoverable energy costs 45,008 36,222
Accrued electric rate reduction (Note A) 38,018 38,018
NYPA revenue increase 9,169 35,021
Other 180,915 256,153
- ---------------------------------------------------------------------------------------------
TOTAL REGULATORY LIABILITIES 556,127 475,752
- ---------------------------------------------------------------------------------------------
Other deferred credits 14,503 217
- ---------------------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES 2,924,275 2,910,162
- ---------------------------------------------------------------------------------------------
TOTAL $16,996,111 $16,767,245
- ---------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
CONSOLIDATED INCOME STATEMENT CONSOLIDATED EDISON, INC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues (Note A)
Electric $ 6,887,863 $ 6,938,128 $ 5,792,673
Gas 1,465,957 1,261,970 1,000,083
Steam 503,736 452,135 340,026
Non-utility 776,406 779,158 358,541
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES 9,633,962 9,431,391 7,491,323
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Purchased power 3,630,542 3,644,675 1,824,023
Fuel 393,830 350,816 430,050
Gas purchased for resale 859,961 789,080 485,155
Other operations 1,061,950 1,146,598 1,188,623
Maintenance 430,291 458,046 437,979
Depreciation and amortization (Note A) 526,235 586,407 526,182
Taxes, other than income taxes 1,139,127 1,121,843 1,179,796
Income taxes (Notes A and L) 464,553 317,790 399,716
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 8,506,489 8,415,255 6,471,524
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,127,473 1,016,136 1,019,799
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Investment income (Note A) 9,435 8,476 14,842
Allowance for equity funds used during construction (Note A) 1,281 1,299 3,810
Other income less miscellaneous deductions (33,396) (32,660) (13,571)
Income taxes (Notes A and L) 21,922 10,622 26,891
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (DEDUCTIONS) (758) (12,263) 31,972
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 1,126,715 1,003,873 1,051,771
- ----------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 396,948 363,994 319,393
Other interest 41,823 49,527 20,065
Allowance for borrowed funds used during construction (Note A) (7,891) (6,076) (1,895)
- ----------------------------------------------------------------------------------------------------------------------
NET INTEREST CHARGES 430,880 407,445 337,563
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 695,835 $ 596,428 $ 714,208
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 13,593 13,593 13,593
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME FOR COMMON STOCK $ 682,242 $ 582,835 $ 700,615
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC $ 3.22 $ 2.75 $ 3.14
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - DILUTED $ 3.21 $ 2.74 $ 3.13
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 212,146,750 212,186,412 223,442,315
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 212,919,524 212,417,885 223,890,546
- ----------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS CONSOLIDATED EDISON, INC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Balance, January 1 $ 5,040,931 $ 4,921,089 $ 4,700,500
Less: Stock options exercised 5,430 1,026 1,922
Orange & Rockland purchase accounting adjustment -- (46) 51
Net income for the year 695,835 596,428 714,208
- -------------------------------------------------------------------------------------------------------
TOTAL 5,731,336 5,516,445 5,412,837
- -------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED ON CAPITAL STOCK
Cumulative Preferred, at required annual rates 13,593 13,593 13,593
Common, $2.20, $2.18 and $2.14 per share, respectively 466,726 461,921 478,155
- -------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS DECLARED 480,319 475,514 491,748
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 5,251,017 $ 5,040,931 $ 4,921,089
- -------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED EDISON, INC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income For Common Stock $ 682,242 $ 582,835 $ 700,615
Other Comprehensive income/(loss), net of taxes
Investment in marketable equity securities, net of $703 and $454 taxes in
2001 and 2000, respectively (808) (843) --
Minimum pension liability adjustments, net of $1,580 and $703 taxes in 2001
and 2000, respectively (2,095) (1,304) --
Unrealized (losses)/gains on derivatives qualified as hedges
due to cumulative effect of a change in accounting principle,
net of $5,635 taxes (8,002) -- --
Unrealized (losses)/gains on derivatives qualified as hedges, net of $21,901 taxes (31,191) -- --
Reclassification adjustment for gains/(losses) included in net income,
net of $10,291 taxes 14,807 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive income/(loss), net of taxes (27,289) (2,147) --
- ------------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 654,953 $ 580,688 $ 700,615
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED EDISON, INC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 695,835 $ 596,428 $ 714,208
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 526,235 586,407 526,182
Deferred income tax (excluding taxes resulting from divestiture of plant) 5,629 177,736 41,784
Common equity component of allowance for funds used during construction (1,281) (1,299) (3,810)
Accrued pension costs (259,107) (201,666) (34,803)
Other non-cash charges 37,815 18,448 42,050
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS OF DIVESTITURE OF UTILITY PLANTS,
PURCHASE OF THE LAKEWOOD PROJECT AND PURCHASE OF ORANGE AND ROCKLAND
UTILITIES IN 2001, 2000 AND 1999, RESPECTIVELY
Accounts receivable -- customer, less allowance for uncollectibles 296,611 (262,799) (66,371)
Materials and supplies, including fuel and gas in storage (20,086) (19,980) 56,554
Prepayments, other receivables and other current assets 119,325 (131,203) (37,588)
Deferred recoverable energy costs 130,231 (221,804) (57,692)
Cost of removal less salvage (101,163) (130,590) (71,451)
Accounts payable (353,601) 402,861 167,598
Other -- net 273,528 204,895 (56,449)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,349,971 1,017,434 1,220,212
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Utility construction expenditures (1,103,823) (1,002,607) (679,486)
Common equity component of allowance for funds used during construction 1,281 1,299 3,810
Nuclear fuel expenditures (6,111) (27,357) (16,537)
Contributions to nuclear decommissioning trust (89,185) (21,301) (21,301)
Payment for purchase of Orange and Rockland, net of cash and cash equivalents -- -- (509,083)
Payment for purchase of the Lakewood Project, net of cash and cash equivalents -- (98,090) --
Divestiture of utility plants (net of federal income tax) 671,473 -- 1,138,750
Investments by unregulated subsidiaries (195,664) (19,309) (101,953)
Demolition and remediation costs for First Avenue properties (2,398) (101,935) --
Deposit received from sale of First Avenue properties -- 50,000 --
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES INCLUDING CONSTRUCTION (724,427) (1,219,300) (185,800)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock -- (68,531) (817,399)
Net proceeds from short-term debt 39,720 (265,031) 430,196
Issuance of long-term debt 722,600 1,030,000 767,689
Retirement of long-term debt (309,590) (403,230) (225,000)
Advance refunding of preferred stock and long-term debt (328,150) -- (300,000)
Issuance and refunding costs (23,218) (5,468) (16,440)
Common stock dividends (466,962) (462,503) (477,110)
Preferred stock dividends (13,593) (13,593) (13,593)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES INCLUDING DIVIDENDS (379,193) (188,356) (651,657)
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------------------
NET CHANGE FOR THE PERIOD 246,351 (390,222) 382,755
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD $ 94,828 $ 485,050 $ 102,295
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 341,179 $ 94,828 $ 485,050
- ------------------------------------------------------------------------------------------------------------------------------
LESS: RESTRICTED CASH 69,823 -- --
BALANCE: UNRESTRICTED CASH AND TEMPORARY CASH INVESTMENTS $ 271,356 $ 94,828 $ 485,050
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 390,677 $ 351,165 $ 321,785
Income taxes 217,175 136,573 846,559
Business Acquisitions
Assets $ -- $ 225,462 $ 1,009,049
Purchase price in excess of net assets acquired -- 66,336 436,725
- ------------------------------------------------------------------------------------------------------------------------------
Total assets -- 291,798 1,445,774
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt, minority interest and liability assumed -- 193,708 936,691
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used to acquire $ -- $ 98,090 $ 509,083
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
CONSOLIDATED STATEMENT OF CAPITALIZATION CONSOLIDATED EDISON, INC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding
--------------------------------
December 31, December 31,
2001 2000
--------------------------------
COMMON SHAREHOLDERS' EQUITY (NOTE B)
Common stock, $.10 value, authorized 500,000,000 shares 212,146,750 212,027,131 $ 1,482,341 $ 1,482,341
Retained earnings 5,251,017 5,040,931
Treasury stock, at cost; 23,230,850 shares and 23,460,963
shares in 2001 and 2000, respectively at December 31, 2001 and 2000 (1,002,107) (1,012,919)
Capital stock expense (35,547) (35,817)
Accumulated other comprehensive income
Investment in marketable equity securities, net of $703
and $454 taxes in 2001 and 2000, respectively (1,651) (843)
Minimum pension liability adjustments, net of $1,580 and $703
taxes in 2001 and 2000, respectively (3,399) (1,304)
Unrealized (losses)/gains on derivatives qualified as hedges arising
during the period due to cumulative effect of a change in
accounting principles, net of $5,635 taxes (8,002) --
Unrealized (losses)/gains on derivatives qualified as hedges, net
of $21,901 taxes (31,191) --
Reclassification adjustment for gains/(losses) included in net
income, net of $10,291 taxes 14,807 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income/(loss), net of taxes (29,436) (2,147)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY 5,666,268 5,472,389
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK (NOTE B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
6-1/8% Series J 370,500 370,500 37,050 37,050
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SUBJECT TO MANDATORY REDEMPTION 37,050 37,050
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER PREFERRED STOCK
$5 Cumulative Preferred, without par value,
authorized 1,915,319 shares 1,915,319 1,915,319 175,000 175,000
Cumulative Preferred, $100 par value,
authorized 6,000,000 shares*
4.65% Series C 153,296 153,296 15,330 15,330
4.65% Series D 222,330 222,330 22,233 22,233
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER PREFERRED STOCK 212,563 212,563
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK $ 249,613 $ 249,613
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
* Represents total authorized shares of cumulative preferred stock, $100 par
value, including preferred stock subject to mandatory redemption.
<Page>
CONSOLIDATED STATEMENT OF CAPITALIZATION CONSOLIDATED EDISON, INC.
(CONTINUED)
<Table>
<Caption>
AT DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity Interest Rate Series
- ------------------------------------------------------------------------------------------------------------------------------------
Debentures:
2001 6-1/2 1993B $ - $ 150,000
2001 3.25 1996B - 150,000
2002 6-5/8 1993C 150,000 150,000
2002 4.72* 1997A 150,000 150,000
2003 6-3/8 1993D 150,000 150,000
2003 6.56 1993D 35,000 35,000
2004 7-5/8 1992B 150,000 150,000
2005 6-5/8 1995A 100,000 100,000
2005 6-5/8 2000C 350,000 350,000
2007 6.45 1997B 330,000 330,000
2007 7-1/8 1997J 20,000 20,000
2008 6-1/4 1998A 180,000 180,000
2008 6.15 1998C 100,000 100,000
2009 7.15 1999B 200,000 200,000
2010 8-1/8 2000A 325,000 325,000
2010 7-1/2 2000A 55,000 55,000
2010 7-1/2 2000B 300,000 300,000
2023 7-1/2 1993G 380,000 380,000
2026 7-3/4 1996A 100,000 100,000
2027 6-1/2 1997F 80,000 80,000
2028 7.1 1998D 105,000 105,000
2028 6.9 1998D 75,000 75,000
2029 7-1/8 1994A 150,000 150,000
2029 7.0 1999G 45,000 45,000
2039 7.35 1999A 275,000 275,000
2041 7-1/2 2001A 400,000 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total debentures 4,205,000 4,105,000
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for Facilities Revenue Bonds:
2014 6.09 1994** 55,000 55,000
2015 4.21 1995** 44,000 44,000
2020 5-1/4 1993B 127,715 127,715
2020 6.10 1995A 128,285 128,285
2022 5-3/8 1993C 19,760 19,760
2026 7-1/2 1991A - 128,150
2027 6-3/4 1992A - 100,000
2027 6-3/8 1992B - 100,000
2028 6.00 1993A 101,000 101,000
2029 7-1/8 1994A 100,000 100,000
2034 2.74* 1999A 292,700 292,700
2036 1.95* 2001A 224,600 -
2036 1.81* 2001B 98,000 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total tax-exempt debt 1,191,060 1,196,610
- ------------------------------------------------------------------------------------------------------------------------------------
Subordinated deferrable interest debentures:
2031 7-3/4 1996A 275,000 275,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term debt 167,845 177,440
Unamortized debt discount (26,738) (29,051)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 5,812,167 5,724,999
Less: long-term debt due within one year 310,950 309,590
- ------------------------------------------------------------------------------------------------------------------------------------
Total long-term debt 5,501,217 5,415,409
- ------------------------------------------------------------------------------------------------------------------------------------
Total capitalization $ 11,417,098 $ 11,137,411
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
* Rates reset weekly, quarterly or by auction held every 35 days; December
31, 2001 rates shown.
** Issued for O&R pollution control financing.
The accompanying notes are an integral part of these financial statements.
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These notes form an integral part of the accompanying consolidated financial
statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries.
CON EDISON
Con Edison is a holding company that provides a wide range of energy-related
services to its customers through its regulated and unregulated subsidiaries.
Con Edison's core business is energy distribution and it is also pursuing
related growth opportunities in competitive businesses.
Con Edison's principal subsidiary is Consolidated Edison Company of New York,
Inc. (Con Edison of New York), a regulated utility that provides electric
service to over 3.1 million customers and gas service to over 1.1 million
customers in New York City and Westchester County. It also provides steam
service in parts of Manhattan.
Orange and Rockland Utilities, Inc. (O&R), a regulated utility that Con Edison
acquired in July 1999 (see Note K), provides electric service to over 280,000
customers and gas service to over 120,000 customers in southeastern New York and
in adjacent sections of New Jersey and northeastern Pennsylvania.
Con Edison has four unregulated subsidiaries: Consolidated Edison Solutions,
Inc. (Con Edison Solutions), a retail energy services company that sells
electricity and gas to delivery customers of utilities, including Con Edison of
New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a
wholesale energy supply company that enters into derivative financial and
commodity instruments as part of its energy trading activities; Consolidated
Edison Development, Inc. (Con Edison Development), a company that develops
generating projects; and Con Edison Communications LLC (Con Edison
Communications), a company which builds and operates fiber optic networks to
provide wholesale telecommunications services. The unregulated subsidiaries
participate in competitive energy supply and services businesses that are
subject to different risks than those found in the businesses of the regulated
utility subsidiaries.
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION Con Edison's consolidated financial statements
include the accounts of Con Edison and its consolidated subsidiaries, including
the regulated utilities, Con Edison of New York and O&R. Intercompany
transactions have been eliminated.
ACCOUNTING POLICIES The accounting policies of Con Edison and its subsidiaries
conform to accounting principles generally accepted in the United States of
America. For regulated public utilities, like Con Edison of New York and O&R,
accounting principles generally accepted in the United States include the
Financial Accounting Standards Board's (FASB) Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and, in accordance with SFAS No. 71, the accounting requirements
and rate-making practices of the Federal Energy Regulatory Commission (FERC) and
their state public utility commissions.
The standards in SFAS No. 101, "Regulated Enterprises - Accounting for the
Discontinuation of Application of the FASB Statement No. 71," have been applied
to Con Edison's electric supply business, including electric generating assets
and non-utility generators (NUG) contracts and related regulatory assets and
liabilities (the Deregulated Business), which was deregulated as a result of the
Restructuring Agreement (defined below). The application of SFAS No. 101 to the
<Page>
Deregulated Business had no material effect on the financial position or results
of operations of Con Edison. No loss has been recognized in income in connection
with generation divestiture (see Note I), the NUG contracts (see Note H) or
deferred charges (regulatory assets - principally relating to future federal
income taxes) and deferred credits (regulatory liabilities) relating to the
Deregulated Business. Recovery of Con Edison of New York's loss on the sale of
its nuclear generating unit, its costs under NUG contracts and regulatory assets
net of regulatory liabilities is probable under the Restructuring Agreement.
RATE AND RESTRUCTURING AGREEMENTS In September 1997 the New York State Public
Service Commission (NYPSC) approved a restructuring agreement between Con Edison
of New York, the NYPSC staff and certain other parties (the Restructuring
Agreement). The Restructuring Agreement provided for a transition to a
competitive electric market through the development of a "retail access" plan, a
rate plan for the period ending March 31, 2002, a reasonable opportunity for
recovery of "strandable costs" and the divestiture of electric generation
capacity by Con Edison of New York.
At December 31, 2001, approximately 145,000 Con Edison of New York customers
representing approximately 20 percent of aggregate customer load were purchasing
electricity from other suppliers under the electric Retail Choice program (which
is available to all of Con Edison of New York's electric customers). Con Edison
of New York delivers electricity to customers in this program through its
regulated transmission and distribution systems. In general Con Edison of New
York's delivery rates for Retail Choice customers are equal to the rates
applicable to other comparable Con Edison of New York customers, less an amount
reflecting costs otherwise associated with supplying customers with energy and
capacity.
Pursuant to the Restructuring Agreement, Con Edison of New York reduced electric
rates, on an annual basis, by $129 million in 1998, $80 million in April 1999,
$103 million in April 2000 and $209 million in April 2001. The 2001 rate
reduction excludes the divestiture of the nuclear generating facility and the
Roseton plant. The effect in 2001 of the April 2001 decrease was partially
offset by recognition in income of $36 million relating to rates for
distributing electricity to customers of the New York Power Authority and $50
million (after tax) of deferred generation divestiture gain. See Note I.
Pursuant to the Restructuring Agreement, as amended by a July 1998 NYPSC order,
Con Edison of New York has sold approximately 7,790 MW of the approximately
8,300 MW of generating capacity that it owned at the time the Restructuring
Agreement was executed. See Note I.
In November 2000 the NYPSC approved an agreement (the 2000 Electric Rate
Agreement) that revises and extends the rate plan provisions of the
Restructuring Agreement. Pursuant to the 2000 Electric Rate Agreement, Con
Edison of New York reduced the distribution component of its electric rates by
$170 million on an annual basis, effective October 2000, and further reduced
electric rates, effective April 1, 2001, in accordance with the Restructuring
Agreement (as discussed above).
In general under the 2000 Electric Rate Agreement, Con Edison of New York's base
electric transmission and distribution rates will not otherwise be changed
during the five-year period ending March 2005 except (i) with respect to certain
changes in costs above anticipated annual levels resulting from legal or
regulatory requirements, inflation in excess of a 4 percent annual rate,
property tax changes and environmental cost increases or (ii) if the NYPSC
determines that circumstances have occurred that either threaten Con Edison of
New York's economic viability or ability to provide, or render Con Edison of New
York's rate of return unreasonable for the provision of safe and adequate
service.
<Page>
Under the 2000 Electric Rate Agreement as approved by the NYPSC and as modified
in December 2001, 35 percent of any earnings in each of the rate years ending
March 2002 through 2005 in excess of a specified rate of return on electric
common equity will be retained for shareholders and the balance will be applied
for customer benefit through rate reductions or as otherwise determined by the
NYPSC. There was no sharing of earnings for the rate year ending March 2001. The
earnings threshold for the rate year ending March 2002 of 12.9 percent can be
increased by 25 basis points if certain demand reductions and supply increases
exceed targeted projections. The earnings threshold for rate years ending March
2003 through March 2005 of 11.75 percent can be increased by 50 basis points.
The threshold will increase by 25 basis points if certain demand reductions and
supply increases exceed targeted projections and by an additional 25 basis
points if certain customer service and reliability objectives are achieved. Con
Edison of New York could be required to pay up to $40 million annually in
penalties if certain threshold service and reliability objectives are not
achieved.
Con Edison of New York's potential electric strandable costs are those prior
utility investments and commitments that may not be recoverable in a competitive
electric supply market. Con Edison of New York is recovering these costs in the
rates it charges all of its electric customers. The 2000 Electric Rate Agreement
continues the stranded cost recovery provisions of the Restructuring Agreement,
stating that Con Edison of New York "will be given a reasonable opportunity to
recover stranded and strandable costs remaining at March 31, 2005, including a
reasonable return on investments, under the parameters and during the time
periods set forth therein."
The 2000 Electric Rate Agreement also continues the rate provisions pursuant to
which Con Edison of New York recovers prudently incurred purchased power and
fuel costs from customers. See "Recoverable Energy Costs" in this Note A.
In 1997 the NYPSC approved a four-year O&R restructuring plan, pursuant to which
O&R sold all of its generating assets made retail access available to all of its
electric customers effective May 1, 1999 and reduced its electric rates by
approximately $32.4 million through rate reductions implemented in December 1997
and 1998. In 1998 and 1999, similar plans for O&R's utility subsidiaries in
Pennsylvania and New Jersey were approved by state regulators. The Pennsylvania
plan provides for retail access for all customers effective May 1999. The New
Jersey plan provides for rate reductions of $6.8 million effective August 1999,
an additional reduction of $2.7 million effective January 2001 and a final
reduction of $6.2 million effective August 2002.
In accordance with the April 1999 NYPSC order approving Con Edison's acquisition
of O&R, Con Edison of New York has reduced its annual electric and gas rates by
approximately $12 million and $2 million, respectively, and O&R has reduced its
electric rates by $6.1 million and its gas rates by approximately $1.1 million.
In November 2000 the NYPSC approved an agreement between Con Edison of New York,
the NYPSC staff and certain other parties that revised and extended the 1996 gas
rate settlement agreement through September 2001. The 1996 agreement, with
limited exceptions, continued base rates at September 1996 levels through
September 2000.
Under the new agreement, the level above which Con Edison of New York shared
with customers 50 percent of earnings was increased from a 13 percent to a 14
percent rate of return on gas common equity. In addition customer bills were
reduced by $20 million during the January through March 2001 period.
Approximately $22.6 million that normally would be credited to customers over
various annual periods was credited during the four-month period ending March
<Page>
2001, and $19 million of charges to customers resulting from the reconciliation
of actual gas costs to amounts included in rates that were scheduled to be
billed to customers beginning December 2000 instead were billed to customers
beginning April 2001.
Under the new agreement, Con Edison of New York also reduced firm transportation
customer bills by a retail choice credit and implemented other programs designed
to increase customer and marketer participation in Con Edison of New York's gas
Retail Choice program, the net costs of which are to be recovered by reducing
credits otherwise due customers or deferred for future recovery from customers.
On February 15, 2002, Con Edison of New York, the Staff of the NYPSC and several
other participants in the current Con Edison of New York gas rate proceeding,
submitted to the NYPSC for approval a settlement of various gas rate and
restructuring issues for the three-year period ending September 30, 2004. The
rate agreement reduces retail sales and transportation rates by approximately
$25 million, on an annual basis.
In November 2000 the NYPSC also approved a gas rate settlement agreement between
O&R, the NYPSC staff, and certain other parties covering the three-year period
November 2000 through October 2003. With limited exceptions, the agreement
provides for no changes to base rates. O&R will be permitted to retain $18.1
million of deferred credits that otherwise would have been credited to
customers.
In November 2000 the NYPSC approved an agreement between Con Edison of New York,
the NYPSC staff and certain other parties, which provided for a $16.6 million
steam rate increase in October 2000 and, with limited exceptions, no further
changes in steam rates prior to October 2004. Con Edison of New York is required
to share with customers 50 percent of any earnings for any rate year covered by
the agreement in excess of a specified rate of return on steam common equity
(11.0 percent for the first rate year, the 12-month period ended September 2001;
10.5 percent thereafter if the re-powering of Con Edison of New York's East
River steam-electric generating plant is not completed). A rate moderation
mechanism will permit Con Edison of New York to defer a portion of the revenues
collected in the first two rate years attributable to the rate increase and
recognize such deferrals in income during the last two rate years.
Under the steam rate agreement, upon completion of the East River re-powering
project, the net benefits of the project (including the net after-tax gain from
the sale of a nine-acre development site in mid-town Manhattan along the East
River) allocable to steam operations will inure to the benefit of steam
customers.
The agreement continues the rate provisions pursuant to which Con Edison of New
York recovers prudently incurred purchased steam and fuel costs and requires Con
Edison of New York to develop a strategy for hedging price variations for a
portion of the steam produced each year.
UTILITY PLANT AND DEPRECIATION Utility plant is stated at original cost. The
capitalized cost of additions to utility plant includes indirect costs such as
engineering, supervision, payroll taxes, pensions, other benefits and an
allowance for funds used during construction (AFDC). The original cost of
property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is
charged to expense, and the cost of betterments is capitalized.
Rates used for AFDC include the cost of borrowed funds and a reasonable rate on
Con Edison of New York's own funds when so used, determined in accordance with
NYPSC and FERC regulations. The AFDC rate was 6.8 percent in 2001, 7.2 percent
in 2000 and 9.1 percent in
<Page>
1999. The rate was compounded semiannually, and the amounts applicable to
borrowed funds were treated as a reduction of interest charges.
Con Edison's utility subsidiaries generally compute annual charges for
depreciation using the straight-line method for financial statement purposes,
with rates based on average lives and net salvage factors. Con Edison's
regulated utility depreciation rates averaged approximately 3.1 percent in 2001,
3.6 percent in 2000 and 3.4 percent in 1999.
REVENUES Con Edison's utility subsidiaries recognize revenues for electric, gas
and steam service on a monthly billing cycle basis. O&R accrues revenues at the
end of each month for estimated energy usage not yet billed to customers, while
Con Edison of New York does not accrue such revenues. Con Edison of New York
defers for refund to firm gas sales and transportation customers over a 12-month
period all net interruptible gas revenues not authorized by the NYPSC to be
retained by Con Edison of New York.
RECOVERABLE ENERGY COSTS Con Edison's utility subsidiaries generally recover all
of their prudently incurred fuel, purchased power and gas costs, including
hedging gains and losses, in accordance with rate provisions approved by their
state public utility commissions. For Con Edison of New York, the provision also
includes a $35 million annual incentive or penalty ($25 million effective April
1, 2002) relating to electricity costs. If the actual energy costs for a given
month are more or less than amounts billed to customers for that month, the
difference is recoverable from or refundable to customers. Differences between
actual and billed energy costs are generally deferred for charge or refund to
customers during the next billing cycle (normally within one or two months). At
December 31, 2001, Con Edison of New York had deferred $92.5 million of New York
Independent System Operator (NYISO) refunds for purchased power. Any
reconciliation to actual supply by NYISO will be recoverable from or refundable
to customers. At December 31, 2001, Con Edison's New Jersey utility subsidiary,
Rockland Electric Company, had deferred $76.7 million of such costs for charge
to customers in the manner and at such time as is to be determined by the New
Jersey Board of Public Utilities.
TEMPORARY CASH INVESTMENTS Temporary cash investments are short-term, highly
liquid investments that generally have maturities of three months or less. They
are stated at cost, which approximates market. Con Edison considers temporary
cash investments to be cash equivalents.
INVESTMENTS For 2001 and 2000, investments consisted primarily of the
investments of Con Edison's unregulated subsidiaries, which are recorded either
at cost or using the equity method. Investments in 2000 also included the
external nuclear decommissioning trust fund, which was transferred in connection
with the sale of Con Edison of New York's nuclear generating unit. See Note I.
GUARANTEES OF SUBSIDIARY OBLIGATIONS Con Edison has guaranteed certain
obligations of its subsidiaries. These guarantees, which had maximum limits
totaling $1.1 billion and $683 million at December 31, 2001 and 2000,
respectively, relate primarily to certain obligations of Con Edison Development
(See Note J) and obligations of up to $484 million in 2001 and $263 million in
2000 under power purchase and sales agreements entered into by Con Edison
Solutions and Con Edison Energy. As of December 31, 2001, a total of $456.2
million of underlying obligations to which the guarantees relate were
outstanding, of which, $52.4 million, representing accounts payable and
mark-to-market contract positions, was included in the consolidated balance
sheet. Con Edison does not expect to incur losses as a result of these
guarantees.
NEW FINANCIAL ACCOUNTING STANDARDS During 2001 the FASB issued four new
accounting standards: SFAS No. 141, "Business Combinations," SFAS No. 142,
"Accounting for Goodwill
<Page>
and Other Intangible Assets," SFAS No. 143, "Accounting for Asset Retirement
Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
SFAS No. 141 requires that all business combinations initiated after June 30,
2001 use the purchase method of accounting, which includes recognition of
goodwill. The application of SFAS No. 141 had no effect on Con Edison's
consolidated financial statements.
SFAS No. 142, which Con Edison adopted on January 1, 2002, provides that
goodwill (i.e., the excess of cost over the fair value of assets of businesses
acquired) and intangible assets with indefinite useful lives shall no longer be
subject to amortization. Con Edison's intangible assets relate to certain Con
Edison Development power purchase and transmission rights agreements. Con
Edison's amortization expense in 2001 for goodwill was $11.1 million and for
intangible assets was $5.9 million. Under SFAS No. 142, Con Edison will continue
to amortize the intangible assets relating to the power purchase agreement on a
straight-line basis over its 25-year contract period but will cease amortizing
goodwill and the indefinite lived intangible asset relating to the transmission
rights agreement. As a result net income for common stock in 2002 will be $11.9
million ($0.06 per share) more than it would have been had Con Edison continued
to amortize its goodwill and its indefinite lived intangible asset. In
accordance with SFAS No. 142, Con Edison will in 2002, and thereafter as
required by SFAS No. 142, review its goodwill and intangible assets for
impairment. If determined in 2002 to be impaired, goodwill or the intangible
assets will be reduced to their fair value and an impairment charge will be
reflected as a cumulative effect of a change in accounting principle. Following
2002 any such charge would be recognized in income.
SFAS No. 143, which Con Edison is required to adopt on January 1, 2003, requires
entities to record the fair value of a liability associated with an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes the cost by increasing the
carrying amount of the related asset. The liability is increased to its present
value each period and the capitalized cost is depreciated over the useful life
of the related asset. Upon retirement of the asset, the entity settles the
obligation for the amount recorded or incurs a gain or loss. Con Edison has not
yet determined the effect of this standard on its consolidated financial
statements.
SFAS No. 144, which Con Edison adopted on January 1, 2002, replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 144 requires that long-lived assets be
measured at the lower of book value or fair value less cost to sell. The
standard also broadens the reporting of discontinued operations. Con Edison does
not expect the application of this standard to have a significant effect on its
financial position or results of operations.
FEDERAL INCOME TAX In accordance with SFAS No. 109, "Accounting for Income
Taxes," Con Edison's utility subsidiaries have recorded an accumulated deferred
federal income tax liability for substantially all temporary differences between
the book and tax bases of assets and liabilities at current tax rates. In
accordance with rate agreements, the utility subsidiaries have recovered amounts
from customers for a portion of the tax expense they will pay in the future as a
result of the reversal or "turn-around" of these temporary differences. As to
the remaining temporary differences, in accordance with SFAS No. 71, the utility
subsidiaries have established regulatory assets for the net revenue requirements
to be recovered from customers for the related future tax expense. See Note L.
In 1993 the NYPSC issued a Policy Statement proposing accounting procedures
consistent with SFAS No. 109 and providing assurances that these future
increases in taxes will be recoverable in rates.
<Page>
Accumulated deferred investment tax credits are amortized ratably over the lives
of the related properties and applied as a reduction to future federal income
tax expense.
Con Edison and its subsidiaries file a consolidated federal income tax return.
Income taxes are allocated to each company based on its taxable income.
STATE INCOME TAX The New York State tax laws applicable to utility companies
were changed effective January 1, 2000. Certain revenue-based taxes were
repealed or reduced and replaced by a net income-based tax. In June 2001 the
NYPSC issued its final Order relating to the tax law changes. It authorized each
utility to use deferral accounting to record the difference between taxes being
collected and the tax expense resulting from the tax law changes, until those
changes are incorporated in base rates.
RESEARCH AND DEVELOPMENT COSTS Research and development costs relating to
specific construction projects are capitalized. All other such costs are charged
to operating expenses as incurred. Research and development costs in 2001, 2000
and 1999 amounting to $14.0 million, $14.1 million and $12.4 million,
respectively, were charged to operating expenses. No research and development
costs were capitalized in these years.
RECLASSIFICATION Certain prior year amounts have been reclassified to conform
with the current year presentation.
EARNINGS PER COMMON SHARE In accordance with SFAS No. 128, "Earnings per Share,"
Con Edison presents basic and diluted earnings per share on the face of the
Consolidated Income Statement. Basic earnings per share (EPS) is calculated by
dividing earnings available to common shareholders ("Net income applicable to
common stock" on the Consolidated Income Statement) by the weighted average
number of common shares outstanding during the period. In the calculation of
diluted EPS, weighted average shares outstanding are increased for additional
shares that would be outstanding if potentially dilutive securities were
converted to common stock.
Potentially dilutive securities for Con Edison consist of stock options whose
exercise price is less than the average market price of the common shares during
the reporting period. These options were granted under the Stock Option Plan
(see Note M). Additionally awards of restricted stock are included in the
diluted earnings per share calculation.
<Page>
Shown below is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculations.
<Table>
<Caption>
Twelve Months Ended
December 31,
------------
2001 2000 1999
---- ---- ----
(Millions of Dollars - except share data)
(Thousands of Shares)
Net income $ 695.8 $ 596.4 $ 714.2
Less: Preferred stock dividend requirements 13.6 13.6 13.6
Net income applicable to common stock
(Numerator for basic and diluted EPS) $ 682.2 $ 582.8 $ 700.6
Number of shares on which basic EPS is
Calculated 212,147 212,186 223,442
Add - Incremental shares attributable to
effect of dilutive securities 773 232 449
Number of shares on which diluted
EPS is calculated 212,920 212,418 223,891
Basic EPS $ 3.22 $ 2.75 $ 3.14
Diluted EPS $ 3.21 $ 2.74 $ 3.13
</Table>
Stock options to purchase 5.33 million, 4.67 million and 3.04 million common
shares for the year ending December 31, 2001, 2000 and 1999 were not included in
the respective period's computation of diluted earnings per share because the
exercise price of the option was greater than the average market price of the
common shares.
ESTIMATES The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B CAPITALIZATION
CAPITALIZATION OF CON EDISON Con Edison's outstanding capitalization, on a
consolidated basis, consists of its common shareholders' equity and the
outstanding preferred stock and long-term debt of its subsidiaries. Con Edison's
authorized capitalization also includes six million authorized, but unissued,
Preferred Shares, $1.00 par value.
PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION Con Edison of New York has
the option to redeem its $5 cumulative preferred stock at $105 and its
cumulative preferred stock,
<Page>
Series C and Series D, at a price of $101 per share (in each case, plus accrued
and unpaid dividends).
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Con Edison of New York is
required to redeem its cumulative preferred stock, Series J shares, on August 1,
2002. The redemption price is $100 per share (plus accrued and unpaid
dividends). Series J shares may not be called for redemption while dividends are
in arrears on outstanding shares of $5 cumulative preferred stock or other
cumulative preferred stock.
DIVIDENDS Dividends on Con Edison's common shares depend primarily on the
dividends and other distributions that Con Edison of New York and Con Edison's
other subsidiaries pay to Con Edison, and the capital requirements of Con Edison
and its subsidiaries. Under Con Edison of New York's Restructuring Agreement,
the dividends that it may pay are limited to not more than 100 percent of its
income available for dividends, calculated on a two-year rolling average basis.
Excluded from the calculation of "income available for dividends" are non-cash
charges to income resulting from accounting changes or charges to income
resulting from significant unanticipated events. The restriction also does not
apply to dividends paid in order to transfer to Con Edison proceeds from major
transactions, such as asset sales, or to dividends reducing Con Edison of New
York's equity ratio to a level appropriate to its business risk.
Payment of Con Edison of New York's common stock dividends to Con Edison is
subject to certain additional restrictions. No dividends may be paid, or funds
set apart for payment, on Con Edison of New York's common stock until all
dividends accrued on the $5 cumulative preferred stock and other cumulative
preferred stock have been paid, or declared and set apart for payment, and
unless Con Edison of New York is not in arrears on its mandatory redemption
obligation for the Series J cumulative preferred stock. No dividends may be paid
on any of Con Edison of New York's capital stock during any period in which Con
Edison of New York has deferred payment of interest on its subordinated
deferrable interest debentures.
LONG-TERM DEBT Long-term debt maturing in the period 2002-2006 is as follows:
<Table>
<Caption>
(Millions of Dollars)
- --------------------------------------------------------------------------------
2002 $311
2003 185
2004 150
2005 450
2006 -
- --------------------------------------------------------------------------------
</Table>
Long-term debt includes the note issued by Con Edison of New York to the New
York State Energy Research and Development Authority for the net proceeds of the
Authority's $224.6 million aggregate principal amount of Facilities Revenue
Bonds, Series 2001 A. The interest rate determination method for this debt is
subject to change in accordance with the related indenture, and the debt
currently bears interest at a weekly rate determined by its remarketing agent.
While the debt bears interest at a weekly rate, it is subject to optional and,
in certain circumstances, mandatory tender for purchases by Con Edison of New
York.
Long-term debt includes notes issued by O&R to the New York State Energy
Research and Development Authority for the net proceeds of the Authority's $55
million aggregate principal amount of 1994 Series and $44 million aggregate
principal amount of 1995 Series Pollution Control Refunding Revenue Bonds. The
interest rate determination method for this debt is subject to change in
accordance with the related indenture, and the debt currently bears interest at
<Page>
a weekly rate determined by its remarketing agent. While the debt bears interest
at a weekly rate, it is subject to optional and, in certain circumstances,
mandatory tender for purchase by O&R.
Long-term debt is stated at cost, which, as of December 31, 2001, approximates
fair value (estimated based on current rates for debt of the same remaining
maturities).
NOTE C SHORT TERM BORROWING
At December 31, 2001, Con Edison and its utility subsidiaries had commercial
paper programs, under which short-term borrowings are made at prevailing market
rates, totaling $950 million. These programs are supported by revolving credit
agreements with banks. At December 31, 2001, $159.0 million, at a weighted
average interest rate of 2.02 percent, was outstanding under Con Edison's $350
million program; no commercial paper was outstanding under Con Edison of New
York's $500 million program; and $16.6 million, at a weighted average interest
rate of 1.90 percent, was outstanding under O&R's $100 million program. Con
Edison of New York changes the amount of its program from time to time, subject
to a $1 billion FERC-authorized limit.
Bank commitments under the revolving credit agreements total $950 million, of
which $775 million expires in late 2002 (by which time renewal is expected). The
commitments may terminate upon a change of control of Con Edison, and borrowings
under the agreements are subject to certain conditions, including that the ratio
(calculated in accordance with the agreements) of debt to total capital of the
borrower not at any time exceed 0.65 to 1. At December 31, 2001, this ratio was
0.52 to 1 for Con Edison, 0.52 to 1 for Con Edison of New York and 0.51 to 1 for
O&R. Borrowings under the agreements are not subject to maintenance of credit
rating levels. The fees charged for the revolving credit facilities and
borrowings under the agreements reflect the credit ratings of Con Edison of New
York.
During 2001 Con Edison also made short-term borrowings from an affiliate of the
lessor of the Newington Project. See Note J. The average daily outstanding
amount of such short-term borrowing was $59.9 million at an average interest
rate of 4.9 percent. At December 31, 2001, $49.2 million was outstanding at an
interest rate of 4.2 percent.
In 2001 Con Edison Development used special-purpose entities to arrange for
short term financing of electric generating projects. At December 31, 2001,
approximately $119.3 million of such financing was outstanding, for which Con
Edison had deposited $69.8 million into an escrow account in order to secure
payment. The company expects that this financing will be repaid, and the
restricted cash returned to Con Edison in 2002.
NOTE D PENSION BENEFITS
Con Edison provides non-contributory pension benefits that cover substantially
all employees of Con Edison of New York and O&R and certain employees of other
Con Edison subsidiaries. The plan is designed to comply with the Employee
Retirement Income Security Act of 1974 (ERISA).
Investment gains and losses are fully recognized in expense over a 15-year
period (13 years for O&R in 1999 and 2000). Other actuarial gains and losses are
fully recognized in expense over a 10- year period.
Con Edison offered a special retirement program in 1999 providing enhanced
pension benefits for those employees who met specified eligibility requirements
and retired within specific time limits. These incentives fall within the
category of special termination benefits and curtailments as described in SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of
<Page>
Defined Benefit Pension Plans and for Termination Benefits." The increase in
pension obligations as a result of these programs amounted to $49.7 million. For
Con Edison of New York, the Agreement provided that $15 million of this amount
would be expensed in 2000 and the remaining $30 million would be recorded as a
regulatory asset and amortized over a 15-year period beginning in October 2000.
For O&R pension costs for 1999 reflect the impact of the sale of its generating
assets. Due to the relatively high number of employees for whom benefits ceased
to be accrued as a result of this event, a curtailment charge of $4.7 million
was recognized. A portion of this curtailment charge was recorded as a
regulatory asset in accordance with SFAS No. 71 and a portion was expensed.
The acquisition of O&R by Con Edison in July 1999 triggered purchase accounting
requirements that are reflected in the net periodic pension cost. Under such
accounting O&R's accrued pension liability was adjusted to recognize all
previously unrecognized gains and losses arising from past experience different
from that assumed, all unrecognized prior service costs, and the remainder of
any unrecognized obligation or asset existing at the date of the initial
application of SFAS No. 87, "Employers' Accounting for Pensions." A portion of
these adjustments was recorded as a regulatory liability in accordance with SFAS
No. 71 and a portion was expensed.
O&R is currently allowed to recover in rates pension costs recognized under SFAS
No. 87. In accordance with the provisions of SFAS No. 71, Con Edison of New York
defers for future recovery any difference between expenses recognized under SFAS
No. 87 and the current rate allowance authorized by each regulatory jurisdiction
in which it operates.
The components of Con Edison of New York and O&R's net periodic pension costs
for 2001, 2000 and 1999 were as follows:
<Table>
<Caption>
(Millions of Dollars) 2001 2000 1999
- --------------------------------------------------------------------------------------------
Service cost - including administrative $ 95.3 $ 90.0 $ 110.9
expenses
Interest cost on projected benefit obligation 425.2 408.7 378.4
Expected return on plan assets (657.4) (565.7) (505.6)
Amortization of net actuarial (gain) (193.9) (186.1) (92.8)
Amortization of prior service cost 13.6 10.5 12.6
Amortization of transition obligation 3.0 3.0 2.5
Recognition of curtailment and termination
benefits -- -- 11.9
Recognition of purchase accounting -- -- (29.6)
- --------------------------------------------------------------------------------------------
Net periodic pension cost (314.2) (239.6) (111.7)
- --------------------------------------------------------------------------------------------
Amortization of regulatory asset* 4.2 17.7 2.2
- --------------------------------------------------------------------------------------------
Total pension cost $ (310.0) $ (221.9) $ (109.5)
- --------------------------------------------------------------------------------------------
Cost capitalized (61.4) (41.4) (47.5)
Cost charged to operating expenses $ (248.6) $ (180.5) $ (62.0)
- --------------------------------------------------------------------------------------------
</Table>
* Relates to increases in Con Edison of New York's pension obligations of
$33.3 million from a 1993 special retirement program and $45 million from
a 1999 special retirement program.
<Page>
The funded status at December 31, 2001, 2000 and 1999 was as follows:
<Table>
<Caption>
(Millions of Dollars) 2001 2000 1999
- -------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 5,630.4 $ 5,241.6 $ 5,673.9
Service cost - excluding administrative expenses 93.6 88.7 109.6
Interest cost on projected benefit obligation 425.2 408.7 378.4
Plan amendments 9.8 37.7 0.8
Net actuarial loss/(gain) 30.4 128.5 (705.4)
Termination benefits and curtailments -- -- 49.7
Benefits paid (285.1) (274.8) (265.4)
- -------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 5,904.3 $ 5,630.4 $ 5,241.6
- -------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 7,347.5 $ 7,720.1 $ 6,945.7
Actual return on plan assets (406.6) (84.7) 1,047.0
Employer contributions 3.7 4.7 13.0
Benefits paid (285.1) (274.8) (265.4)
Administrative expenses (25.8) (17.8) (20.2)
- -------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 6,633.7 $ 7,347.5 $ 7,720.1
- -------------------------------------------------------------------------------------------------
Funded status $ 729.4 $ 1,717.1 $ 2,478.5
Unrecognized net (gain) (184.2) (1,496.8) (2,478.2)
Unrecognized prior service costs 95.9 99.8 72.5
Unrecognized net transition (asset)/liability at
January 1, 1987* (0.6) 2.4 5.3
- -------------------------------------------------------------------------------------------------
Net prepaid benefit cost $ 640.5 $ 322.5 $ 78.1
- -------------------------------------------------------------------------------------------------
</Table>
* Being amortized over approximately 15 years.
The amounts recognized in the consolidated balance sheet at December 31, 2001,
2000 and 1999 were as follows:
<Table>
<Caption>
(Millions of Dollars) 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 674.4 $ 350.6 $ 113.0
Accrued benefit liability (40.2) (37.1) (34.9)
Intangible asset 0.6 7.1 --
Accumulated other comprehensive income 5.7 1.9 --
- -------------------------------------------------------------------------------------------------
Net amount recognized $ 640.5 $ 322.5 $ 78.1
- -------------------------------------------------------------------------------------------------
</Table>
<Page>
The actuarial assumptions for Con Edison of New York and O&R at December 31,
2001, 2000 and 1999 were as follows:
<Table>
<Caption>
2001 2000 1999
- ------------------------------------------------------ ------------ ------------- ------------
Discount rate 7.50% 7.75% 8.00%
Expected return on plan assets 9.20% 8.50% 8.50%
Rate of compensation increase - Con Edison 4.30% 4.55% 4.80%
Rate of compensation increase - O&R
Hourly 4.15% 4.40% 3.00%
Management 4.15% 4.40% 1.00%
</Table>
Con Edison offers a defined contribution savings plan that covers substantially
all employees of Con Edison of New York and O&R and certain employees of other
Con Edison subsidiaries. Con Edison made contributions to the plan of
approximately $16.7 million, $16.4 million and $16.7 million for years 2001,
2000 and 1999, respectively.
NOTE E POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (OPEB)
Con Edison of New York and O&R have contributory comprehensive hospital, medical
and prescription drug programs for all retirees, their dependents and surviving
spouses.
Con Edison of New York also has a contributory life insurance program for
bargaining unit employees and provides basic life insurance benefits up to a
specified maximum at no cost to retired management employees. O&R has a
non-contributory life insurance program for retirees.
Certain employees of other Con Edison subsidiaries are eligible to receive
benefits under these programs. The company has reserved the right to amend or
terminate these programs.
Investment gains and losses are fully recognized in expense over a 15-year
period for Con Edison of New York and O&R (10 years for O&R in 1999 & 2000). For
both plans, other actuarial gains and losses are recognized in expense over a
10-year period.
For O&R, plan assets are used to pay benefits and expenses for participants that
retired on or after January 1, 1995. O&R pays benefits for other participants.
Plan assets include amounts owed to O&R of $0.3 million in 2001, $2.2 million in
2000 and $1.4 million in 1999.
During 1999, O&R sold its electric generating assets. Because of the relatively
high number of O&R employees for whom benefits in the plan ceased to be accrued
as a result of this event, a curtailment charge was recorded in accordance with
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions."
The acquisition of O&R by Con Edison in July 1999 triggered purchase accounting
requirements that are reflected in the net periodic benefit cost. Under such
accounting O&R's accrued postretirement liability was adjusted to recognize all
previously unrecognized actuarial gains or losses, all unrecognized prior
service costs, and the remainder of any unrecognized obligation or asset
existing at the date of the initial application of SFAS No. 106. The total of
these adjustments along with the curtailment charge discussed above were
recorded as a regulatory asset in accordance with SFAS No. 71.
O&R is currently allowed to recover in rates OPEB costs recognized under SFAS
No. 106. In accordance with the provisions of SFAS No. 71, the company defers
for future recovery any
<Page>
difference between expenses recognized under SFAS No. 106 and the current rate
allowance authorized by each regulatory jurisdiction in which it operates.
The components of Con Edison of New York and O&R's postretirement benefit
(health and life insurance) costs for 2001, 2000 and 1999 were as follows:
<Table>
<Caption>
(Millions of Dollars) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Service cost $ 12.2 $ 10.7 $ 15.4
Interest cost on accumulated postretirement benefit obligation 88.4 78.8 77.8
Expected return on plan assets (73.8) (62.3) (43.7)
Amortization of net actuarial loss 10.2 1.2 27.2
Amortization of prior service cost 1.4 1.4 1.4
Amortization of transition obligation 17.4 17.4 18.6
Recognition of curtailment and termination benefits -- -- (5.1)
Recognition of purchase accounting valuation -- -- 39.2
- --------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 55.8 $ 47.2 $ 130.8
- --------------------------------------------------------------------------------------------------------------
Cost capitalized/deferred 13.2 10.3 53.0
Cost charged to operating expenses 42.6 36.9 77.8
- --------------------------------------------------------------------------------------------------------------
</Table>
The funded status of the programs at December 31, 2001, 2000 and 1999 was as
follows:
<Table>
<Caption>
(Millions of Dollars) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 1,169.8 $ 1,012.5 $ 1,177.5
Service cost 12.2 10.7 15.4
Interest cost on accumulated postretirement 88.4 78.8 77.8
benefit obligation
Plan amendments -- (0.4) --
Net actuarial (gain) loss 148.7 127.6 (205.5)
Benefits paid and administrative expenses (82.0) (71.4) (63.5)
Participant contributions 14.0 12.0 10.8
- --------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 1,351.1 $ 1,169.8 $ 1,012.5
- --------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 844.1 $ 872.3 $ 697.0
Actual return on plan assets (29.3) 4.4 103.4
Employer contributions 55.9 23.5 121.0
Participant contributions 13.9 11.9 10.8
Benefits paid (75.5) (62.9) (55.7)
Administrative expenses (4.9) (5.1) (4.2)
- --------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 804.2 $ 844.1 $ 872.3
- --------------------------------------------------------------------------------------------------------------
Funded status $ (546.9) $ (325.7) $ (140.2)
Unrecognized net (gain) loss 210.9 (32.1) (215.6)
Unrecognized prior service costs 8.0 9.4 11.2
Unrecognized transition obligation at January 1, 1993* 191.4 208.8 226.2
- --------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (136.6) $ (139.6) $ (118.4)
- --------------------------------------------------------------------------------------------------------------
</Table>
*Being amortized over a period of 20 years.
<Page>
The actuarial assumptions for Con Edison of New York and O&R at December 31,
2001, 2000 and 1999 were as follows:
<Table>
<Caption>
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Discount rate 7.50% 7.75% 8.00%
Expected return on plan assets
Tax-exempt assets 9.20% 8.50% 8.50%
Taxable assets
Con Edison of New York 8.20% 7.50% 7.50%
O&R 8.70% 8.00% 7.50%
</Table>
The health care cost trend rate assumed for 2002 is 8.0 percent. The rate is
assumed to decrease gradually to 5.0 percent for 2006 and remain at that level
thereafter.
A one-percentage point change in the assumed health care cost trend rate would
have the following effects:
<Table>
<Caption>
1-Percentage-Point 1-Percentage-
(Millions of Dollars) Increase Point Decrease
- ---------------------------------------------------------------------------------------------------------
Effect on accumulated postretirement benefit obligation $167.7 $(146.8)
Effect on service cost and interest cost components $ 14.2 $ (12.1)
</Table>
NOTE F 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 December 31, 2001, Con Edison had accrued $132.2 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 relating to 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 December 31, 2001, $62.6
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
<Page>
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 disposed of. Based on the information and relevant circumstances known
to Con Edison at this time, these suits are not expected to have a material
adverse effect on Con Edison's financial position, results of operations or
liquidity.
Workers' compensation administrative proceedings have been commenced, wherein
current and former employees claim benefits based upon alleged disability from
exposure to asbestos. Based on the information and relevant circumstances known
to Con Edison at this time, these claims are not expected to have a material
adverse effect on Con Edison's financial position, results of operations or
liquidity. At December 31, 2001, Con Edison had accrued a $136.7 million
provision as its best estimate of the utility subsidiaries' liability for
workers' compensation claims, including those related to asbestos exposure. Of
this amount $62.1 million was deferred as a regulatory asset. Other legal
proceedings have commenced, wherein non-employee contractors claim benefits
based upon alleged disability from exposure to asbestos. At December 31, 2001,
Con Edison of New York had accrued a $4.0 million provision as its best estimate
of the utility subsidiaries' liability for these alleged claims and deferred a
like amount as a regulatory asset.
NOTE G NUCLEAR GENERATION
In September 2001 Con Edison of New York completed the sale of its nuclear
generating unit and related assets and the transfer to the buyer of its nuclear
decommissioning trust funds. See Note I.
The NYPSC is investigating a February 2000 to January 2001 outage of the nuclear
generating unit, its causes and the prudence of Con Edison of New York's actions
regarding the operation and maintenance of the generating unit. The proceeding
covers, among other things, Con Edison of New York's inspection practices, the
circumstances surrounding prior outages, the basis for postponement of the
unit's steam generator replacement and whether, and to what extent, increased
replacement power costs and repair and replacement costs should be borne by Con
Edison's shareholders.
Con Edison of New York has billed to customers replacement power costs for the
outage incurred prior to August 2000 and after October 2000, but not
approximately $90 million of replacement power costs incurred in August through
October 2000. Con Edison of New York has also accrued a $40 million liability
for the possible disallowance of replacement power costs that it had previously
recovered from customers.
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 NYPSC to prohibit Con Edison of New York from recovering
replacement power costs for the outage from customers was unconstitutional and
granted Con Edison of New York's motion for a permanent injunction to prevent
its implementation.
Con Edison of New York is unable to predict whether or not any proceedings,
lawsuits, legislation or other actions relating to the nuclear generating unit
will have a material adverse effect on its financial position, results of
operations or liquidity.
<Page>
NOTE H NON-UTILITY GENERATORS (NUGS)
Con Edison's utility subsidiaries have contracts with NUGs for approximately
3,127 MW of electric generating capacity, including a contract with the buyer of
the approximately 1,000 MW nuclear generating unit that Con Edison of New York
sold in 2001. Assuming performance by the NUGs, the utility subsidiaries are
obligated over the terms of the contracts (which extend for various periods, up
to 2036) to make capacity and other fixed payments.
For the years 2002-2006, the capacity and other fixed payments under the
contracts are estimated to be $541 million, $539 million, $543 million, $529
million and $525 million. Such payments gradually increase to approximately
$600 million in 2013, and thereafter decline significantly. For energy
delivered under most of these contracts, the utility subsidiaries are
obligated to pay variable prices that are estimated to be lower overall than
expected market levels. For energy from the nuclear generating unit sold by
Con Edison of New York in 2001, Con Edison of New York is obligated to pay an
average annual price of 3.9 cents per kilowatthour.
Under the terms of its electric rate agreements, Con Edison of New York is
recovering in rates the charges it incurs under contracts with NUGs. The 2000
Electric Rate Agreement provides that, following March 31, 2005, Con Edison of
New York will be given a reasonable opportunity to recover, through a
non-bypassable charge to customers, the amount, if any, by which the actual
costs of its purchases under the contracts exceed market value.
O&R is recovering its costs under the contracts pursuant to rate provisions
approved by the state public utility regulatory authority having jurisdiction.
The Restructuring Agreement provided for a potential NUG contract disallowance
of the lower of (i) 10 percent of the above-market costs or (ii) $300 million
(in 2002 dollars). The Restructuring Agreement provided that Con Edison of New
York could offset the potential disallowance by NUG contract mitigation and by
10 percent of the gross proceeds of any generating unit sales to third parties.
Con Edison of New York has offset the entire $300 million maximum possible
disallowance through NUG contract mitigation and generating plant divestiture
proceeds.
NOTE I GENERATION DIVESTITURE
In 1999 Con Edison of New York completed the sale of almost 6,300 MW of its
approximately 8,300 MW of electric generating assets for an aggregate price of
$1.8 billion. The net book value of the assets sold was approximately $1
billion.
In 1999 pursuant to the Restructuring Agreement, as amended by a July 1998
PSC order, $50 million of the net after-tax gain was applied as an increase to
the accumulated depreciation reserve for Con Edison of New York's nuclear
generating unit and $29 million of accumulated deferred taxes and investment
tax credits relating to the assets sold were recognized in income. Pursuant
to the 2000 Electric Rate Agreement, the balance of the net after-tax gain
(including interest accrued thereon) was applied in 2000 as follows: $188.2
million was credited against electric distribution plant balances, $107.3
million was used to offset a like amount of regulatory assets (including
deferred power contract termination costs), $50 million was deferred for
recognition in income during the 12 months ending March 31, 2002, and $12
million was deferred to be used for low-income customer programs. In addition
$30 million of employee retirement incentive expenses related to the
generation divestiture were deferred for amortization over 15 years and $15
million of such expenses were charged to income in 2000.
<Page>
The 2000 Electric Rate Agreement provides for recovery of an approximately $74
million regulatory asset representing incremental electric capacity costs
incurred prior to May 2000 to purchase capacity from the buyers of the
generating assets Con Edison of New York sold in 1999, from the shareholders'
portion of any earnings above the earnings sharing levels specified for each
rate year. By March 2005 any remaining unrecovered balance will be charged to
expense. Fifteen million dollars of this amount was charged to expense in
December 2001. See "Rate and Restructuring Agreements" in Note A.
In January 2001 Con Edison of New York completed the sale of its 480 MW interest
in the jointly owned Roseton generating station for approximately $138 million.
The net after-tax gain from the sale, which has been deferred as a regulatory
liability, was $37.1 million. In September 2001 Con Edison of New York completed
the sale of its approximately 1000 MW nuclear generating facilities and related
assets for $504.5 million. The proceeds were net of a $73.8 million payment to
increase the value of the nuclear decommissioning trust funds being transferred
to $430 million (the amount provided for in the sales agreement). The net
after-tax loss from the sale, which has been deferred as a regulatory asset, was
$175.4 million. In addition Con Edison of New York was authorized effective
September 2001 to continue to recover the cost of nuclear assets, which are
included in rates, until the loss on divestiture has been recovered. The 2000
Electric Agreement provides that Con Edison of New York "will be given a
reasonable opportunity to recover stranded and strandable costs remaining at
March 31, 2005, including a reasonable return on investments." See "Rate and
Restructuring Agreements" in Note A.
O&R completed the sale of all of its generating assets prior to the completion
of Con Edison's purchase of O&R in July 1999.
NOTE J LEASES
In November 2000 a Con Edison Development subsidiary entered into an operating
lease arrangement with a limited partnership (Lessor) to finance the purchase,
installation, assembly and construction of a 525 MW gas-fired electric
generating facility under construction in Newington, New Hampshire (Newington
Project). The limited partnership is a special-purpose entity and has an
aggregate financing commitment from third-party equity and debt participants of
approximately $353 million. In accordance with SFAS No. 13 "Accounting for
Leases" and related EITF issues (including EITF Issue No. 90-15, "Impact of
Non-substantive Lessors, Residual Value Guarantees, and Other Provisions in
Leasing Transactions" and EITF Issue No. 97-10, "The Effect of Lessee
Involvement in Asset Construction"), the Newington Project and the related lease
obligations are not included on Con Edison's consolidated balance sheet. The
Lessor has appointed the Con Edison Development subsidiary as construction agent
responsible for completing construction of the project by no later than June
2003. The initial lease term is approximately eight years, beginning at the date
of construction completion, which is expected to be July 2002. At the end of the
lease term (June 2010), the subsidiary has the option to extend the lease or
purchase the project for the then outstanding amounts expended by the Lessor for
the project. If the subsidiary chooses not to extend the lease or acquire the
project, then Con Edison will guarantee a residual value of the Newington
Project for an amount not to exceed $239.7 million. The subsidiary would also
have contingent payment obligations to the Lessor if an event of default should
occur during either the construction period or the lease period. If the
subsidiary defaults, then its obligation would equal up to 100% of the Lessor's
investment in the Newington Project, which could exceed the aforementioned
residual value guarantee. At December 31, 2001, project costs were approximately
$305 million. The subsidiary's payment and performance obligations relating to
the Newington Project are fully and unconditionally guaranteed by Con Edison.
<Page>
Future minimum rental payments as of December 31, 2001 are approximately as
follows:
<Table>
<Caption>
(Millions of Dollars)
- --------------------------------------
2002 $16.6
2003 33.2
2004 33.2
2005 33.2
2006 33.2
Thereafter 116.1
- --------------------------------------
Total $265.5
- --------------------------------------
</Table>
Con Edison Development subsidiaries have invested in two leveraged lease
transactions involving the leasing of gas distribution assets and an electric
generating facility in the Netherlands. The subsidiaries' equity investment of
$93 million represented approximately 36% of the purchase price; the remaining
64% or $166 million was furnished by third-party financing in the form of
long-term debt that provides for no recourse against the subsidiaries and is
primarily secured by the assets. At December 31, 2001, the company's net
investment in these leveraged leases amounted to approximately $71 million,
which was included at cost on Con Edison's consolidated balance sheet. See
"Investments" in Note A.
Con Edison Development has guaranteed the repurchase and remarketing
obligations of one of its subsidiaries with respect to $40.7 million of debt
relating to moderate income rental apartment properties eligible for tax
credits under Section 42 of the Internal Revenue Code. In accordance with
FASB EITF Issue No. 94-1, neither the rental apartments properties nor the
related indebtedness is included on Con Edison's consolidated balance sheet.
Con Edison's subsidiaries lease electric generating and gas distribution
facilities, other electric transmission and distribution facilities, office
buildings and equipment. In accordance with SFAS No. 13, these leases are
classified as either capital leases or operating leases. Most of the operating
leases provide the option to renew at the fair rental value for future periods.
Generally, it is expected that leases will be renewed or replaced in the normal
course of business.
Capital leases: For ratemaking purposes capital leases are treated as operating
leases, therefore, in accordance with SFAS No. 71 the amortization of the leased
asset is based on the rental payments recovered through rates. The following
assets and obligations under capital leases are included in the accompanying
consolidated balance sheet at December 31, 2001 and 2000:
<Table>
<Caption>
2001 2000
---- ----
(Millions of Dollars)
Utility Plant
Production $ - $ 0.7
Transmission 13.5 14.9
Common 29.7 18.6
----- ------
Total $43.2 $ 34.2
===== ======
Current Liabilities $2.1 $2.8
Non-Current Liabilities 41.1 31.4
----- ------
Total Liabilities $43.2 $34.2
===== ======
</Table>
<Page>
The future minimum lease commitments for the above assets are as follows:
<Table>
<Caption>
(Millions of Dollars)
2002 $ 7.5
2003 7.8
2004 7.5
2005 7.3
2006 7.2
All years thereafter 42.2
- -----
Total $79.5
Less: amount representing interest 36.3
-----
Present value of net minimum lease payments $43.2
=====
<Caption>
Operating leases: The future minimum lease commitments under Con Edison's
non-cancelable operating lease agreements excluding the Newington Project are as
follows:
(Millions of Dollars)
2002 $ 33.9
2003 34.2
2004 34.7
2005 5.3
2006 5.0
All years thereafter 33.5
------
Total $146.6
======
</Table>
NOTE K ACQUISITION OF ORANGE AND ROCKLAND UTILITIES (O&R)
In July 1999 Con Edison completed its acquisition of O&R for $791.5 million
in cash. Con Edison has accounted for the acquisition under the purchase
method of accounting in accordance with generally accepted accounting
principles. The results of operations of O&R for the years 2001 and 2000 and
the six months ended December 31, 1999 have been included in the consolidated
income statement of Con Edison. Con Edison has recorded in its consolidated
financial statements all of the assets and liabilities of O&R. The fair value
of O&R's regulatory assets approximates book value. All other assets and
liabilities of O&R were adjusted to their estimated fair values. The $437
million excess of the purchase price paid by Con Edison over the estimated
fair value of net assets acquired and liabilities assumed was recorded as
goodwill. Con Edison adopted SFAS No. 142, "Accounting for Goodwill and
Other Intangible Assets," on January 1, 2002. See Note A. In accordance with
regulatory agreements, costs to achieve the merger have been deferred as
regulatory assets and are being amortized over a five-year period ending
May 2004.
<Page>
The unaudited pro forma consolidated Con Edison financial information shown
below has been prepared based upon the historical consolidated income statements
of Con Edison and O&R, giving effect to Con Edison's acquisition of O&R as if it
had occurred at the beginning of 1999. See "New Financial Accounting Standards"
in Note A for information about Con Edison's accounting for goodwill. The pro
forma information is not necessarily indicative of the results that Con Edison
would have had if its acquisition of O&R had been completed prior to July 1999,
or the results that Con Edison will have in the future.
(Millions of Dollars) 1999
- --------------------------------------------
Revenues $ 7,817
Operating income 985
Net income 646
Average shares
outstanding (000) 223,442
Earnings per share $ 2.89
- --------------------------------------------
<Page>
NOTE L Income Tax
The components of income taxes are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31 (THOUSANDS OF DOLLARS) 2001 2000 1999
- ----------------------------------------------------------------------------------------
Charged to Operations:
State Current $ 69,279 $ 28,941 $ --
Deferred - net 78,989 -- --
Federal Current 380,509 103,670 836,783
Deferred - net (57,089) 193,257 (428,859)
Amortization of investment tax credit (7,135) (8,078) (8,208)
- ----------------------------------------------------------------------------------------
TOTAL CHARGED TO OPERATIONS 464,553 317,790 399,716
- ----------------------------------------------------------------------------------------
Charged to Other Income:
State Current (4,102) (5,304) --
Deferred - net 72 -- --
Federal Current (8,684) (1,095) 1,430
Deferred - net (7,045) (3,892) (13,825)
Amortization of investment tax credit (2,163) (331) (14,496)
- ----------------------------------------------------------------------------------------
Total charged to other income (21,922) (10,622) (26,891)
- ----------------------------------------------------------------------------------------
TOTAL $ 442,631 $ 307,168 $ 372,825
- ----------------------------------------------------------------------------------------
<Caption>
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities is as follows:
AS OF DECEMBER 31 (MILLIONS OF DOLLARS) 2001 2000 1999
- ----------------------------------------------------------------------------------------
Liabilities:
Depreciation $1,348.5 $1,441.1 $1,367.1
SFAS 109 659.8 676.5 785.0
Other 413.4 397.9 337.9
- ----------------------------------------------------------------------------------------
Total liabilities 2,421.7 2,515.5 2,490.0
- ----------------------------------------------------------------------------------------
Assets:
Other (186.4) (212.7) (222.5)
- ----------------------------------------------------------------------------------------
Total assets (186.4) (212.7) (222.5)
- ----------------------------------------------------------------------------------------
Net Liability $2,235.3 $2,302.8 $2,267.5
- ----------------------------------------------------------------------------------------
<Caption>
Reconciliation of the difference between income tax expenses and the amount
computed by applying the prevailing statutory income tax rate to income before
income taxes is as follows:
YEAR ENDED DECEMBER 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------
(% of Pre-tax income)
STATUTORY TAX RATE
Federal 35% 35% 35%
Changes in computed taxes resulting from:
State Income Tax 9% 2% --
Depreciation Related Differences 3% 4% 5%
Cost of Removal (4)% (6)% (3)%
Amortization of Taxes Associated With Divestiture Assets -- -- (3)%
Other (4)% (1)% --
- --------------------------------------------------------------------------------------------
Effective Tax Rate 39% 34% 34%
- --------------------------------------------------------------------------------------------
</Table>
<Page>
NOTE M STOCK-BASED COMPENSATION
Under Con Edison's Stock Option Plan (the Plan), options may be granted to
officers and key employees of Con Edison and its subsidiaries for up to a total
of 10 million shares of Con Edison's common stock. Generally options become
exercisable three years after the grant date and remain exercisable until 10
years from the grant date.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," Con
Edison has elected to follow Accounting Principles Board Opinion No. 25 (APB
No. 25), "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its employee stock options. Under APB No. 25, because the
exercise price of Con Edison's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Disclosure of pro forma information regarding net income and earnings per share
is required by SFAS No. 123. The information presented below relates to the
income and earnings per share of Con Edison. This information has been
determined as if Con Edison had accounted for its employee stock options under
the fair value method of that statement. The fair values of 2001, 2000 and 1999
options are $5.23, $4.42 and $7.90 per share, respectively. These values were
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Risk-free interest rate 5.22% 6.25% 5.24%
Expected lives - in years 8 8 8
Expected stock volatility 21.32% 20.51% 18.76%
Dividend yield 5.83% 6.60% 4.46%
</Table>
The following table reflects pro forma net income and earnings per share had Con
Edison elected to adopt the fair value approach of SFAS No. 123 (income in
millions):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Net income
As reported $ 682 $ 583 $ 701
Pro forma 678 578 697
Diluted earnings per share
As reported $3.21 $2.74 $3.13
Pro forma 3.19 2.72 3.11
</Table>
These pro forma amounts may not be representative of future disclosures due to
changes in future market conditions and additional option grants in future
years. For 2001, 2000 and 1999, the number of total shares of common stock after
giving effect to potentially dilutive securities as used in the reported diluted
earnings per share calculation is 212.9 million, 212.4 million and 223.9
million, respectively.
<Page>
A summary of the status of Con Edison's Stock Option Plan as of December 31,
2001, 2000 and 1999 and changes during those years is as follows:
<Table>
<Caption>
Weighted
Average
Shares Price
------ -----
Outstanding at 12/31/98 2,395,950 $34.589
Granted 1,293,950 47.880
Exercised (113,440) 27.875
Forfeited (20,250) 40.246
- -----------------------------------------------------------------------
Outstanding at 12/31/99 3,556,210 39.607
Granted 1,349,500 32.499
Exercised (68,697) 29.732
Forfeited (48,100) 39.231
- -----------------------------------------------------------------------
Outstanding at 12/31/00 4,788,913 37.749
Granted 1,487,050 37.758
Exercised (363,013) 29.740
Forfeited (160,300) 41.333
- -----------------------------------------------------------------------
Outstanding at 12/31/01 5,752,650 $38.157
The following summarizes the Plan's stock options outstanding at December 31,
2001:
Weighted
Plan Average Shares Remaining
Year Exercise Outstanding Contractual
Price AT 12/31/01 Life
----- ----------- ----
2001 $37.758 1,481,050 9 years
2000 32.499 1,292,500 8 years
1999 47.876 1,213,900 7 years
1998 42.609 825,350 6 years
1997 31.500 578,150 5 years
1996 27.875 361,700 4 years
</Table>
As of December 31, 2001, 2000 and 1999 there were outstanding vested options to
purchase 939,850, 1,304,863 and 572,460 shares of common stock, respectively, at
an exercise price below the closing market price on that day.
Pursuant to employment agreements, effective September 2000, certain senior
officers of Con Edison and Con Edison of New York were granted an aggregate of
350,000 restricted stock units. The units, each of which represents the right to
receive one share of Con Edison common stock and related dividends, vest over a
five-year period or immediately upon the occurrence of certain events. Pursuant
to APB No. 25, Con Edison is recognizing compensation expense and accruing a
liability for the units over the vesting period. The expense recognized for
restricted stock during 2001 and 2000 was $3.1 million and $0.9 million,
respectively.
<Page>
NOTE N FINANCIAL INFORMATION BY BUSINESS SEGMENT
Con Edison's business segments were determined based on similarities in economic
characteristics, the regulatory environment, and management's reporting
requirements. Con Edison's principal business segments are:
o Regulated Electric - consists of regulated activities of Con
Edison of New York and O&R relating to the generation,
transmission and distribution of electricity in New York, New
Jersey and Pennsylvania.
o Regulated Gas - consists of regulated activities of Con Edison
of New York and O&R relating to the transportation, storage
and distribution of natural gas in New York and Pennsylvania.
o Regulated Steam - consists of regulated activities of Con
Edison of New York relating to the generation and distribution
of steam in New York.
o Unregulated Subsidiaries - represents the operations of the
competitive electric and gas supply, energy-related products
and services and the operations of the affiliate that invests
in energy infrastructure and wholesale telecommunications
businesses.
o Other - includes the operations of the parent company, Con
Edison, and consolidation adjustments.
All revenues of Con Edison's business segments, excluding revenues earned by an
affiliate of Con Edison on certain energy infrastructure projects, which are
deemed to be immaterial, are from customers located in the United States of
America. Also, all assets, excluding certain investments in energy
infrastructure projects by an affiliate of Con Edison, which are deemed to be
immaterial, are located in the United States of America. The accounting policies
of the segments are the same as those described in the summary of significant
accounting policies. See Note A.
Common services shared by the business segments are assigned directly or
allocated based on various cost factors, depending on the nature of the service
provided.
The financial data for business segments are as follows:
<Page>
NOTE N FINANCIAL INFORMATION BY BUSINESS SEGMENT
<Table>
<Caption>
REGULATED ELECTRIC REGULATED STEAM
- ----------------------------------------------------------------------------------- -------------------------------------------
(Thousands of Dollars) 2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------- -------------------------------------------
Operating revenues $ 6,887,863 $ 6,938,128 $5,792,673 $ 503,736 $ 452,135 $ 340,026
Intersegment revenues 12,589 53,514 150,488 1,903 2,023 1,667
Depreciation and amortization 407,992 477,352 433,203 17,902 18,173 17,996
Income tax expense 382,153 239,772 339,630 5,695 2,407 2,910
Operating income 902,176 808,960 858,681 27,893 25,557 19,450
Interest charge 316,449 309,753 268,392 20,768 18,191 15,363
Total assets 12,193,525 12,386,304 11,831,548 746,587 686,807 631,353
Construction expenditures 810,821 786,211 530,068 64,308 32,014 28,488
<Caption>
REGULATED GAS UNREGULATED SUBSIDIARIES
- ----------------------------------------------------------------------------------- -------------------------------------------
2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------- -------------------------------------------
Operating revenues $ 1,465,957 $ 1,261,970 $1,000,083 $ 785,739 $ 793,740 $ 358,541
Intersegment revenues 3,181 6,113 2,812 - - -
Depreciation and amortization 72,050 66,780 66,262 17,470 13,547 3,303
Income tax expense 73,768 64,942 60,598 2,937 10,669 (5,122)
Operating income 179,823 176,171 152,212 29,590 18,024 (9,313)
Interest charge 72,068 66,498 52,498 16,863 9,652 -
Total assets 2,711,008 2,607,624 2,295,191 995,476 820,942 387,692
Construction expenditures 169,739 140,702 119,602 163,921 121,214 165,000
<Caption>
OTHER TOTAL
- ----------------------------------------------------------------------------------- -------------------------------------------
2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------- -------------------------------------------
Operating revenues $ (9,333) $ (14,582) $ - $ 9,633,962 $ 9,431,391 $ 7,491,323
Intersegment revenues 9,333 14,582 - 27,006 76,232 154,967
Depreciation and amortization 10,821 10,555 5,418 526,235 586,407 526,182
Income tax expense - - 1,700 464,553 317,790 399,716
Operating income (12,009) (12,576) (1,231) 1,127,473 1,016,136 1,019,799
Interest charge 4,732 3,351 1,310 430,880 407,445 337,563
Total assets 349,515 265,568 385,692 16,996,111 16,767,245 15,531,476
Construction expenditures - - - 1,208,789 1,080,141 843,158
</Table>
<Page>
NOTE O DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of January 2001 Con Edison adopted SFAS 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" (collectively, SFAS No. 133).
ENERGY PRICE HEDGING
Con Edison's subsidiaries use derivative financial instruments to hedge market
price fluctuations in related underlying transactions for the physical purchase
or sale of electricity and gas (Hedges).
Con Edison's utility subsidiaries, pursuant to SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," defer recognition in income of gains
and losses on a Hedge until the underlying transaction is completed. 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 gains or
losses on Hedges and related transaction costs. See "Recoverable Energy Costs"
in Note A. To the extent 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 (Cash Flow Hedge Accounting). Con Edison Solutions
(which provides competitive gas and electric supply and energy-related products
and services) has also elected Cash Flow Hedge Accounting.
Pursuant to Cash Flow Hedge Accounting, except as described in the following
paragraph, the mark-to-market unrealized gain or loss on each Hedge is recorded
in other comprehensive income and reclassified to income at the time the
underlying transaction is completed. Upon adoption of SFAS No. 133, Con Edison's
subsidiaries recognized after-tax transition gains of $1.7 million in other
comprehensive income and $0.4 million in income. In 2001 the company
reclassified to income from accumulated other comprehensive income after-tax net
losses relating to Hedges of $12.4 million. These losses, which were recognized
in net income as fuel or purchased power costs, were largely offset by
directionally opposite changes in the market value of the underlying
commodities.
Under Cash Flow Hedge Accounting, any gain or loss relating to any portion of
the Hedge determined to be "ineffective" is recognized in income in the period
in which such determination is made. As a result changes in value of a Hedge may
be recognized in income in an earlier period than the period in which the
underlying transaction is recognized in income. The company expects, however,
that these changes in values will be offset, at least in part, when the
underlying transactions are recognized in income. In 2001 Con Edison Solutions
recognized in income mark-to-market unrealized pre-tax net losses of $6.2
million relating primarily to derivative transactions that were determined to be
"ineffective." As of December 31, 2001, unrealized after-tax losses amounting to
$12.7 million relating to the subsidiaries' Hedges for which Cash Flow Hedge
Accounting was used were for a term of less than two years and $11.6 million of
after-tax losses relating to such Hedges were expected to be reclassified from
accumulated other comprehensive income to income within the next 12 months.
Con Edison Energy (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 and installed capacity, gas or oil (which may
provide for either physical or financial settlement)
<Page>
and is considered an "energy trading organization" required to account for
such trading activities in accordance with FASB EITF Issue No. 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." With respect to such contracts entered into by Con Edison
Energy, Con Edison recognized in income unrealized mark-to-market pre-tax net
gains of $9.6 million in 2001.
INTEREST RATE HEDGING
O&R and Con Edison Development (which invests in and manages energy
infrastructure projects) use Cash Flow Hedge Accounting for their interest rate
swap agreements. 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, 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, the company recognized after-tax transition adjustment losses relating to
the swap agreement of $8.1 million in other comprehensive income. In 2001 the
company reclassified $1.2 million of such losses from accumulated other
comprehensive income to income. As of December 31, 2001, unrealized after-tax
losses relating to the swap agreement amounted to $8.3 million of which $1.1
million were expected to be reclassified from accumulated other comprehensive
income to income within the next 12 months.
In connection with $95 million of variable rate loans undertaken relating to the
Lakewood electric generating plant, Con Edison Development 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, the company recognized after-tax transition
adjustment losses relating to the swap agreements of $1.6 million in other
comprehensive income. In 2001 the company reclassified $1.2 million of such
losses from accumulated other comprehensive income to income. As of December 31,
2001, unrealized after-tax losses relating to the swap agreements amounted to
$3.4 million of which $1.9 million were expected to be reclassified from
accumulated other comprehensive income to income within the next 12 months.
<Page>
COMPREHENSIVE INCOME
Unrealized (losses)/gains on derivatives, net of tax included in Accumulated
other comprehensive income was as follows:
<Table>
<Caption>
Twelve Months Ended
(Millions of Dollars) December 31, 2001
- --------------------- -----------------
Unrealized (losses)/gains on derivatives qualified as
Hedges due to cumulative effect of a change in accounting
Principles, net of $5.6 taxes $ (8.0)
Unrealized (losses)/gains on derivatives qualified as
Hedges, net of $21.9 taxes (31.2)
Reclassification adjustment for gains/(losses) included
in net income, net of $10.3 taxes 14.8
-----
Unrealized (losses)/gains on derivatives qualified as
hedges, at December 31, 2001 $(24.4)
======
</Table>
NOTE P NORTHEAST UTILITIES
In March 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). In May 2001 Con Edison amended its
complaint. As amended Con Edison's complaint seeks, among other things, recovery
of damages sustained by it as a result of the material breach of the merger
agreement by Northeast Utilities and 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.
In June 2001 Northeast Utilities withdrew the separate action it commenced in
March 2001 in the same court and filed as a counter-claim to Con Edison's
amended complaint its claim that Con Edison materially breached the merger
agreement and that as a result 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.
Con Edison believes that Northeast Utilities has materially breached the merger
agreement, and that Con Edison has not materially breached the merger agreement.
Con Edison believes 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.
Those obligations include the obligation that it carry on its businesses in the
ordinary
<Page>
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 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 Q WORLD TRADE CENTER ATTACK
Con Edison of New York estimates that it will incur approximately $400
million of costs for emergency response, temporary restoration and permanent
replacement of electric, gas and steam transmission and distribution
facilities damaged as a result of the September 11, 2001 attack on the World
Trade Center. Most of the costs are expected to be capital in nature. In
December 2001 Con Edison of New York filed a petition with the NYPSC for
authorization to defer the costs. The company estimates that its insurers
will cover approximately $65 million of the costs. The company expects the
NYPSC to permit recovery from customers of the costs, net of any Federal
reimbursement, insurance payment and tax savings. At December 31, 2001, the
company had capitalized $54.9 million of such costs as utility plant and
deferred $32.9 million of such costs as a regulatory asset. In addition at
December 31, 2001, the company accrued a regulatory liability to defer
recognition in income of an $81.5 million tax refund claim resulting from a
casualty loss deduction taken by the company relating to the attack.