FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
[x] Quarterly Report Pursuant To Section 13 or
15(d) of the Securities Exchange Act of
1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------------
Commission Exact name of registrant as specified in its charter State of I.R.S. Employer
File Number and principal office address and telephone number Incorporation I.D. Number
1-14514 CONSOLIDATED EDISON, INC. New York 13-3965100
4 Irving Place, New York, New York 10003
(212) 460-4600
1-1217 CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC. New York 13-5009340
4 Irving Place, New York, New York 10003
(212) 460-4600
Each Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of the close of business on July 31, 1999, (i) Consolidated Edison,
Inc. ("CEI") had outstanding 221,020,241 Common Shares ($.10 par value) and
(ii) all of the outstanding Common Stock ($2.50 par value) of Consolidated
Edison Company of New York, Inc. was held by CEI.
- 2 -
TABLE OF CONTENTS
PAGE
FILING FORMAT 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Edison, Inc.
Consolidated Balance Sheet 3-4
Consolidated Income Statements 5-7
Consolidated Statements of Cash Flows 8-9
Consolidated Edison Company of New York, Inc.
Consolidated Balance Sheet 10-11
Consolidated Income Statements 12-14
Consolidated Statement of Cash Flows 15-16
Notes to Financial Statements 17-19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 20-29
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 29
ABOUT MARKET RISK
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 30-31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 31-32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 32-33
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined quarterly report being filed
separately by two different registrants: Consolidated Edison. Inc. ("CEI") and
Consolidated Edison Company of New York, Inc. ("Con Edison"). CEI is a holding
company that owns all of the outstanding Common Stock ($2.50 par value) of Con
Edison, has certain other subsidiaries, and has no significant business
operations other than through its subsidiaries. Any references in this report to
the "Company" are to CEI and Con Edison, collectively. Con Edison makes no
representation as to the information contained in this report relating to CEI
and the subsidiaries of CEI other than Con Edison.
-3-
CONSOLIDATED EDISON, INC.
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998
As at
-------------------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998
------------- ----------------- -------------
(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric $11,140,874 $12,039,082 $11,878,103
Gas 1,885,118 1,838,550 1,784,322
Steam 613,888 604,761 588,534
General 1,221,663 1,204,262 1,203,749
----------- ----------- -----------
Total 14,861,543 15,686,655 15,454,708
Less: Accumulated depreciation 4,508,545 4,726,211 4,562,740
----------- ----------- -----------
Net 10,352,998 10,960,444 10,891,968
Construction work in progress 317,186 347,262 298,349
Nuclear fuel assemblies and components, less
accumulated amortization 84,368 98,837 105,515
----------- ----------- -----------
NET UTILITY PLANT 10,754,552 11,406,543 11,295,832
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary cash investments 291,135 102,295 105,008
Funds held - divestiture of utility plant 1,101,814 -- --
Funds held for refunding of debt -- -- 99,519
Accounts receivable - customer, less allowance for
uncollectible accounts of $27,998, $24,957 and $22,570 522,584 521,648 521,262
Other receivables 56,470 49,381 56,653
Fuel, at average cost 16,664 33,289 34,745
Gas in storage, at average cost 32,899 49,656 40,701
Materials and supplies, at average cost 150,984 184,916 191,489
Prepayments 155,440 131,374 74,260
Other current assets 37,746 20,984 16,176
----------- ----------- -----------
TOTAL CURRENT ASSETS 2,365,736 1,093,543 1,139,813
----------- ----------- -----------
INVESTMENTS
Nuclear decommissioning trust funds 288,361 265,063 240,603
Other 172,374 113,382 100,821
----------- ----------- -----------
TOTAL INVESTMENTS 460,735 378,445 341,424
----------- ----------- -----------
DEFERRED CHARGES
Enlightened Energy program costs 49,394 68,381 91,026
Unamortized debt expense 138,453 135,897 135,679
Recoverable fuel costs 12,211 22,013 17,339
Power contract termination costs 71,233 70,621 69,943
Other deferred charges 284,160 254,944 245,338
----------- ----------- -----------
TOTAL DEFERRED CHARGES 555,451 551,856 559,325
----------- ----------- -----------
REGULATORY ASSET - FUTURE FEDERAL INCOME TAXES 808,006 951,016 899,799
----------- ----------- -----------
TOTAL $14,944,480 $14,381,403 $14,236,193
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
-4-
CONSOLIDATED EDISON, INC.
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998
As at
-----------------------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998
------------- ----------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, authorized 500,000,000 shares;
outstanding 223,101,749 shares, 232,833,494 shares
and 234,151,294 shares $ 1,482,341 $ 1,482,341 $ 1,482,343
Retained earnings 4,697,439 4,700,500 4,468,930
Treasury stock, at cost; 12,045,900 shares, 2,654,600
shares and 1,336,800 shares (579,519) (120,790) (59,340)
Capital stock expense (36,221) (36,446) (36,835)
------------ ------------ ------------
TOTAL COMMON SHAREHOLDERS' EQUITY 5,564,040 6,025,605 5,855,098
Preferred stock subject to mandatory redemption 37,050 37,050 84,550
Other preferred stock 212,563 212,563 233,468
Long-term debt 4,200,120 4,050,108 4,197,576
------------ ------------ ------------
TOTAL CAPITALIZATION 10,013,773 10,325,326 10,370,692
------------ ------------ ------------
NONCURRENT LIABILITIES
Obligations under capital leases 36,013 37,295 38,475
Other noncurrent liabilities 255,120 203,543 132,933
------------ ------------ ------------
TOTAL NONCURRENT LIABILITIES 291,133 240,838 171,408
------------ ------------ ------------
CURRENT LIABILITIES
Long-term debt due within one year 350,000 225,000 200,000
Accounts payable 384,963 371,274 366,314
Notes payable 258,498 -- 44,024
Customer deposits 196,010 181,236 170,653
Accrued taxes 403,963 15,670 67,718
Accrued interest 56,497 76,466 83,512
Accrued wages 79,903 83,555 80,586
Other current liabilities 188,713 188,186 186,199
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,918,547 1,141,387 1,199,006
------------ ------------ ------------
PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND
OTHER DEFERRED CREDITS
Accumulated deferred federal income tax 2,160,878 2,392,812 2,227,669
Accumulated deferred investment tax credits 138,689 154,970 159,300
Other deferred credits 421,460 126,070 108,118
------------ ------------ ------------
Total deferred credits 2,721,027 2,673,852 2,495,087
------------ ------------ ------------
TOTAL $ 14,944,480 $ 14,381,403 $ 14,236,193
============ ============ ============
The accompanying notes are an integral part of these financial statements.
-5-
CONSOLIDATED EDISON, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $1,162,543 $1,286,320
Gas 189,700 196,562
Steam 52,878 57,411
Non-utility 73,960 20,748
------------- -------------
TOTAL OPERATING REVENUES 1,479,081 1,561,041
------------- -------------
OPERATING EXPENSES
Purchased power 281,451 324,426
Fuel 121,427 123,870
Gas purchased for resale 78,012 86,902
Other operations 274,619 289,388
Maintenance 107,089 132,709
Depreciation and amortization 133,615 129,265
Taxes, other than federal income tax 284,979 290,415
Federal income tax 48,204 36,015
------------- -------------
TOTAL OPERATING EXPENSES 1,329,396 1,412,990
------------- --------------
OPERATING INCOME 149,685 148,051
OTHER INCOME (DEDUCTIONS)
Investment income 606 3,080
Allowance for equity funds used during 937 575
construction
Other income less miscellaneous deductions (919) 1,038
Federal income tax (658) 525
--------------- ---------------
TOTAL OTHER INCOME (34) 5,218
---------------- --------------
INCOME BEFORE INTEREST CHARGES 149,651 153,269
Interest on long-term debt 75,820 76,985
Other interest 4,473 10,066
Allowance for borrowed funds used during (438) (294)
construction --------------- -------------
79,855 86,757
NET INTEREST CHARGES --------------- -------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 3,398 4,536
--------------- ---------------
NET INCOME FOR COMMON STOCK $ 66,398 $ 61,976
============= =============
COMMON SHARES OUTSTANDING - AVERAGE (000) 225,982 234,992
BASIC AND DILUTED EARNINGS PER SHARE $ 0.30 $ 0.26
============= =============
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.535 $ 0.53
============= =============
The accompanying notes are an integral part of these financial statements.
-6-
CONSOLIDATED EDISON, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $ 2,356,043 $ 2,577,643
Gas 571,042 595,732
Steam 193,611 192,801
Non-utility 134,971 47,912
----------- -----------
TOTAL OPERATING REVENUES 3,255,667 3,414,088
----------- -----------
OPERATING EXPENSES
Purchased power 569,277 682,676
Fuel 238,967 258,424
Gas purchased for resale 258,543 276,341
Other operations 566,591 565,218
Maintenance 212,515 250,684
Depreciation and amortization 266,323 257,523
Taxes, other than federal income tax 585,359 592,634
Federal income tax 149,939 127,976
----------- -----------
TOTAL OPERATING EXPENSES 2,847,514 3,011,476
----------- -----------
OPERATING INCOME 408,153 402,612
OTHER INCOME (DEDUCTIONS)
Investment income 2,022 5,984
Allowance for equity funds used during construction 1,909 1,087
Other income less miscellaneous deductions (1,287) 535
Federal income tax (878) (454)
----------- -----------
TOTAL OTHER INCOME 1,766 7,152
----------- -----------
INCOME BEFORE INTEREST CHARGES 409,919 409,764
Interest on long-term debt 151,663 156,043
Other interest 9,306 11,313
Allowance for borrowed funds used during construction (892) (557)
----------- -----------
NET INTEREST CHARGES 160,077 166,799
----------- -----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 6,796 9,072
----------- -----------
NET INCOME FOR COMMON STOCK $ 243,046 $ 233,893
=========== ===========
COMMON SHARES OUTSTANDING - AVERAGE (000) 228,496 235,205
BASIC AND DILUTED EARNINGS PER SHARE $ 1.06 $ 0.99
=========== ===========
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 1.07 $ 1.06
=========== ===========
The accompanying notes are an integral part of these financial statements.
-7
CONSOLIDATED EDISON, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $ 5,452,845 $ 5,715,902
Gas 934,919 1,021,216
Steam 322,742 360,151
Non-utility 224,120 89,328
----------- -----------
TOTAL OPERATING REVENUES 6,934,626 7,186,597
----------- -----------
OPERATING EXPENSES
Purchased power 1,140,384 1,365,334
Fuel 559,550 581,468
Gas purchased for resale 419,511 487,733
Other operations 1,159,328 1,122,965
Maintenance 439,244 464,450
Depreciation and amortization 527,314 512,182
Taxes, other than federal income tax 1,200,827 1,197,978
Federal income tax 429,602 389,767
----------- -----------
TOTAL OPERATING EXPENSES 5,875,760 6,121,877
----------- -----------
OPERATING INCOME 1,058,866 1,064,720
OTHER INCOME (DEDUCTIONS)
Investment income 7,839 14,220
Allowance for equity funds used during construction 3,253 2,215
Other income less miscellaneous deductions (16,034) (2,839)
Federal income tax 1,805 (853)
----------- -----------
TOTAL OTHER INCOME (3,137) 12,743
----------- -----------
INCOME BEFORE INTEREST CHARGES 1,055,729 1,077,463
Interest on long-term debt 304,291 316,257
Other interest 16,393 20,695
Allowance for borrowed funds used during construction (1,581) (1,110)
----------- -----------
NET INTEREST CHARGES 319,103 335,842
----------- -----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 14,731 18,209
----------- -----------
NET INCOME FOR COMMON STOCK $ 721,895 $ 723,412
=========== ===========
COMMON SHARES OUTSTANDING - AVERAGE (000) 230,797 235,152
BASIC AND DILUTED EARNINGS PER SHARE $ 3.13 $ 3.08
=========== ===========
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 2.13 $ 2.11
=========== ===========
The accompanying notes are an integral part of these financial statements.
-8-
CONSOLIDATED EDISON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net income for common stock $ 243,046 $ 233,893
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 266,323 257,523
Deferred recoverable fuel costs 9,802 80,962
Federal income tax deferred (385,669) (17,810)
Common equity component of allowance for funds
used during construction (1,870) (1,057)
Other non-cash charges (credits) 16,954 (7,139)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable-customer, less allowance for uncollectibles (936) 59,901
Materials and supplies, including fuel and gas in storage 67,314 15,730
Prepayments, other receivables and other current assets (47,917) 3,961
Enlightened Energy program costs 18,987 26,781
Power contract termination costs (1,050) 904
Cost of removal less salvage 572,521 (36,390)
Accounts payable 13,689 (73,800)
Accrued income taxes 385,319 15,760
Other-net (182) 2,244
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,156,331 561,463
----------- -----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (271,035) (264,331)
Nuclear fuel expenditures (2,947) (3,194)
Contributions to nuclear decommissioning trust (10,650) (10,650)
Common equity component of allowance for funds
used during construction 1,870 1,057
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (282,762) (277,118)
----------- -----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Utility plant divestiture 560,351 --
Funds held-divestiture of utility plant (1,101,814) --
Repurchase of common stock (423,500) (59,340)
Net proceeds from short-term debt 258,498 44,024
Issuance of long-term debt 275,000 385,000
Retirement of long-term debt -- (100,000)
Advance refunding of long-term debt -- (605,240)
Issuance and refunding costs (8,716) (6,975)
Funds held for refunding of debt -- 229,355
Common stock dividends (244,548) (249,619)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (684,729) (362,795)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 188,840 (78,450)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 102,295 183,458
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 291,135 $ 105,008
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 145,132 $ 153,463
Income taxes 118,283 174,426
The accompanying notes are an integral part of these financial statements.
-9-
CONSOLIDATED EDISON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net income for common stock $ 721,895 $ 723,412
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 527,314 512,182
Deferred recoverable fuel costs 5,128 25,831
Federal income tax deferred (281,429) (69,550)
Common equity component of allowance for funds
used during construction (3,177) (2,153)
Other non-cash charges (credits) 35,391 (3,551)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable-customer, less allowance for uncollectibles (1,322) (48,489)
Materials and supplies, including fuel and gas in storage 66,388 5,546
Prepayments, other receivables and other current assets (102,567) 213,132
Enlightened Energy program costs 41,632 29,811
Power contract termination costs (1,050) (2,959)
Cost of removal less salvage 536,879 (81,571)
Accounts payable 18,649 (9,124)
Accrued income taxes 322,980 120,997
Other-net 73,914 63,568
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,960,625 1,477,082
----------- -----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (625,548) (626,244)
Nuclear fuel expenditures (6,809) (10,543)
Contributions to nuclear decommissioning trust (21,301) (14,904)
Common equity component of allowance for funds
used during construction 3,177 2,153
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (650,481) (649,538)
----------- -----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Utility plant divestiture 560,351 --
Funds held - divestiture of utility plant (1,101,814) --
Repurchase of common stock (479,407) (59,340)
Net proceeds from short-term debt 214,474 29,024
Issuance of long-term debt 350,000 715,000
Retirement of long-term debt (100,000) (202,630)
Advance refunding of preferred stock (68,405) --
Advance refunding of long-term debt (100,000) (605,240)
Issuance and refunding costs (10,605) (15,495)
Funds held for refunding of debt 99,519 (99,519)
Common stock dividends (488,130) (496,567)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (1,124,017) (734,767)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 186,127 92,777
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 105,008 12,231
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 291,135 $ 105,008
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 277,625 $ 312,087
Income taxes 299,564 383,879
The accompanying notes are an integral part of these financial statements.
-10-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
BALANCE SHEET
AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998
As at
-------------------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998
------------- ----------------- -------------
(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric $11,140,874 $12,039,082 $11,878,103
Gas 1,885,118 1,838,550 1,784,322
Steam 613,888 604,761 588,534
General 1,221,663 1,204,262 1,203,749
----------- ----------- -----------
Total 14,861,543 15,686,655 15,454,708
Less: Accumulated depreciation 4,508,545 4,726,211 4,562,740
----------- ----------- -----------
Net 10,352,998 10,960,444 10,891,968
Construction work in progress 317,186 347,262 298,349
Nuclear fuel assemblies and components, less
accumulated amortization 84,368 98,837 105,515
----------- ----------- -----------
NET UTILITY PLANT 10,754,552 11,406,543 11,295,832
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary cash investments 274,533 30,026 20,258
Funds held-divestiture of utility plant 1,101,814 -- --
Funds held for refunding of debt -- -- 99,519
Accounts receivable - customer, less allowance for
uncollectible accounts of $24,107, $22,600 and
$21,739 480,574 491,493 508,905
Other receivables 54,668 45,935 47,306
Fuel, at average cost 16,664 33,289 34,745
Gas in storage, at average cost 30,923 46,801 37,985
Materials and supplies, at average cost 150,984 184,916 191,489
Prepayments 151,381 130,198 72,956
Other current assets 34,222 20,911 16,163
----------- ----------- -----------
TOTAL CURRENT ASSETS 2,295,763 983,569 1,029,326
----------- ----------- -----------
INVESTMENTS
Nuclear decommissioning trust funds 288,361 265,063 240,603
Other 15,705 14,750 13,699
----------- ----------- -----------
TOTAL INVESTMENTS 304,066 279,813 254,302
----------- ----------- -----------
DEFERRED CHARGES
Enlightened Energy program costs 49,394 68,381 91,026
Unamortized debt expense 138,453 135,897 135,679
Recoverable fuel costs 12,211 22,013 17,339
Power contract termination costs 71,233 70,621 69,943
Other deferred charges 284,160 254,944 245,338
----------- ----------- -----------
TOTAL DEFERRED CHARGES 555,451 551,856 559,325
----------- ----------- -----------
REGULATORY ASSET - FUTURE FEDERAL INCOME TAXES 808,006 951,016 899,799
----------- ----------- -----------
TOTAL $14,717,838 $14,172,797 $14,038,584
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-11-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
BALANCE SHEET
AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998
As at
----------------------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998
------------- ----------------- -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock $ 1,482,341 $ 1,482,341 $ 1,482,343
Repurchased CEI common stock (563,874) (120,790) (59,340)
Retained earnings 4,524,170 4,517,529 4,273,902
Capital stock expense (36,221) (36,356) (36,835)
------------ ------------ ------------
TOTAL COMMON SHAREHOLDERS' EQUITY 5,406,416 5,842,724 5,660,070
------------ ------------ ------------
Preferred stock
Subject to mandatory redemption
7.20% Series I -- -- 47,500
6-1/8% Series J 37,050 37,050 37,050
------------ ------------ ------------
TOTAL SUBJECT TO MANDATORY REDEMPTION 37,050 37,050 84,550
------------ ------------ ------------
Other preferred stock
$5 Cumulative Preferred 175,000 175,000 175,000
5-3/4% Series A -- -- 7,061
5-1/4% Series B -- -- 13,844
4.65% Series C 15,330 15,330 15,330
4.65% Series D 22,233 22,233 22,233
------------ ------------ ------------
TOTAL OTHER PREFERRED STOCK 212,563 212,563 233,468
------------ ------------ ------------
TOTAL PREFERRED STOCK 249,613 249,613 318,018
------------ ------------ ------------
Long-term debt 4,200,120 4,050,108 4,197,576
------------ ------------ ------------
TOTAL CAPITALIZATION 9,856,149 10,142,445 10,175,664
------------ ------------ ------------
NONCURRENT LIABILITIES
Obligations under capital leases 35,858 37,295 38,475
Other noncurrent liabilities 255,120 203,543 132,933
------------ ------------ ------------
TOTAL NONCURRENT LIABILITIES 290,978 240,838 171,408
------------ ------------ ------------
CURRENT LIABILITIES
Long-term debt due within one year 350,000 225,000 200,000
Accounts payable 369,839 357,315 354,532
Notes payable 221,498 -- 44,024
Customer deposits 207,671 181,236 180,853
Accrued taxes 400,926 17,621 74,662
Accrued interest 56,538 76,507 83,512
Accrued wages 79,903 83,555 80,586
Other current liabilities 180,329 184,989 183,704
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,866,704 1,126,223 1,201,873
------------ ------------ ------------
PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND
OTHER DEFERRED CREDITS
Accumulated deferred federal income tax 2,143,860 2,382,273 2,222,210
Accumulated deferred investment tax credits 138,689 154,970 159,300
Other deferred credits 421,458 126,048 108,129
------------ ------------ ------------
Total deferred credits 2,704,007 2,663,291 2,489,639
------------ ------------ ------------
TOTAL $ 14,717,838 $ 14,172,797 $ 14,038,584
============ ============ ============
The accompanying notes are an integral part of these financial statements.
-12-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $ 1,200,080 $ 1,289,860
Gas 189,700 196,562
Steam 52,878 57,411
--------------- ---------------
TOTAL OPERATING REVENUES 1,442,658 1,543,833
--------------- ---------------
OPERATING EXPENSES
Purchased power 274,556 322,147
Fuel 121,427 123,870
Gas purchased for resale 65,192 75,033
Other operations 258,179 281,340
Maintenance 107,089 132,709
Depreciation and amortization 133,040 129,002
Taxes, other than federal income tax 281,313 290,265
Federal income tax 49,421 37,500
--------------- ---------------
TOTAL OPERATING EXEENSES 1,290,217 1,391,866
--------------- ---------------
OPERATING INCOME 152,441 151,967
OTHER INCOME (DEDUCTIONS)
Investment income 130 1,665
Allowance for equity funds used during 937 575
construction
Other income less miscellaneous deductions (608) (1,462)
Federal income tax (887) 1,766
--------------- ---------------
TOTAL OTHER INCOME (428) 2,544
--------------- ---------------
INCOME BEFORE INTEREST CHARGES 152,013 154,511
Interest on long-term debt 75,820 76,985
Other interest 4,061 10,066
Allowance for borrowed funds used during
construction (438) (294)
--------------- ---------------
NET INTEREST CHARGES 79,443 86,757
--------------- ---------------
NET INCOME 72,570 67,754
PREFERRED STOCK DIVIDEND REQUIREMENTS 3,398 4,536
--------------- ---------------
NET INCOME FOR COMMON STOCK $ 69,172 $ 63,218
============== ==============
CON EDISON SALES
Electric (thousands of kilowatthours)
Con Edison customers 7,167,682 8,760,065
Delivery service for Retail Choice 1,817,004 19,680
Delivery service to NYPA and others 2,256,496 2,351,811
------------- -------------
Total sales in service territory 11,241,182 11,131,556
Off-system and ESCO sales 2,470,029 411,652
Gas (dekatherms)
Firm sales and transportation 17,609,992 17,845,799
Off-peak firm/interruptible 2,799,192 3,646,403
------------- -------------
Total sales to Con Edison customers 20,409,184 21,492,202
Transportation of customer-owned gas
NYPA 2,251,072 641,921
Other 4,667,475 3,598,938
Off-system sales 8,003,871 4,600,307
------------- -------------
Total sales and transportation 35,331,602 30,333,368
Steam (thousands of pounds) 4,558,681 4,540,725
The accompanying notes are an integral part of these financial statements.
-13-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $ 2,410,274 $ 2,581,183
Gas 571,042 595,732
Steam 193,611 192,801
------------ ------------
TOTAL OPERATING REVENUES 3,174,927 3,369,716
------------ ------------
OPERATING EXPENSES
Purchased power 556,998 680,383
Fuel 238,967 258,424
Gas purchased for resale 213,253 239,743
Other operations 535,767 549,500
Maintenance 212,515 250,684
Depreciation and amortization 265,313 257,054
Taxes, other than federal income tax 580,189 592,383
Federal income tax 154,187 131,640
------------ ------------
TOTAL OPERATING EXPENSES 2,757,189 2,959,811
------------ ------------
OPERATING INCOME 417,738 409,905
OTHER INCOME (DEDUCTIONS)
Investment income 192 2,708
Allowance for equity funds used during construction 1,909 1,087
Other income less miscellaneous deductions (1,243) (1,966)
Federal income tax (945) 1,363
------------ ------------
TOTAL OTHER INCOME (87) 3,192
------------ ------------
INCOME BEFORE INTEREST CHARGES 417,651 413,097
Interest on long-term debt 151,663 156,043
Other interest 8,895 11,313
Allowance for borrowed funds used during construction (892) (557)
------------ ------------
NET INTEREST CHARGES 159,666 166,799
------------ ------------
NET INCOME 257,985 246,298
PREFERRED STOCK DIVIDEND REQUIREMENTS 6,796 9,072
------------ ------------
NET INCOME FOR COMMON STOCK $ 251,189 $ 237,226
============ ============
CON EDISON SALES
Electric (thousands of kilowatthours)
Con Edison customers 15,573,926 17,790,466
Delivery service for Retail Choice 2,866,072 19,680
Delivery service to NYPA and others 4,729,835 4,806,032
------------ ------------
Total sales in service territory 23,169,833 22,616,178
Off-system and ESCO sales 3,828,190 760,433
Gas (dekatherms)
Firm sales and transportation 58,205,342 54,285,625
Off-peak firm/interruptible 7,962,748 11,187,254
------------ ------------
Total sales to Con Edison customers 66,168,090 65,472,879
Transportation of customer-owned gas
NYPA 2,267,025 1,725,535
Other 11,468,573 7,186,264
Off-system sales 16,461,693 9,932,608
------------ ------------
Total sales and transportation 96,365,381 84,317,286
Steam (thousands of pounds) 14,774,938 13,526,399
The accompanying notes are an integral part of these financial statements.
-14-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING REVENUES
Electric $ 5,546,211 $ 5,719,441
Gas 934,919 1,021,216
Steam 322,742 360,151
Non-utility -- 41,416
------------- -------------
TOTAL OPERATING REVENUES 6,803,872 7,142,224
------------- -------------
OPERATING EXPENSES
Purchased power 1,128,650 1,363,041
Fuel 559,550 581,468
Gas purchased for resale 343,613 451,135
Other operations 1,104,053 1,107,247
Maintenance 439,244 464,450
Depreciation and amortization 526,084 511,712
Taxes, other than federal income tax 1,190,415 1,197,727
Federal income tax 437,357 393,431
------------- -------------
TOTAL OPERATING EXPENSES 5,728,966 6,070,211
------------- -------------
OPERATING INCOME 1,074,906 1,072,013
OTHER INCOME (DEDUCTIONS)
Investment income 3,646 10,945
Allowance for equity funds used during construction 3,253 2,215
Other income less miscellaneous deductions (4,554) (5,339)
Federal income tax (1,733) 963
------------- -------------
TOTAL OTHER INCOME 612 8,784
------------- -------------
INCOME BEFORE INTEREST CHARGES 1,075,518 1,080,797
Interest on long-term debt 304,291 316,257
Other interest 15,982 20,695
Allowance for borrowed funds used during construction (1,581) (1,110)
------------- -------------
NET INTEREST CHARGES 318,692 335,842
------------- -------------
NET INCOME 756,826 744,955
PREFERRED STOCK DIVIDEND REQUIREMENTS 14,731 18,209
------------- -------------
NET INCOME FOR COMMON STOCK $ 742,095 $ 726,746
============= =============
CON EDISON SALES
Electric (thousands of kilowatthours)
Con Edison customers 34,157,476 38,105,191
Delivery service for Retail Choice 5,263,714 19,680
Delivery service to NYPA and others 9,778,052 9,684,407
------------- -------------
Total sales in service territory 49,199,242 47,809,278
Off-system and ESCO sales 7,022,853 2,247,172
Gas (dekatherms)
Firm sales and transportation 88,345,955 88,757,674
Off-peak firm/interruptible 14,238,395 21,679,035
------------- -------------
Total sales to Con Edison customers 102,584,350 110,436,709
Transportation of customer-owned gas
NYPA 4,802,398 11,398,600
Other 18,760,578 11,389,385
Off-system sales 32,511,285 19,131,031
------------- -------------
Total sales and transportation 158,658,611 152,355,725
Steam (thousands of pounds) 26,244,233 26,011,444
The accompanying notes are an integral part of these financial statements.
-15-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net income $ 257,985 $ 246,298
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 265,313 257,054
Deferred recoverable fuel costs 9,802 80,962
Federal income tax deferred (392,148) (17,810)
Common equity component of allowance for funds
used during construction (1,870) (1,057)
Other non-cash charges (credits) 16,954 (7,139)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable-customer, less allowance for uncollectibles 10,919 49,334
Materials and supplies, including fuel and gas in storage 66,435 18,446
Prepayments, other receivables and other current assets (43,227) 8,315
Enlightened Energy program costs 18,987 26,781
Power contract termination costs (1,050) 904
Cost of removal less salvage 572,521 (36,390)
Accounts payable 12,524 (60,932)
Accrued income taxes 380,854 23,072
Other-net 81,795 19,345
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,255,794 607,183
----------- -----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (271,035) (264,331)
Nuclear fuel expenditures (2,947) (3,194)
Contributions to nuclear decommissioning trust (10,650) (10,650)
Common equity component of allowance for funds
used during construction 1,870 1,057
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (282,762) (277,118)
----------- -----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Utility plant divestiture 560,351 --
Funds held-divestiture of utility plant (1,101,814) --
Repurchase of common stock (423,500) (59,340)
Net proceeds from short-term debt 221,498 44,024
Issuance of long-term debt 275,000 385,000
Retirement of long-term -- (100,000)
debt
Advance refunding of long-term debt -- (605,240)
Issuance and refunding costs (8,716) (6,975)
Funds held for refunding of debt -- 229,355
Common stock dividends (244,548) (249,619)
Preferred stock dividends (6,796) (9,066)
Corporate reorganization -- (121,404)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (728,525) (493,265)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS 244,507 (163,200)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 30,026 183,458
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 274,533 $ 20,258
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 145,132 $ 153,463
Income taxes 129,217 174,426
The accompanying notes are an integral part of these financial statements.
-16-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net income $ 756,826 $ 744,955
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 526,084 511,712
Deferred recoverable fuel costs 5,128 25,831
Federal income tax deferred (287,908) (69,550)
Common equity component of allowance for funds
used during construction (3,177) (2,153)
Other non-cash charges (credits) 35,391 (3,551)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable-customer, less allowance for uncollectibles 28,331 (59,056)
Materials and supplies, including fuel and gas in storage 65,648 8,262
Prepayments, other receivables and other current assets (103,846) 217,484
Enlightened Energy program costs 41,632 29,811
Power contract termination costs (1,050) (2,959)
Cost of removal less salvage 536,879 (81,571)
Accounts payable 15,307 3,745
Accrued income taxes 310,957 128,309
Other-net 159,184 80,736
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,085,386 1,532,005
----------- -----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (625,548) (626,244)
Nuclear fuel expenditures (6,809) (10,543)
Contributions to nuclear decommissioning trust (21,301) (14,904)
Common equity component of allowance for funds
used during construction 3,177 2,153
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (650,481) (649,538)
----------- -----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Utility plant divestiture 560,351 --
Funds held - divestiture of utility plant (1,101,814) --
Repurchase of common stock (479,407) (59,340)
Net proceeds from short-term debt 177,474 29,024
Issuance of long-term debt 350,000 715,000
Retirement of long-term debt (100,000) (202,630)
Refunding of preferred stock (68,405) --
Advance refunding of long-term debt (100,000) (605,240)
Issuance and refunding costs (10,605) (15,495)
Funds held for refunding of debt 99,519 (99,519)
Common stock dividends (491,874) (496,567)
Preferred stock dividends (15,869) (18,269)
Corporate reorganization -- (121,404)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (1,180,630) (874,440)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 254,275 8,027
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 20,258 12,231
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 274,533 $ 20,258
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 277,625 $ 312,087
Income taxes 329,916 383,879
The accompanying notes are an integral part of these financial statements.
-17-
NOTE A - GENERAL
These footnotes accompany and form an integral part of (i) the interim
consolidated financial statements of Consolidated Edison, Inc. ("CEI") and its
subsidiaries, including the regulated utility Consolidated Edison Company of New
York, Inc. ("Con Edison") and several non-utility subsidiaries but not including
the regulated utility Orange and Rockland Utilities, Inc. (which CEI acquired in
July 1999), and (ii) the interim consolidated financial statements of Con Edison
on a stand-alone basis. These financial statements are unaudited but, in the
respective opinions of the management of CEI and Con Edison, represent all
adjustments (which include only normally recurring adjustments) necessary for a
fair statement of the results for the interim periods presented. These financial
statements should be read together with the audited financial statements
(including the notes thereto) included in the combined CEI and Con Edison Annual
Reports on Form 10-K for the year ended December 31, 1998 (the"1998 Form 10-K").
NOTE B - CONTINGENCIES
INDIAN POINT
Nuclear generating units similar in design to Con Edison's Indian Point 2 unit
have experienced problems that have required steam generator replacement.
Inspections of the Indian Point 2 steam generators since 1976 have revealed
various problems, some of which appear to have been arrested, but the remaining
service life of the steam generators is uncertain. The projected service life of
the steam generators is reassessed periodically in the light of the inspections
made during scheduled outages of the unit. Based on the latest available data
and current NRC criteria, Con Edison estimates that steam generator replacement
will not be required before 2002. Con Edison has replacement steam generators,
which are stored at the site. Replacement of the steam generators would require
estimated additional expenditures of up to $100 million (exclusive of
replacement power costs) and an outage of approximately three months. However,
securing necessary permits and approvals or other factors could require a
substantially longer outage if steam generator replacement is required on short
notice.
The Settlement Agreement (described in Note A to the financial statements
included in the 1998 Form 10-K) does not contemplate the divestiture or transfer
of Indian Point 2. The PSC has, however, initiated a proceeding to consider the
future of nuclear generating facilities in New York State.
NUCLEAR INSURANCE
The insurance policies covering Con Edison's nuclear facilities for property
damage, excess property damage, and outage costs permit assessments under
certain conditions to cover insurers' losses. As of June 30, 1999, the highest
amount that could be assessed for losses during the current policy year under
all of the policies was $18.9 million. While assessments may also be made for
losses in certain prior years, neither CEI nor Con Edison is aware of any losses
in such years that it believes are likely to result in an assessment.
Under certain circumstances, in the event of nuclear incidents at facilities
covered by the federal government's third-party liability indemnification
program, Con Edison could be assessed up to $88.1 million per incident, of which
not more than $10 million may be assessed in any one year.
-18-
ENVIRONMENTAL MATTERS
The normal course of operations of certain of CEI's subsidiaries, including Con
Edison, necessarily involves activities and substances that expose the
subsidiaries to potential liabilities under laws and regulations protecting the
environment. Liabilities under these laws and regulations 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. Sources of potential environmental liabilities include (but are not
limited to) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund) and similar state statutes and asbestos.
Superfund. By its terms Superfund imposes joint and several strict
liability, regardless of fault, upon generators of hazardous substances for
resulting removal and remedial costs and environmental damages. Con Edison has
received process or notice concerning possible claims under Superfund or similar
state statutes relating to a number of sites at which it is alleged that
hazardous substances generated by Con Edison (and, in most instances, a large
number of other potentially responsible parties) were deposited. Estimates of
Con Edison's liability for these sites range from extremely preliminary to
highly refined. At June 30, 1999, a liability of approximately $22.3 million had
been accrued. There will be additional costs in amounts that are not presently
determinable but may be material to the respective financial position, results
of operations or liquidity of CEI and Con Edison.
Asbestos Claims. Suits have been brought in New York State and federal
courts against Con Edison 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 Con
Edison. Many of these suits have been disposed of without any payment by Con
Edison, or for immaterial amounts. The amounts specified in all the remaining
suits total billions of dollars but CEI and Con Edison believe that these
amounts are greatly exaggerated, as were the claims already disposed of. Based
on the information and relevant circumstances known to CEI and Con Edison at
this time, neither CEI nor Con Edison believe that these suits will have a
material adverse effect on their respective financial position, results of
operations or liquidity.
NOTE C - FINANCIAL INFORMATION BY CEI BUSINESS SEGMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Electric Gas
1999 1998 1999 1998
---- ---- - ---- - ----
Sales revenue $ 1,162,543 $ 1,286,320 $ 189,700 $ 196,562
Intersegment revenues 40,234 6,386 615 663
Depreciation and 112,572 109,625 15,991 15,053
amortization
Operating income 130,207 136,860 24,620 19,188
Steam Other
1999 1998 1999 1998
---- ---- - ---- - ----
Sales revenue $ 52,878 $ 57,411 $ 73,960 $ 20,748
Intersegment revenues 414 423 88 300
Depreciation and 4,476 4,324 576 263
amortization
Operating income (2,386) (4,080) (2,756) (3,917)
-19-
Total
1999 1998
Sales revenue $ 1,479,081 $ 1,561,041
Intersegment revenues 41,351 7,772
Depreciation and 133,615 129,265
amortization
Operating income 149,685 148,051
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Electric Gas
1999 1998 1999 1998
---- ---- - ---- - ----
Sales revenue $ 2,356,043 $ 2,577,643 $ 571,042 $ 595,732
Intersegment revenues 59,626 8,822 1,230 1,207
Depreciation and 224,685 218,527 31,702 29,927
amortization
Operating income 277,356 277,024 113,066 107,421
Steam Other
1999 1998 1999 1998
---- ---- - ---- - ----
Sales revenue $ 193,611 $ 192,801 $ 134,971 $ 47,912
Intersegment revenues 827 827 309 300
Depreciation and 8,925 8,600 1,011 469
amortization
Operating income 27,316 25,461 (9,585) (7,294)
Total
1999 1998
Sales revenue $ 3,255,667 $ 3,414,088
Intersegment revenues 61,992 11,156
Depreciation and 266,323 257,523
amortization
Operating income 408,153 402,612
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Edison, Inc. (CEI) is a holding company which operates only
through its subsidiaries and has no material assets other than the stock of its
subsidiaries. CEI's principal subsidiary is Consolidated Edison Company of New
York, Inc. (Con Edison), a regulated utility. In July 1999, CEI acquired Orange
and Rockland Utilities, Inc. (O&R), which is also a regulated utility. See
"Liquidity and Capital Resources - Acquisition," below. In addition, CEI has
several non-utility subsidiaries.
The following discussion and analysis relates to the interim consolidated
financial statements, included in Part I, Item 1 of this report, of (i) CEI and
its subsidiaries (other than O&R, which was acquired in July 1999) and (ii) Con
Edison on a stand-alone basis. Unless otherwise indicated, this discussion and
analysis applies to each of CEI and Con Edison. References in this report to the
"Company" are to CEI and Con Edison, collectively.
This discussion and analysis should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of the combined CEI and Con Edison Annual Reports on Form
10-K for the year ended December 31, 1998 (File Nos. 1-14514 and 1-1217, the
1998 Form 10-K) and in Part I, Item 2 of the combined CEI and Con Edison
Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 1999
(the 1999 First Quarter Form 10-Q). Reference is also made to the notes to the
financial statements in Part I, Item 1 of this report, which notes are
incorporated herein by reference.
O&R has separately filed with the Securities and Exchange Commission (File
No. 1-4315) its Annual Report on Form 10-K for the year ended December 31, 1998
and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
1999 and June 30, 1999, each of which includes a discussion and analysis of its
financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments and outstanding commercial paper for
CEI and Con Edison were as follows at the dates indicated (amounts shown in
millions):
June 30, 1999 December 31, 1998 June 30, 1998
CEI Con Edison CEI Con Edison CEI Con Edison
Cash and temporary
cash investments $291.1 $274.5 $102.3 $30.0 $105.0 $ 20.3
Outstanding commercial paper $258.5 $221.5 $ -- $ -- $ 44.0 $ 44.0
These balances reflect, among other things, the issuance of new long-term debt
in June 1999 and the stock repurchases discussed below.
At June 30, 1999, approximately $1.1 billion of net proceeds from sales of
generating capacity was being held by Con Edison pending possible investment in
"like kind property" (the intended effect of which would have been to defer
Federal income tax on the gain from the sales). See "PSC Settlement Agreement,"
below. In July 1999, Con Edison determined that it was not likely that the
investment could be completed consistent with regulatory constraints, and
instead used the net proceeds to pay dividends to CEI, to repay commercial paper
and for the CEI common stock repurchase program. CEI used dividends received
from Con Edison to repay commercial paper issued to fund initially its
acquisition of O&R.
-21-
Pursuant to the $1 billion CEI common stock repurchase program, during the
second quarter of 1999, Con Edison purchased approximately 5.0 million CEI
shares. From May 1998, when the program began, through June 30, 1999, Con Edison
purchased a total of approximately 12.0 million CEI shares at an aggregate cost
of $563.9 million. As of August 12, 1999, Con Edison had purchased approximately
15.7 million CEI shares at an aggregate cost of $726.8 million. In May 1999, CEI
purchased 432,400 shares of its common stock (at an aggregate cost of
approximately $19.8 million) to be used for exercises of options under CEI's
1996 Stock Option Plan. At June 30, 1999, approximately 340,400 of these shares
remain available for future option exercises. See "Liquidity and Capital
Resources - Sources of Liquidity Stock Repurchases" in Item 7 of the 1998 Form
10-K.
In June 1999, Con Edison issued $275 million aggregate principal amount of
40-year 7.35% debentures. In July 1999, Con Edison repaid at maturity $150
million of its floating rate taxable debentures and issued $292.7 million of
35-year adjustable rate tax-exempt debt (with an initial weekly rate of 3.10%
per annum), the proceeds of which, along with other Con Edison funds, will be
used to redeem in August 1999 its $150 million 7 1/4% Series 1989 C tax-exempt
debt and its $150 million 7 1/2% Series 1990 A tax-exempt debt.
The ratio of earnings to fixed charges (for the twelve months ended on the
date indicated) and common equity ratio (as of the date indicated) for CEI
and Con Edison were as follows:
June 30, 1999 December 31, 1998 June 30, 1998
Earnings to fixed charges:
CEI 4.44 4.29 4.19
Con Edison 4.53 4.36 4.20
Common equity ratio:
CEI 55.6 58.4 56.4
CECONY 54.9 57.6 55.6
The increase in interest coverage reflects higher pre-tax income and lower
interest expense as a result of debt refundings. The decrease in equity ratios
reflects the CEI common stock repurchase program. At July 31, 1999, CEI equity
ratio was 52.1% and Con Edison's equity ratio was 48.4%, reflecting the
continuation of the repurchase program and, in the case of Con Edison, dividends
paid to CEI in July.
Con Edison's equivalent number of days of revenue outstanding (ENDRO) as
customer accounts receivable was 25.9 days at June 30, 1999, compared with 28.0
days at December 31, 1998 and 25.6 days at June 30, 1998. Prior year ENDRO
amounts have been restated to reflect a new method for calculating ENDRO that
eliminates variations arising from the number of billing and collection days in
each month.
The prepayment balance at June 30, 1999 reflects cumulative credits to
pension expense of $99.7 million, compared with $62.0 million at December 31,
1998 and $17.0 million at June 30, 1998, resulting primarily from the
amortization of past investment gains. See Note D to the financial statements
included in Item 8 of the 1998 Form 10-K.
The increase in CEI's other investments reflects investments by
Consolidated Edison Development, Inc., a CEI subsidiary.
Recoverable fuel costs amounted to $12.2 million at June 30, 1999,
compared with $22.0 million at December 31, 1998 and $17.3 million at June 1998,
reflecting the ongoing recovery of previously deferred amounts and the changes
in volumes and unit cost of purchased power, fuel and gas purchased for resale
discussed below in "Results of Operations."
-22-
Non-current liabilities - other includes $147.1 million at June 30, 1999,
$102.0 million at December 31, 1998 and $57.9 million at June 30, 1998 for
unfunded other post-employment benefit (OPEB) obligations. The Company's policy
is to fund its estimated OPEB costs to the extent deductible under current tax
limitations. See Note E to the financial statements included in Item 8 of the
1998 Form 10-K.
The decreases in net utility plant and materials and supplies and the
increase in accrued taxes reflect sales of generating capacity. See "PSC
Settlement Agreement," below.
Open Access and the Independent System Operator
Reference is made to "Liquidity and Capital Resources - Open Access and
the Independent System Operator" in Item 7 of the 1998 Form 10-K. In July 1999,
the Federal Energy Regulatory Commission ("FERC") approved September 1, 1999 as
the start date for operation of the New York State Independent System Operator
("NYISO"), subject to FERC's approval of certain additional filings, including
filings relating to an installed capacity ("ICAP") market and the transfer to
the NYISO of functions currently performed by the New York Power Pool, and a
successful NYISO market trial.
PSC Settlement Agreement
Reference is made to "Liquidity and Capital Resources - PSC Settlement
Agreement" in Item 7 of the 1998 Form 10-K and "Liquidity and Capital Resources
- - PSC Settlement Agreement" in Part I, Item 2 of the 1999 First Quarter Form
10-Q.
In June 1999, Con Edison completed the sales of 4,434 MW of its
approximately 8,300 MW of electric generating capacity, for an aggregate price
of approximately $1.25 billion. In July 1999, Con Edison used the net proceeds
received from these sales to pay dividends to CEI, repay commercial paper and
repurchase CEI common stock. See "Acquisition," below. Con Edison expects to
complete the sale of an additional 1,855 MW of its electric generating capacity
for $550 million by the end of August 1999. The net proceeds from this sale will
be used to pay dividends to CEI and to continue the repurchase program.
Con Edison has entered into contracts ("Transition Contracts") with buyers
of the capacity it sold to purchase capacity from them for at least the period
until the NYISO ICAP market is operational and to obtain associated energy until
the commencement of NYISO operations. See "Open Access and the Independent
System Operator," above. Con Edison has submitted a petition to the New York
State Public Service Commission ("PSC") relating to the difference in the cost
of capacity under the Transition Contracts and the embedded costs of the
divested capacity reflected in Con Edison's electric rates. Con Edison has
proposed that any incremental cost be recovered either as a "cost of
implementing divestiture" (which the PSC Settlement Agreement provides is to be
recovered from net divestiture proceeds) or through Con Edison's electric fuel
adjustment clause. The fuel adjustment clause states that any incremental costs
incurred by Con Edison resulting from the divestiture are to be recovered in the
fuel adjustment. Con Edison estimates that there would be no incremental
capacity costs under the Transition Contracts if the NYISO ICAP market commences
operation as scheduled in November 1999, and that the incremental costs would be
about $75 million if commencement is delayed until May 2000. In the event of a
prolonged delay in the commencement of the NYISO ICAP market, additional
incremental costs could be material.
Acquisition
Reference is made to "Liquidity and Capital Resources - Sources of
Liquidity - Acquisition" in Item 7 of the 1998 Form 10-K. In July 1999, CEI
completed its acquisition of O&R for an aggregate purchase price of $791.5
million, initially issuing commercial paper to fund the acquisition. CEI has
repaid the commercial paper using dividends it received from Con Edison in July
1999.
-23-
Financial Market Risks
Reference is made to "Liquidity and Capital Resources--Financial Market
Risks" in Item 7 of the 1998 Form 10-K. At June 30, 1999 neither the fair value
of derivatives outstanding nor potential derivative losses from reasonably
possible near-term changes in market prices were material to the financial
position, results of operations or liquidity of the Company.
Environmental Claims and Other Contingencies
Reference is made to the notes to the financial statements included in
this report for information concerning potential liabilities of the Company
arising from the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund), from claims relating to alleged exposure to
asbestos, and from certain other contingencies to which the
Company is subject.
Year 2000 Readiness Disclosure
Reference is made to "Liquidity and Capital Resources--Year 2000 Readiness
Disclosure" in Item 7 of the 1998 Form 10-K and in Part I, Item 2 of the 1999
First Quarter Form 10-Q.
Con Edison estimates that the cost of its Year 2000 program will be
approximately $27 million, substantially all of which has been incurred. The
cost is being funded from internally-generated funds and expensed as incurred.
Forward-Looking Statements
This discussion and analysis includes forward-looking statements, which
are statements of future expectation and not facts. Words such as "estimates,"
"expects," "anticipates," "intends," "plans" and similar expressions identify
forward-looking statements. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as competition and industry restructuring, changes in economic
conditions, changes in historical weather patterns, changes in laws,
regulations, regulatory policies or public policy doctrines, technological
developments, any failure by Con Edison or others to successfully complete
necessary changes to address Year 2000 problems, and other presently unknown or
unforeseen factors.
RESULTS OF OPERATIONS
CEI's net income for common stock for the second quarter and six months
ended June 30, 1999 was higher than the corresponding 1998 periods by $4.4
million ($.04 per share) and $9.2 million ($.07 per share), respectively. CEI's
net income for common stock the 12 months ended June 30, 1999 was $1.5 million
less than the 12 months ended June 30, 1998, while earnings per share increased
$.05 per share. The increases in earnings per share reflect in part the CEI
common stock repurchase program (see "Liquidity and Capital Resources," above).
Earnings for the 1999 periods were favorably affected by higher electric sales
resulting from the continued strength of the New York City economy (which
partially offset the effects of rate reductions implemented pursuant to the PSC
Settlement Agreement) and by the return to service of Con Edison's Indian Point
2 nuclear generating unit (see "Liquidity and Capital Resources - Nuclear
Generation" in Item 7 of the 1998 Form 10-K).
-24-
The results of operations of CEI include the results of operations of CEI
and its subsidiaries (including Con Edison, but not O&R which was acquired in
July 1999). For information about CEI's operating segments, see the notes to the
financial statements included in Part I, Item 1 of this report.
Increases (Decreases)
-----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, 1999 June 30, 1999 June 30, 1999
Compared With Compared With Compared With Twelve
Three Months Ended Six Months Ended Months Ended June
June 30, 1998 June 30, 1998 30, 1998
-----------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Amounts are for CEI and are in Millions)
-----------------------------------------
Operating revenues $ (82.0) (5.3)% $ (158.4) (4.6)% $ (252.0) (3.5)%
Purchased power-
electric and steam (43.0) (13.2) (113.4) (16.6) (225.0) (16.5)
Fuel-electric and
steam (2.4) (2.0) (19.4) (7.5) (21.9) (3.8)
Gas purchased for
resale (8.9) (10.2) (17.8) (6.4) (68.2) (14.0)
-------- ------ ------
Operating revenues
less purchased
power, fuel and gas
purchased for resale
(Net revenues) (27.7) (2.7) (7.8) (0.4) 63.1 1.3
Other operations and
maintenance (40.4) (9.6) (36.8) (4.5) 11.2 0.7
Depreciation and
amortization 4.3 3.4 8.8 3.4 15.1 3.0
Taxes, other than
federal income tax (5.4) (1.9) (7.3) (1.2) 2.8 0.2
Federal income tax 12.2 33.8 22.0 17.2 39.8 10.2
------- ------ ------
Operating income 1.6 1.1 5.5 1.4 (5.8) (0.5)
Other income less
deductions and
related federal
income tax (5.2) Large (5.3) (75.3) (15.9) Large
Net interest charges (6.9) (8.0) (6.7) (4.0) (16.7) (5.0)
Preferred stock
Dividend
requirements (1.1) (25.1) (2.3) (25.1) (3.5) (19.1)
------- ------ ------
Net income for
common stock $ 4.4 7.1% $ 9.2 3.9% $ (1.5) (0.2)%
-25-
CEI's investment in its non-utility subsidiaries was $212.5 million at
June 30, 1999. CEI's results of operations include the net after-tax losses of
its non-utility subsidiaries as follows (with amounts shown in millions):
1999 1998
---- ----
Amount Per Share Amount Per Share
Second Quarter $(2.2) $(.01) $(2.0) $(.01)
Six Months ended June 30 $(7.9) $(.03) $(5.2) $(.02)
Twelve Months ended June 30 $(21.2) $(.09) $(10.7) $(.05)
For additional information about CEI's non-utility subsidiaries, see
"Non-Utility Subsidiaries" in Item 1 of the 1998 Form 10-K.
Second Quarter 1999 Compared with
Second Quarter 1998
CEI's net revenues (operating revenues less purchased power, fuel and gas
purchased for resale) decreased $27.7 million in the second quarter of 1999
compared with the 1998 period. Electric net revenues decreased $46.9 million.
Gas, steam and non-utility net revenues increased $2.9 million, $2.8 million and
$13.5 million, respectively.
Electric net revenues in the 1999 period were lower than in the 1998 period
primarily as a result of the rate reductions that went into effect in April
1999, the third rate year of the PSC Settlement Agreement. See "Liquidity and
Capital Resources - PSC Settlement Agreement -Rate Plan" in Item 7 of the 1998
Form 10-K. Con Edison's electric Retail Choice program had no significant impact
on net revenues in the 1999 period.
Non-utility net revenues increased in the 1999 period due primarily to the
participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con
Edison's electric and gas Retail Choice programs.
Con Edison's electric sales, excluding off-system sales, in the 1999
period compared with the 1998 period were:
Millions of Kwhrs.
2nd Quarter 2nd Quarter Percent
Description 1999 1998 Variation Variation
----------- ---- ---- --------- ---------
Residential/Religious 2,469 2,429 40 1.6
Commercial/Industrial 4,578 6,175 (1,597) (25.9)
Other 121 156 (35) (22.4)
Total Full Service 7,168 8,760 (1,592) (18.2)
Customers
Retail Choice Customers 1,817 20 1,797 Large
Sub-total 8,985 8,780 205 2.3
NYPA, Municipal Agency
and Other Sales 2,256 2,352 (96) (4.1)
Total Service Area 11,241 11,132 109 1.0
Electric sales in the service area increased by 1.0 percent. The decrease
in sales to Con Edison's full service (supply and delivery) customers in the
1999 period reflects Con Edison's electric Retail Choice (delivery only)
program. See "Electric Operations-Changes" in Item 1 of the 1998 Form 10-K and
"PSC Settlement Agreement," above.
-26-
For the 1999 period, Con Edison's firm gas sales and transportation
volumes decreased 1.3 percent, and interruptible sales decreased 23.2 percent
compared, with the 1998 period. These sales declines reflect the milder weather
in 1999 as compared to 1998. Under the current gas rate agreement, most
weather-related variations in firm gas sales and transportation do not affect
earnings. Transportation of customer-owned gas under Con Edison's gas Retail
Choice program increased significantly during the 1999 period. See "Gas
Operations-Gas Sales" in Item 1 of the 1998 Form 10-K. Gas transported for the
New York Power Authority (NYPA) increased significantly in the 1999 period due
to NYPA's use of gas fuel for its generation of electricity.
After adjusting for variations, primarily in weather and billing days in
each period, electric sales volume in Con Edison's service territory increased
2.1 percent in the second quarter of 1999, firm gas sales and transportation
volume increased 1.4 percent and steam sales volume decreased 0.9 percent.
Electric fuel costs increased in the 1999 period by $1.9 million due to an
increase in generation, partially offset by a decrease in the average unit cost
of fuel. Electric purchased power costs decreased in the 1999 period due to
lower purchased volumes, partially offset by increased unit cost. Electric fuel
and purchased power costs in the 1999 period reflect the return to service (in
September 1998) of Con Edison's Indian Point 2 nuclear generating unit (see
"Liquidity and Capital Resources - Nuclear Generation" in Item 7 of the 1998
Form 10-K). The June 1999 sales of electric generating capacity and the
Transition Contracts had no significant effect on these costs in the 1999
period. See "Liquidity and Capital Resources - PSC Settlement Agreement," above.
The cost of gas purchased for resale in the 1999 period decreased,
reflecting lower unit cost, partially offset by higher sendout. Steam fuel costs
decreased due to lower unit cost, partially offset by higher sendout. Steam
purchased power costs decreased due to lower unit cost and lower purchased
volumes.
CEI's other operations and maintenance (O&M) expenses decreased in the
1999 period compared with the 1998 period, due primarily to decreased Con Edison
O&M expenses offset in part by increased expenses at its non-utility
subsidiaries. The decrease in Con Edison O&M expenses was the result of lower
expenses at Indian Point 2 and lower administrative and general expenses. See
"Liquidity and Capital Resources-Nuclear Generation" in Item 7 of the 1998 Form
10-K.
Net interest charges decreased in the 1999 period due primarily to
interest savings resulting from the refunding of long-term debt issues in 1998.
Depreciation and amortization increased in the 1999 period due principally
to higher average plant balances.
Federal income tax increased in the 1999 period due to higher taxable
income and lower tax credits.
Six Months Ended June 30, 1999 Compared with
Six Months Ended June 30, 1998
CEI's net revenues decreased $7.8 million in the six months ended June 30,
1999 compared with the 1998 period. Electric net revenues decreased $32.6
million. Gas, steam and non-utility net revenues increased $1.7 million, $5.4
million and $17.7 million, respectively.
Electric net revenues in the six-month period ended June 30, 1999 were
lower than in the corresponding 1998 period primarily as a result of the rate
reductions that went into effect in April 1999 and April 1998 and the deferral
for customer benefit of approximately $10 million applicable to the rate year
ended March 31, 1999 under the earnings sharing provisions of the PSC Settlement
Agreement, partially offset by higher sales, resulting from continued strength
in the New York City economy. Con Edison's electric Retail Choice program had no
significant impact on net revenues in the 1999 period.
-27-
Non-utility net revenues increased in the 1999 period due primarily to the
participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con
Edison's electric and gas Retail Choice programs.
Con Edison's electric sales, excluding off-system sales, for the 1999
period compared with the 1998 period were:
Millions of Kwhrs.
Six Months Ended Six Months Ended Percent
Description June 30, 1999 June 30, 1998 Variation Variation
----------- ----------------- ---------------- --------- ---------
Residential/Religious 5,193 5,081 112 2.2%
Commercial/Industrial 10,119 12,392 (2,273) (18.3)
Other 262 317 (55) (17.4)
Total Full Service
Customers 15,574 17,790 (2,216) (12.5)
Retail Choice 2,866 20 2,846 Large
Customers
Sub-total 18,440 17,810 630 3.5
NYPA, Municipal Agency 4,730 4,806 (76) (1.6)
and Other Sales
Total Service Area 23,170 22,616 554 2.4%
Electric sales in the service area increased by 2.4 percent. The decrease
in sales to Con Edison's full service (supply and delivery) customers in the
1999 period reflects Con Edison's electric Retail Choice (delivery only)
program.
For the 1999 period, Con Edison's firm gas sales and transportation
volumes increased 7.2 percent, and interruptible sales decreased 28.8 percent.
Transportation of customer-owned gas under Con Edison's gas Retail Choice
program increased significantly during the 1999 period. Gas transported for NYPA
increased in the 1999 period due to NYPA's use of gas fuel for its generation of
electricity.
Steam sales volume increased 9.2 percent compared with the 1998 period as a
result of colder weather in 1999 as compared to 1998.
After adjustment for variations, primarily in weather and billing days in
each period, electric sales volume in Con Edison's service territory in the 1999
period increased 2.2 percent. Similarly adjusted, firm gas sales and
transportation volume increased 1.9 percent and steam sales volume decreased 1.0
percent.
Electric fuel costs decreased in the 1999 period by $19.1 million due to a
decrease in the unit cost of fuel, partially offset by an increase in
generation. Electric purchased power costs decreased in the 1999 period,
reflecting decreased purchased volumes, partially offset by higher unit cost of
purchases. Electric fuel and purchased power costs in the 1999 period reflect
the return to service (in September 1998) of Con Edison's Indian Point 2 nuclear
generating unit.
The cost of gas purchased for resale in the 1999 period decreased,
reflecting a lower unit cost of fuel, partially offset by higher sendout. Steam
fuel costs decreased due to a decrease in the unit cost of fuel, partially
offset by increased generation of steam. Steam purchased power costs decreased
as a result of decreased purchased volumes and lower unit cost of purchases.
-28-
CEI's O&M expenses decreased in the 1999 period due primarily to lower Con
Edison O&M expenses, offset in part by increased expenses at its non-utility
subsidiaries. The decrease in Con Edison O&M expenses was due primarily to lower
expenses at Indian Point 2 and lower administrative and general expenses.
Depreciation and amortization increased in the 1999 period due principally
to higher average plant balances.
Federal income tax increased in the 1999 period due to higher taxable
income and lower tax credits.
Net interest charges decreased in the 1999 period due primarily to
interest savings resulting from the refunding of long-tem debt issues in 1998.
Twelve Months Ended June 30, 1999 Compared with
Twelve Months Ended June 30, 1998
CEI's net revenues increased $63.1 million in the 12 months ended June 30,
1999 compared with the 1998 period. Electric and non-utility net revenues
increased $54.0 million and $36.7 million, respectively. Gas and steam net
revenues decreased $19.1 million and $8.5 million, respectively.
Electric net revenues in the 12-month period ended June 30, 1999 were
higher than in the corresponding 1998 period primarily as a result of higher
sales, reflecting continued strength in the New York City economy and warmer
than normal 1998 summer weather, offset in part by the rate reductions that went
into effect in April 1999 and April 1998 and the deferral for customer benefit
of approximately $10 million applicable to the rate year ended March 31, 1999,
under the earnings sharing provisions of the PSC Settlement Agreement. Con
Edison's electric Retail Choice program had no significant impact on net
revenues in the 1999 period.
Gas net revenues in the 1998 period included an incentive of $10.8 million
related to distribution system efficiency; no incentive was recorded in the 1999
period.
Non-utility net revenues increased in the 1999 period due primarily to the
participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con
Edison's electric and gas Retail Choice programs.
Con Edison's electric sales, excluding off-system sales, for the 1999
period compared with the 1998 period were:
Millions of Kwhrs.
Twelve Months Ended Twelve Months Ended Percent
Description June 30, 1999 June 30, 1998 Variation Variation
----------- ------------- ------------- --------- ---------
Residential/Religious 11,394 11,135 259 2.3%
Commercial/Industrial 22,183 26,327 (4,144) (15.7)
Other 580 643 (63) (9.8)
Total Full Service Customers 34,157 38,105 (3,948) (10.4)
Retail Choice Customers 5,264 20 5,244 Large
Sub-total 39,421 38,125 1,296 3.4
NYPA, Municipal Agency 9,778 9,684 94 1.0
and Other Sales
Total Service Area 49,199 47,809 1,390 2.9%
-29-
Electric sales in the service area increased 2.9 percent. The decrease in
sales to Con Edison's full service (supply and delivery) customers in the 1999
period reflects Con Edison's electric Retail Choice (delivery only) program.
For the 1999 period, Con Edison's firm gas sales and transportation
volumes decreased 0.5 percent, and interruptible sales decreased 34.3 percent.
Transportation of customer-owned gas under Con Edison's gas Retail Choice
program increased significantly during the 1999 period. Gas transported for NYPA
decreased in the 1999 period due to NYPA's use of alternative fuel for its
generation of electricity.
After adjustment for variations, primarily in weather and billing days in
each period, electric sales volume in Con Edison's service territory in the 1999
period increased 2.4 percent. Similarly adjusted, firm gas sales and
transportation volume increased 1.0 percent and steam sales volume decreased 1.1
percent.
Electric fuel costs increased in the 1999 period by $3.6 million due to
increased generation of electricity, partially offset by a decrease in the unit
cost of fuel. Electric purchased power costs decreased in the 1999 period,
reflecting decreased purchased volumes and lower unit cost of purchases.
Electric fuel and purchased power costs in the 1999 period reflect the return to
service (in September 1998) of Con Edison's Indian Point 2 nuclear generating
unit.
The cost of gas purchased for resale in the 1999 period decreased,
reflecting a lower unit cost of fuel and lower sendout. Steam fuel costs
decreased due to decreased generation of steam by Con Edison and lower unit cost
of fuel. Steam purchased power costs decreased due to decreased purchased
volumes and lower unit cost of purchases.
CEI's O&M expenses increased in the 1999 period due primarily to increased
expenses at its non-utility subsidiaries, offset in part by lower Con Edison O&M
expenses. The decrease in Con Edison O&M expenses was due primarily to lower
expenses at Indian Point 2 and lower administrative and general expenses.
Depreciation and amortization increased in the 1999 period due principally
to higher average plant balances.
Taxes other than federal income tax increased in the 1999 period compared
with the 1998 period, due primarily to increased property taxes and application
of the New York State and New York City subsidiary capital taxes.
Federal income tax increased in the 1999 period due to higher taxable
income and lower tax credits.
CEI's other income less miscellaneous deductions decreased in the 1999
period due primarily to the write-off in December 1998 of a $10 million
investment made by one of CEI's non-utility subsidiaries.
Net interest charges decreased in the 1999 period due to interest savings
resulting from the refunding of long-term debt issues in 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For information about the Company's primary market risks associated with
activities in derivative financial instruments, other financial instruments and
derivative commodity instruments, see "Liquidity and Capital Resources -
Financial Market Risks" in Part 1, Item 2 of this report and Item 7A of the 1998
Form 10-K.
-30-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
WASHINGTON HEIGHTS POWER OUTAGE
During an early July 1999 heat wave, electric service to customers served by Con
Edison's Washington Heights distribution network and certain of its other
distribution networks was interrupted. Con Edison's electric tariff prescribes
compensation to customers for spoilage of food and other perishables resulting
from distribution system outages of 12 hours or longer in duration. Con Edison
has paid approximately $4 million to customers for spoilage claims relating to
the outages. In July 1999, the City of New York sued Con Edison in New York
State Supreme Court, New York County with respect to the Washington Heights
power outage seeking compensation for unspecified municipal response costs and
other compensatory and punitive damages, and other relief (including changes to
Con Edison's procedures relating to the maintenance and reinforcement of its
distribution system). Several other lawsuits relating to the Washington Heights
power outage, including purported class actions, are pending in the same court.
The plaintiffs are seeking aggregate specified compensatory and punitive damages
in excess of $100 million, additional unspecified damages and other relief
(including a permanent injunction against future power outages). In addition,
the outages are being reviewed by the New York State Public Service Commission
(the "PSC"), the New York State Attorney General and others. The City of New
York has filed a petition with the PSC requesting that a $3 million penalty be
imposed on Con Edison. Based upon the information and relevant circumstances
known to CEI and Con Edison, neither CEI nor Con Edison expects that the outages
will have a material adverse effect on their respective financial position,
results of operation or liquidity.
CHALLENGE TO THE SETTLEMENT AGREEMENT
Reference is made to "Challenge to the Settlement Agreement" in Part I, Item 3
of the combined CEI and Con Edison Annual Reports on Form 10-K for the year
ended December 31, 1998 (the "1998 Form 10-K"). The lawsuit commenced by the
Public Utility Law Project of New York, Inc. against the PSC with respect to the
PSC's "Competitive Opportunities" proceeding was dismissed.
SUPERFUND - ECHO AVENUE SITE
Reference is made to "Superfund - Echo Avenue Site" in Part I, Item 3 of the
1998 Form 10-K. In July 1999, the court dismissed the remaining claims against
Con Edison.
SUPERFUND - ARTHUR KILL TRANSFORMER SITE
Reference is made to "Superfund - Arthur Kill Transformer Site" in Part I, Item
3 of the 1998 Form 10-K. In June 1999, Con Edison completed the sale of the
Arthur Kill generating station. Con Edison has completed the cleanup programs
approved by the New York State Department of Environmental Conservation ("DEC")
for the station's facilities and various soil and pavement areas of the site
affected by the PCB release. In July 1999, the DEC signed a consent order,
covering the waterfront area of the station, which requires Con Edison to
investigate the nature and extent of contamination and recommend a remediation
program. After soliciting public comment, the DEC will select a remedial
alternative to be implemented by Con Edison.
-31-
SUPERFUND - EDISON PROPERTIES SITE
Reference is made to "Superfund - Edison Properties Site" in Part II, Item 1,
Legal Proceedings in the combined CEI and Con Edison Quarterly Reports on Form
10-Q for the quarterly period ended March 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Annual Meeting of Stockholders of CEI and the Annual Meeting of
Stockholders of Con Edison held concurrently on May 17, 1999, the stockholders
of CEI voted to elect management's nominees for the Board of Directors, to
ratify and approve the appointment of CEI's independent accountants, and not to
adopt two stockholder proposals, and the stockholders of Con Edison (including
CEI, which owned all 235,488,094 shares of Con Edison's common stock outstanding
and entitled to vote at the Annual Meeting and the holders of 1,915,319 shares
of cumulative preferred stock) voted to elect management's nominees for the
Board of Trustees and to ratify and approve the appointment of Con Edison's
independent accountants.
(b) The name of each nominee for election as a member of CEI's Board of
Directors or Con Edison's Board of Trustees and the number of shares voted for
or with respect to which authority to vote for was withheld are as follows:
CEI's Board of Directors Con Edison's Board of Trustees
------------------------ ------------------------------
For Withheld For Withheld
E. Virgil Conway 177,805,230 2,321,590 236,969,233 8,319
Gordon J. Davis 178,000,256 2,126,564 236,970,731 6,821
Ruth M. Davis 177,860,717 2,266,103 236,968,840 8,712
Joan S. Freilich 177,979,276 2,147,544 236,971,007 6,545
Ellen V. Futter 177,930,754 2,196,066 236,970,727 6,825
Sally Hernandez-Pinero 177,916,843 2,209,977 236,969,967 7,585
Peter W. Likins 177,958,559 2,168,261 236,971,348 6,204
Eugene R. McGrath 177,941,496 2,185,324 236,972,072 5,480
Robert G. Schwartz 177,810,187 2,316,633 236,967,105 10,447
Richard A. Voell 178,009,497 2,117,323 236,969,882 7,670
Stephen R. Volk 178,033,391 2,093,429 236,971,288 6,264
(c) The results of the vote on the appointment of PricewaterhouseCoopers
LLP as independent accountants for CEI for 1999 were as follows: 177,515,945
shares were voted for this proposal; 1,301,433 shares were voted against the
proposal; and 1,309,422 shares were abstentions.
(d) The results of the vote on the appointment of PricewaterhouseCoopers
LLP as independent accountants for Con Edison for 1999 were as follows:
236,961,810 shares were voted for this proposal; 4,675 shares were voted against
the proposal; and 11,067 shares were abstentions.
-32-
(e) The following stockholder-proposed resolution was voted upon by the
stockholders of CEI at the Annual Meeting:
"RESOLVED: That the stockholders of Consolidated Edison, Inc.,
assembled in annual meeting in person and by proxy, hereby request the
Board of Directors to take the steps necessary to provide for
cumulative voting in the election of directors, which means each
stockholder shall be entitled to as many votes as shall equal the
number of shares he or she owns multiplied by the number of directors
to be elected, and he or she may cast all of such votes for a single
candidate, or any two or more of them as he or she may see fit."
The results of the vote on this proposal were as follows: 37,046,940 shares were
voted for this proposal; 108,463,831 shares were voted against the proposal;
6,671,235 shares were abstentions; and 27,944,814 shares were broker nonvotes.
(f) The following stockholder-proposed resolution was voted upon by the
stockholders of CEI at the Annual Meeting:
"RESOLVED: That the shareholders recommend that the Board take the
necessary step that Con Edison specifically identify by name and
corporate title in all future proxy statements those executive
officers, not otherwise so identified, who are contractually entitled
to receive in excess of $250,000 annually as base salary, together with
whatever other additional compensation bonuses and other cash payments
were due them."
The results of the vote on this proposal were as follows: 14,929,630 shares were
voted for this proposal; 130,382,029 shares were voted against the proposal;
6,870,347 shares were abstentions; and 27,944,814 shares were broker nonvotes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 4.1 Participation Agreement, dated as of July 1, 1999, between New
York State Energy Research and Development Authority ("NYSERDA")
and Con Edison.
Exhibit 4.2 Indenture of Trust, dated as of July 1, 1999 between NYSERDA and
HSBC Bank USA, as trustee.
Exhibit 12.1 Statement of computation of CEI's ratio of earnings to fixed
charges for the twelve-month periods ended June 30, 1999 and
1998.
Exhibit 12.2 Statement of computation of Con Edison's ratio of earnings to
fixed charges for the twelve-month periods ended June 30, 1999
and 1998.
Exhibit 27.1 Financial Data Schedule for CEI.*
Exhibit 27.2 Financial Data Schedule for Con Edison.*
- -----------
*To the extent provided in Rule 402 of Regulation S-T, this exhibit shall not be
deemed "filed", or otherwise subject to liabilities, or be deemed part of a
registration statement.
-33-
(b) REPORTS ON FORM 8-K
CEI and Con Edison filed combined Current Reports on Form 8-K, dated June
25, 1999, reporting (under Item 5) the sale of $275 million aggregate principal
amount of Con Edison's 7.35% Public Interest NotES (7.35% Debentures, Series
1999 A) and the divestiture of electric generating capacity by Con Edison (see
"Liquidity and Capital Resources - PSC Settlement Agreement" in Item 2 of Part I
of this report). No other CEI or Con Edison Current Reports on Form 8-K were
filed during the quarter ended June 30, 1999. CEI filed a Current Report on Form
8-K, dated July 8, 1999, reporting (under Item 5) the completion of its
acquisition of Orange and Rockland Utilities, Inc.
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED EDISON, INC.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
DATE: August 13, 1999 By: JOAN S. FREILICH
Joan S. Freilich
Executive Vice President, Chief Financial
Officer and Duly Authorized Officer