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 SEPTEMBER 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
1-4315 Orange and Rockland Utilities, Inc. New York 13-1727729
One Blue Hill Plaza, Pearl River, New York 10965
(914) 352-6000
Indicate by check mark whether each Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No _______
As of the close of business on October 31, 1999, Consolidated Edison, Inc.
("CEI") had outstanding 217,242,433 Common Shares ($.10 par value), and CEI held
all of the outstanding Common Stock ($2.50 par value) of Consolidated Edison
Company of New York, Inc. ("Con Edison") and all of the outstanding Common Stock
($5.00 par value) of Orange and Rockland Utilities, Inc. ("O&R").
This Quarterly Report on Form 10-Q is a combined quarterly report being filed
separately by three different registrants: CEI, Con Edison and O&R. Neither Con
Edison nor O&R makes any representation as to the information contained in this
report relating to CEI or the subsidiaries of CEI other than itself.
O&R MEETS THE CONDITIONS SPECIFIED IN GENERAL INSTRUCTION H (1) (a) AND (b) OF
FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
- 2 -
TABLE OF CONTENTS
PAGE
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CEI Consolidated Balance Sheet 3-4
Consolidated Income Statements 5-7
Consolidated Statements of Cash Flows 8-9
Con Edison Consolidated Balance Sheet 10-11
Consolidated Income Statements 12-14
Consolidated Statement of Cash Flows 15-16
O&R Consolidated Balance Sheet 17-18
Consolidated Income Statements 19-21
Consolidated Statement of Cash Flows 22-23
Notes to Financial Statements 24-31
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
CEI and Con Edison 32-49
Pursuant to General Instruction H of Form 10-Q, O&R is omitting the
information required by Part 1, Item 2 of the Form 10-Q.
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk
CEI and Con Edison 49
Pursuant to General Instruction H of Form 10-Q, O&R is omitting
the information required by Part 1, Item 3 of the Form 10-Q.
O&R MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS 49-55
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings 56-57
ITEM 6. Exhibits and Reports on Form 8-K 58-59
-3-
CONSOLIDATED EDISON, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
As at
--------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
--------------------------------------------
(Thousands of Dollars)
ASSETS
Utility plant, at original cost
Electric $ 11,362,122 $ 12,039,082 $ 11,944,613
Gas 2,164,880 1,838,550 1,807,946
Steam 620,045 604,761 594,841
General 1,324,681 1,204,262 1,203,783
--------------------------------------------
Total 15,471,728 15,686,655 15,551,183
Less: Accumulated depreciation 4,699,015 4,726,211 4,630,649
--------------------------------------------
Net 10,772,713 10,960,444 10,920,534
Construction work in progress 378,127 347,262 315,912
Nuclear fuel assemblies and
components, less accumulated
amortization 79,869 98,837 105,113
--------------------------------------------
Net utility plant 11,230,709 11,406,543 11,341,559
--------------------------------------------
Current assets
Cash and temporary cash
investments 188,940 102,295 153,824
Funds held for redemption of
preferred stock -- -- 74,156
Accounts receivable - customer,
less allowance for uncollectible
accounts of $35,939, $24,957 and
$23,778 718,311 521,648 618,287
Other receivables 117,020 49,381 45,668
Fuel, at average cost 30,809 33,289 29,324
Gas in storage, at average cost 60,180 49,656 52,320
Materials and supplies, at
average cost 143,338 184,916 188,735
Prepayments 314,961 131,374 241,671
Other current assets 46,007 20,984 16,234
--------------------------------------------
Total current assets 1,619,566 1,093,543 1,420,219
--------------------------------------------
Investments
Nuclear decommissioning trust
funds 285,015 265,063 239,010
Other 178,892 113,382 106,714
--------------------------------------------
Total investments 463,907 378,445 345,724
--------------------------------------------
Deferred charges
Goodwill - Acquisition of Orange
& Rockland Utilities, Inc. 434,296 -- --
Enlightened Energy program costs 41,729 68,381 79,704
Unamortized debt expense 151,579 135,897 134,605
Recoverable fuel costs 78,198 22,013 21,411
Power contract termination costs 71,544 70,621 70,282
Other deferred charges 390,661 254,944 248,867
--------------------------------------------
Total deferred charges 1,168,007 551,856 554,869
--------------------------------------------
Regulatory asset - future federal
income taxes 799,902 951,016 860,841
--------------------------------------------
Total $ 15,282,091 $ 14,381,403 $ 14,523,212
============================================
The accompanying notes are an integral part of these financial statements.
-4-
CONSOLIDATED EDISON, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
As at
------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
------------------------------------------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, authorized 500,000,000
shares; outstanding 218,042,256
shares, 232,833,494 shares and
233,186,794 shares $ 1,482,341 $ 1,482,341 $ 1,482,342
Retained earnings 4,915,780 4,700,500 4,692,205
Treasury stock, at cost; 17,122,100
shares, 2,654,600 shares and
2,301,300 shares (803,730) (120,790) (102,178)
Capital stock expense (36,179) (36,446) (36,759)
------------------------------------------------
Total common shareholders' equity 5,558,212 6,025,605 6,035,610
------------------------------------------------
Preferred stock subject to
mandatory redemption 37,050 37,050 84,550
Other preferred stock 212,563 212,563 233,468
Long-term debt 4,324,750 4,050,108 4,047,837
------------------------------------------------
Total capitalization 10,132,575 10,325,326 10,401,465
------------------------------------------------
Noncurrent liabilities
Obligations under capital leases 35,281 37,295 37,771
Other noncurrent liabilities 379,033 203,543 158,235
------------------------------------------------
Total noncurrent liabilities 414,314 240,838 196,006
------------------------------------------------
Current liabilities
Long-term debt due within one year 395,000 225,000 325,000
Accounts payable 623,811 371,274 364,093
Customer deposits 205,756 181,236 177,023
Accrued taxes 202,770 15,670 150,516
Accrued interest 44,326 76,466 70,356
Accrued wages 81,032 83,555 82,691
Other current liabilities 204,140 188,186 179,193
------------------------------------------------
Total current liabilities 1,756,835 1,141,387 1,348,872
------------------------------------------------
Provisions related to future federal
income taxes and other deferred
credits
Accumulated deferred federal income
tax 2,282,285 2,392,812 2,306,304
Accumulated deferred investment tax
credits 141,887 154,970 157,110
Other deferred credits 554,195 126,070 113,455
------------------------------------------------
Total deferred credits 2,978,367 2,673,852 2,576,869
------------------------------------------------
Total $ 15,282,091 $ 14,381,403 $ 14,523,212
================================================
The accompanying notes are an integral part of these financial statements.
-5-
CONSOLIDATED EDISON, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 2,005,653 $ 1,818,855
Gas 154,428 139,928
Steam 66,808 62,946
Non-utility 119,350 39,893
----------------------------
Total operating revenues 2,346,239 2,061,622
----------------------------
Operating expenses
Purchased power 647,360 322,123
Fuel 110,402 203,186
Gas purchased for resale 81,172 61,230
Other operations 320,814 273,264
Maintenance 120,296 115,259
Depreciation and amortization 134,502 130,206
Taxes, other than federal income tax 317,826 326,063
Federal income tax 190,586 191,888
----------------------------
Total operating expenses 1,922,958 1,623,219
----------------------------
Operating income 423,281 438,403
Other income (deductions)
Investment income 7,478 1,957
Allowance for equity funds
used during construction 859 647
Other income less miscellaneous deductions 1,517 (10,281)
Federal income tax (4,329) 1,228
----------------------------
Total other income 5,525 (6,449)
----------------------------
Income before interest charges 428,806 431,954
Interest on long-term debt 84,498 76,821
Other interest 5,361 3,910
Allowance for borrowed funds used
during construction (457) (332)
----------------------------
Net interest charges 89,402 80,399
----------------------------
Preferred stock dividend requirements 3,398 4,537
----------------------------
Net income for common stock $ 336,006 $ 347,018
===========================
Common shares outstanding - average (000) 220,293 233,628
Basic earnings per share $1.50 $1.49
===========================
Diluted earnings per share $1.50 $1.49
===========================
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 4,361,696 $ 4,396,499
Gas 725,470 735,660
Steam 260,419 255,747
Non-utility 254,321 87,805
------------------------------
Total operating revenues 5,601,906 5,475,711
------------------------------
Operating expenses
Purchased power 1,216,637 1,004,799
Fuel 349,369 461,610
Gas purchased for resale 339,716 337,571
Other operations 887,404 838,483
Maintenance 332,811 365,943
Depreciation and amortization 400,825 387,729
Taxes, other than federal income tax 903,185 918,697
Federal income tax 340,525 319,864
------------------------------
Total operating expenses 4,770,472 4,634,696
------------------------------
Operating income 831,434 841,015
Other income (deductions)
Investment income 9,500 7,904
Allowance for equity funds used during
construction 2,768 1,734
Other income less miscellaneous deductions 230 (9,746)
Federal income tax (5,207) 774
------------------------------
Total other income 7,291 666
------------------------------
Income before interest charges 838,725 841,681
Interest on long-term debt 236,161 232,864
Other interest 14,667 15,186
Allowance for borrowed funds used during
construction (1,349) (889)
------------------------------
Net interest charges 249,479 247,161
------------------------------
Preferred stock dividend requirements 10,194 13,609
------------------------------
Net income for common stock $ 579,052 $ 580,911
==============================
Common shares outstanding - average (000) 225,754 234,679
Basic earnings per share $2.56 $2.48
==============================
Diluted earnings per share $2.56 $2.48
==============================
Dividends declared per share of common stock $1.605 $1.59
==============================
The accompanying notes are an integral part of these financial statements.
-7-
CONSOLIDATED EDISON, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 5,639,643 $ 5,748,611
Gas 949,419 1,003,521
Steam 326,604 355,838
Non-utility 303,577 112,911
-----------------------------
Total operating revenues 7,219,243 7,220,881
-----------------------------
Operating expenses
Purchased power 1,465,620 1,350,370
Fuel 466,766 595,946
Gas purchased for resale 439,453 486,253
Other operations 1,206,878 1,123,626
Maintenance 444,281 473,480
Depreciation and amortization 531,611 515,935
Taxes, other than federal income tax 1,192,590 1,211,319
Federal income tax 428,300 395,612
-----------------------------
Total operating expenses 6,175,499 6,152,541
-----------------------------
Operating income 1,043,744 1,068,340
Other income (deductions)
Investment income 13,356 13,542
Allowance for equity funds used during
construction 3,465 2,106
Other income less miscellaneous deductions (4,236) (12,606)
Federal income tax (3,752) (268)
-----------------------------
Total other income 8,833 2,774
-----------------------------
Income before interest charges 1,052,577 1,071,114
Interest on long-term debt 311,968 312,748
Other interest 17,840 21,306
Allowance for borrowed funds used during
construction (1,706) (1,071)
-----------------------------
Net interest charges 328,102 332,983
-----------------------------
Preferred stock dividend requirements 13,592 18,144
-----------------------------
Net income for common stock $ 710,883 $ 719,987
=============================
Common shares outstanding - average (000) 227,469 234,788
Basic earnings per share $3.13 $3.07
=============================
Diluted earnings per share $3.12 $3.07
=============================
Dividends declared per share of common stock $2.135 $2.115
=============================
The accompanying notes are an integral part of these financial statements.
-8-
CONSOLIDATED EDISON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income for common stock $ 579,052 $ 580,911
Principal noncash charges (credits) to income
Depreciation and amortization 400,825 387,729
Deferred recoverable fuel costs (56,185) 76,890
Federal income tax deferred (437,251) 95,510
Common equity component of allowance
for funds used during construction (2,710) (1,687)
Other non-cash charges (credits) (195) (4,696)
Changes in assets and liabilities
Accounts receivable-customer, less
allowance for uncollectibles (196,663) (37,124)
Materials and supplies, including
fuel and gas in storage 33,534 12,286
Prepayments, other receivables and
other current assets (276,249) (152,523)
Enlightened Energy program costs 26,652 38,103
Power contract termination costs (1,050) 904
Cost of removal less salvage 877,078 (54,435)
Pension and benefits reserve 135,007 53,774
Accounts payable 252,537 (76,021)
Accrued income taxes 162,323 80,669
Other-net 38,398 (2,930)
----------- -----------
Net cash flows from operating
activities 1,535,103 997,360
----------- -----------
Investing activities including construction
Construction expenditures (435,527) (414,249)
Nuclear fuel expenditures (4,394) (4,461)
Contributions to nuclear
decommissioning trust (15,976) (15,976)
Common equity component of
allowance for funds used during
construction 2,710 1,687
Orange & Rockland acquisition (432,934) --
Goodwill - Orange & Rockland
acquisition (434,296) --
Divestiture of utility plant 577,968 --
Non-regulated subsidiary investments (54,180) (19,395)
Non-regulated subsidiary utility plant (48,152) --
----------- -----------
Net cash flows from investing activities
including construction (844,781) (452,394)
----------- -----------
Financing activities including dividends
Repurchase of common stock (672,702) (102,178)
Additions to long-term debt 444,926 460,000
Retirement of long-term debt -- (100,000)
Advance refunding of long-term debt -- (705,240)
Issuance and refunding costs (13,971) (8,544)
Funds held for refunding of debt -- 254,718
Common stock dividends (361,930) (373,356)
----------- -----------
Net cash flows from financing activities
including dividends (603,677) (574,600)
----------- -----------
Net increase (decrease) in cash
and temporary cash investments 86,645 (29,634)
Cash and temporary cash investments at
January 1 102,295 183,458
----------- -----------
Cash and temporary cash investments at
September 30 $ 188,940 $ 153,824
=========== ===========
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 247,017 $ 240,016
Income taxes 624,275 145,935
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 SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income for common stock $ 710,883 $ 719,987
Principal noncash charges (credits) to income
Depreciation and amortization 531,611 515,935
Deferred recoverable fuel costs (56,787) 35,988
Federal income tax deferred (446,331) 61,880
Common equity component of allowance for funds
used during construction (3,388) (2,049)
Other non-cash charges (credits) 15,799 (6,396)
Changes in assets and liabilities
Accounts receivable-customer, less allowance for
uncollectibles (100,024) (74,466)
Materials and supplies, including fuel and gas
in storage 36,052 19,281
Prepayments, other receivables and other current
assets (174,415) (12,891)
Enlightened Energy program costs 37,975 32,460
Power contract termination costs (1,050) (14,671)
Cost of removal less salvage 859,479 (79,939)
Accounts payable 259,718 (52,779)
Accrued income taxes 35,075 2,978
Other-net 222,972 177,366
----------- -----------
Net cash flows from operating activities 1,927,569 1,322,684
----------- -----------
Investing activities including construction
Construction expenditures (640,123) (634,808)
Nuclear fuel expenditures (6,988) (8,639)
Contributions to nuclear decommissioning trust (21,301) (18,103)
Common equity component of allowance for
funds used during construction 3,388 2,049
Orange & Rockland acquisition (432,934) --
Goodwill - Orange & Rockland acquisition (434,296) --
Divestiture of utility plant 577,968 --
Non-regulated subsidiary investments (58,857) (72,647)
Non-regulated subsidiary utility plant (48,152) --
----------- -----------
Net cash flows from investing activities
including construction (1,061,295) (732,148)
----------- -----------
Financing activities including dividends
Repurchase of common stock (685,771) (102,178)
Issuance of long-term debt 444,926 790,000
Retirement of long-term debt (100,000) (102,630)
Advance refunding of preferred stock (68,405) --
Advance refunding of long-term debt -- (705,240)
Issuance and refunding costs (14,290) (15,461)
Funds held for redemption of preferred stock 74,156 (74,156)
Common stock dividends (481,774) (496,913)
----------- -----------
Net cash flows from financing activities
including dividends (831,158) (706,578)
----------- -----------
Net increase (decrease) in cash and temporary cash
investments 35,116 (116,042)
Cash and temporary cash investments at beginning of
period 153,824 269,866
----------- -----------
Cash and temporary cash investments at September 30 $ 188,940 $ 153,824
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 292,956 $ 303,189
Income taxes 834,047 334,179
The accompanying notes are an integral part of these financial statements.
-10-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
As at
-----------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
-----------------------------------------------------------
(Thousands of Dollars)
ASSETS
Utility plant, at original cost
Electric $ 10,668,382 $ 12,039,082 $ 11,944,613
Gas 1,906,251 1,838,550 1,807,946
Steam 620,045 604,761 594,841
General 1,220,653 1,204,262 1,203,783
-----------------------------------------------------------
Total 14,415,331 15,686,655 15,551,183
Less: Accumulated depreciation 4,356,816 4,726,211 4,630,649
-----------------------------------------------------------
Net 10,058,515 10,960,444 10,920,534
Construction work in progress 351,145 347,262 315,912
Nuclear fuel assemblies and
components, less accumulated
amortization 79,869 98,837 105,113
-----------------------------------------------------------
Net utility plant 10,489,529 11,406,543 11,341,559
-----------------------------------------------------------
Current assets
Cash and temporary cash
investments 40,892 30,026 69,170
Funds held for redemption of
preferred stock -- -- 74,156
Accounts receivable - customer,
less allowance for uncollectible
accounts of $24,196, $22,600 and
$22,798 611,704 491,493 600,580
Other receivables 73,428 45,935 45,343
Fuel, at average cost 30,355 33,289 29,324
Gas in storage, at average cost 44,069 46,801 49,208
Materials and supplies, at average
cost 139,015 184,916 188,735
Prepayments 288,936 130,198 240,787
Other current assets 40,749 20,911 16,183
-----------------------------------------------------------
Total current assets 1,269,148 983,569 1,313,486
-----------------------------------------------------------
Investments
Nuclear decommissioning trust
funds 285,015 265,063 239,010
Other 16,215 14,750 14,748
-----------------------------------------------------------
Total investments 301,230 279,813 253,758
-----------------------------------------------------------
Deferred charges
Enlightened Energy program costs 41,729 68,381 79,704
Unamortized debt expense 140,722 135,897 134,605
Recoverable fuel costs 64,456 22,013 21,411
Power contract termination costs 71,544 70,621 70,282
Other deferred charges 273,840 254,944 248,867
-----------------------------------------------------------
Total deferred charges 592,291 551,856 554,869
-----------------------------------------------------------
Regulatory asset - future federal
income taxes 756,897 951,016 860,841
-----------------------------------------------------------
Total $ 13,409,095 $ 14,172,797 $ 14,324,513
===========================================================
The accompanying notes are an integral part of these financial statements.
-11-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
As at
--------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
--------------------------------------------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 1,482,341 $ 1,482,341 $ 1,482,342
Repurchased CEI common stock (788,763) (120,790) (102,178)
Retained earnings 3,876,338 4,517,529 4,506,481
Capital stock expense (36,154) (36,356) (36,759)
--------------------------------------------------
Total common shareholders' equity 4,533,762 5,842,724 5,849,886
--------------------------------------------------
Preferred stock
Subject to mandatory redemption
7.20% SeriesI -- -- 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 4,043,251 4,050,108 4,047,837
--------------------------------------------------
Total capitalization 8,826,626 10,142,445 10,215,741
--------------------------------------------------
Noncurrent liabilities
Obligations under capital leases 35,137 37,295 37,771
Other noncurrent liabilities 276,447 203,543 158,235
--------------------------------------------------
Total noncurrent liabilities 311,584 240,838 196,006
--------------------------------------------------
Current liabilities
Long-term debt due within one year 275,000 225,000 325,000
Accounts payable 498,073 357,315 356,947
Customer deposits 210,291 181,236 177,023
Accrued taxes 205,368 17,621 155,244
Accrued interest 39,084 76,507 70,397
Accrued wages 81,032 83,555 82,691
Other current liabilities 174,740 184,989 176,654
--------------------------------------------------
Total current liabilities 1,483,588 1,126,223 1,343,956
--------------------------------------------------
Provisions related to future federal income
taxes and other deferred credits
Accumulated deferred federal income tax 2,139,057 2,382,273 2,298,301
Accumulated deferred investment tax credits 134,427 154,970 157,110
Other deferred credits 513,813 126,048 113,399
--------------------------------------------------
Total deferred credits 2,787,297 2,663,291 2,568,810
--------------------------------------------------
Total $ 13,409,095 $ 14,172,797 $ 14,324,513
==================================================
The accompanying notes are an integral part of these financial statements.
-12-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 1,900,467 $ 1,839,330
Gas 141,697 139,928
Steam 66,808 62,946
-----------------------------
Total operating revenues 2,108,972 2,042,204
-----------------------------
Operating expenses
Purchased power 574,913 321,756
Fuel 110,486 203,186
Gas purchased for resale 52,484 48,844
Other operations 259,961 261,830
Maintenance 112,463 115,259
Depreciation and amortization 123,962 129,874
Taxes, other than federal income tax 295,446 325,826
Federal income tax 179,775 193,560
-----------------------------
Total operating expenses 1,709,490 1,600,135
-----------------------------
Operating income 399,482 442,069
Other income (deductions)
Investment income 4,484 701
Allowance for equity funds used during construction 851 647
Other income less miscellaneous deductions 2,728 87
Federal income tax (3,758) (2,243)
-----------------------------
Total other income 4,305 (808)
-----------------------------
Income before interest charges 403,787 441,261
Interest on long-term debt 77,468 76,821
Other interest 3,769 3,913
Allowance for borrowed funds used during construction (397) (332)
-----------------------------
Net interest charges 80,840 80,402
-----------------------------
Net income 322,947 360,859
Preferred stock dividend requirements 3,398 4,537
-----------------------------
Net income for common stock $ 319,549 356,322
=============================
Con Edison Sales
Electric (Thousands of kilowatthours)
Con Edison customers 9,785,281 10,329,213
Delivery service for Retail Choice 2,743,698 1,306,502
Delivery service to NYPA and others 2,753,557 2,615,648
-----------------------------
Total sales in service territory 15,282,536 14,251,363
Off-system and ESCO sales 3,322,358 1,660,022
Gas (dekatherms)
Firm sales and transportation 10,024,570 9,936,190
Off-peak firm/interruptible 2,894,471 2,816,428
-----------------------------
Total sales to Con Edison customers 12,919,041 12,752,618
Transportation of customer-owned gas
NYPA 5,474,790 1,929,716
Other 4,779,376 3,386,724
Off-system sales 9,685,972 7,681,043
-----------------------------
Total sales and transportation 32,859,179 25,750,101
Steam (Thousands of pounds) 6,324,110 6,335,238
The accompanying notes are an integral part of these financial statements.
-13-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 4,310,741 $ 4,420,513
Gas 712,739 735,660
Steam 260,419 255,747
-------------------------------
Total operating revenues 5,283,899 5,411,920
-------------------------------
Operating expenses
Purchased power 1,131,911 1,002,139
Fuel 349,453 461,610
Gas purchased for resale 265,737 288,587
Other operations 795,728 811,329
Maintenance 324,978 365,943
Depreciation and amortization 389,274 386,929
Taxes, other than federal income tax 875,635 918,209
Federal income tax 333,962 325,200
-------------------------------
Total operating expenses 4,466,678 4,559,946
-------------------------------
Operating income 817,221 851,974
Other income (deductions)
Investment income 4,676 3,409
Allowance for equity funds used during construction 2,760 1,734
Other income less miscellaneous deductions 1,484 (1,878)
Federal income tax (4,703) (880)
-------------------------------
Total other income 4,217 2,385
-------------------------------
Income before interest charges 821,438 854,359
Interest on long-term debt 229,131 232,864
Other interest 12,664 15,226
Allowance for borrowed funds used during construction (1,289) (889)
-------------------------------
Net interest charges 240,506 247,201
-------------------------------
Net income 580,932 607,158
Preferred stock dividend requirements 10,194 13,609
-------------------------------
Net income for common stock $ 570,738 $ 593,549
===============================
Con Edison Sales
Electric (Thousands of kilowatthours)
Con Edison customers 25,359,206 28,119,679
Delivery service for Retail Choice 5,609,770 1,326,182
Delivery service to NYPA and others 7,483,393 7,421,680
-------------------------------
Total sales in service territory 38,452,369 36,867,541
Off-system and ESCO sales 7,150,548 2,420,455
Gas (dekatherms)
Firm sales and transportation 68,229,912 64,221,815
Off-peak firm/interruptible 10,857,220 14,003,682
-------------------------------
Total sales to Con Edison customers 79,087,132 78,225,497
Transportation of customer-owned gas
NYPA 7,741,815 3,655,251
Other 16,247,948 10,572,988
Off-system sales 26,147,665 17,613,651
-------------------------------
Total sales and transportation 129,224,560 110,067,387
Steam (Thousands of pounds) 21,099,048 19,861,637
The accompanying notes are an integral part of these financial statements.
-14-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 5,607,348 $ 5,748,611
Gas 936,688 1,003,521
Steam 326,604 355,838
Non-utility -- 25,105
-------------------------------
Total operating revenues 6,870,640 7,133,075
-------------------------------
Operating expenses
Purchased power 1,381,807 1,347,709
Fuel 466,850 595,946
Gas purchased for resale 347,253 437,269
Other operations 1,102,184 1,096,183
Maintenance 436,448 473,480
Depreciation and amortization 520,171 515,136
Taxes, other than federal income tax 1,160,036 1,210,831
Federal income tax 423,572 400,948
-------------------------------
Total operating expenses 5,838,321 6,077,502
-------------------------------
Operating income 1,032,319 1,055,573
Other income (deductions)
Investment income 7,430 8,844
Allowance for equity funds used during
construction 3,456 2,106
Other income less miscellaneous deductions (1,914) (4,737)
Federal income tax (3,248) (1,852)
-------------------------------
Total other income 5,724 4,361
-------------------------------
Income before interest charges 1,038,043 1,059,934
Interest on long-term debt 304,939 312,748
Other interest 15,837 21,346
Allowance for borrowed funds used during
construction (1,647) (1,071)
-------------------------------
Net interest charges 319,129 333,023
-------------------------------
Net income 718,914 726,911
Preferred stock dividend requirements 13,592 18,144
-------------------------------
Net income for common stock $ 705,322 $ 708,767
===============================
Con Edison Sales
Electric (Thousands of kilowatthours)
Con Edison customers 33,613,545 37,340,504
Delivery service for Retail Choice 6,700,909 1,326,182
Delivery service to NYPA and others 9,915,961 9,856,299
-------------------------------
Total sales in service territory 50,230,415 48,522,985
Off-system and ESCO sales 8,685,189 3,067,676
Gas (dekatherms)
Firm sales and transportation 88,434,335 88,462,270
Off-peak firm/interruptible 14,316,439 20,347,677
-------------------------------
Total sales to Con Edison customers 102,750,774 108,809,947
Transportation of customer-owned gas
NYPA 8,347,472 6,346,278
Other 20,153,229 12,910,949
Off-system sales 34,516,215 21,628,561
-------------------------------
Total sales and transportation 165,767,690 149,695,735
Steam (Thousands of pounds) 26,233,105 26,360,100
The accompanying notes are an integral part of these financial statements.
-15-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income $ 580,932 $ 607,158
Principal noncash charges (credits) to income
Depreciation and amortization 389,274 386,929
Deferred recoverable fuel costs (42,443) 76,890
Federal income tax deferred (449,519) 95,510
Common equity component of allowance for funds
used during construction (2,710) (1,687)
Other non-cash charges (credits) 27,984 (4,696)
Changes in assets and liabilities
Accounts receivable-customer, less allowance for uncollectibles (120,211) (42,341)
Materials and supplies, including fuel and gas in storage 51,567 15,398
Prepayments, other receivables and other current assets (206,069) (157,571)
Enlightened Energy program costs 26,652 38,103
Power contract termination costs (1,050) 904
Cost of removal less salvage 877,078 (54,435)
Accounts payable 140,758 (58,517)
Accrued income taxes 165,010 80,508
Other-net 173,817 46,165
----------- -----------
Net cash flows from operating activities 1,611,070 1,028,318
----------- -----------
Investing activities including construction
Construction expenditures (435,527) (414,249)
Nuclear fuel expenditures (4,394) (4,462)
Contributions to nuclear decommissioning trust (15,976) (15,976)
Common equity component of allowance for funds
used during construction 2,710 1,687
Divestiture of utility plant 719,080 --
----------- -----------
Net cash flows from investing activities
including construction 265,893 (433,000)
----------- -----------
Financing activities including dividends
Repurchase of common stock (672,702) (102,178)
Issuance of long-term debt 567,700 460,000
Retirement of long-term debt (225,000) (100,000)
Refunding of preferred stock -- (74,156)
Advance refunding of long-term debt (300,000) (705,240)
Issuance and refunding costs (13,971) (8,544)
Funds held for refunding of debt -- 328,874
Common stock dividends (1,211,930) (373,356)
Preferred stock dividends (10,194) (13,602)
Corporate reorganization -- (121,404)
----------- -----------
Net cash flows from financing activities
including dividends (1,866,097) (709,606)
----------- -----------
Net increase (decrease) in cash and temporary
cash investments 10,866 (114,288)
Cash and temporary cash investments at beginning of period 30,026 183,458
----------- -----------
Cash and temporary cash investments at September 30 $ 40,892 $ 69,170
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 247,017 $ 240,016
Income taxes 638,450 145,935
The accompanying notes are an integral part of these financial statements.
-16-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income $ 718,914 $ 726,911
Principal noncash charges (credits) to income
Depreciation and amortization 520,171 515,136
Deferred recoverable fuel costs (43,045) 35,988
Federal income tax deferred (458,599) 61,880
Common equity component of allowance for funds
used during construction (3,388) (2,049)
Other non-cash charges (credits) 43,978 (6,396)
Changes in assets and liabilities
Accounts receivable-customer, less allowance for uncollectibles (11,124) (79,684)
Materials and supplies, including fuel and gas in storage 53,829 22,393
Prepayments, other receivables and other current assets (100,800) (17,938)
Enlightened Energy program costs 37,975 32,460
Power contract termination costs (1,050) (14,671)
Cost of removal less salvage 859,479 (79,939)
Accounts payable 141,126 (35,274)
Accrued income taxes 37,676 2,817
Other-net 224,384 143,357
----------- -----------
Net cash flows from operating activities 2,019,526 1,304,991
----------- -----------
Investing activities including construction
Construction expenditures (640,123) (634,809)
Nuclear fuel expenditures (6,988) (8,638)
Contributions to nuclear decommissioning trust (21,301) (18,103)
Common equity component of allowance for funds
used during construction 3,388 2,049
Investments other than temporary cash investments 719,080 --
----------- -----------
Net cash flows from investing activities
including construction 54,056 (659,501)
----------- -----------
Financing activities including dividends
Repurchase of common stock (685,771) (102,178)
Issuance of long-term debt 567,700 790,000
Retirement of long-term debt (325,000) (102,630)
Refunding of preferred stock 5,751 (74,156)
Advance refunding of long-term debt (300,000) (705,240)
Issuance and refunding costs (14,290) (15,462)
Common stock dividends (1,335,519) (496,913)
Preferred stock dividends (14,731) (18,203)
Corporate reorganization -- (121,404)
----------- -----------
Net cash flows from financing activities
including dividends (2,101,860) (846,186)
----------- -----------
Net increase (decrease) in cash and temporary cash investments (28,278) (200,696)
Cash and temporary cash investments at beginning of period 69,170 269,866
----------- -----------
Cash and temporary cash investments at September 30 $ 40,892 $ 69,170
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 292,956 $ 303,188
Income taxes 867,640 334,179
The accompanying notes are an integral part of these financial statements.
-17-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998,AND SEPTEMBER 30, 1998
As At
----------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
----------------------------------------------------------
ASSETS (Thousands of Dollars)
Utility plant, at original cost
Electric $ 645,303 $1,065,912 $1,059,009
Gas 258,629 246,845 241,294
Common 104,028 103,064 95,513
----------------------------------------------------------
Total 1,007,960 1,415,821 1,395,816
Less: accumulated depreciation 341,914 498,652 497,679
----------------------------------------------------------
Net 666,046 917,169 898,137
Construction Work In Progress 26,982 34,401 46,807
----------------------------------------------------------
Net utility plant 693,028 951,570 944,944
----------------------------------------------------------
Current assets:
Cash and cash equivalents 81,593 6,143 5,067
Customer accounts receivable, less allowance for
uncollectable accounts of $5,235, $3,686,
and $3,139 59,482 57,095 64,911
Other accounts receivable, less allowance for
uncollectable accounts of $1,380, $286,
and $269 17,786 16,173 11,320
Fuel, at average cost 454 7,255 6,037
Gas in storage, at average cost 13,707 12,097 11,835
Materials and supplies, at average cost 4,319 14,809 15,092
Prepayments 21,571 28,432 43,137
Other current assets 23,361 24,355 23,359
----------------------------------------------------------
Total current assets 222,273 166,359 180,758
----------------------------------------------------------
Investments
Non-Utility Property 6,790 7,780 11,664
Accumulated Depreciation - Non-Utility 3,343 252 1,226
----------------------------------------------------------
Total investments 3,447 7,528 10,438
----------------------------------------------------------
Deferred charges
Deferred revenue taxes 10,529 11,915 11,617
Deferred other postretirement benefit
and pension costs 44,737 4,097 7,631
Accrued Utility Revenue 28,179 28,489 18,920
Unamortized debt expense 10,856 10,840 10,431
Other deferred charges 33,377 53,012 35,754
----------------------------------------------------------
Total deferred charges 127,678 108,353 84,353
----------------------------------------------------------
Regulatory asset - future federal income taxes 43,005 74,330 73,770
----------------------------------------------------------
Total $1,089,431 $1,308,140 $1,294,263
==========================================================
The accompanying notes are an integral part of these financial statements.
-18-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999, DECEMBER 31, 1998,AND SEPTEMBER 30, 1998
As At
------------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
------------------------------------------------------------
Capitalization and Liabilities (Thousands of Dollars)
Capitalization:
Capital stock $ 5 $ 67,599 $ 67,598
Premium on capital stock 354,798 132,321 132,317
Capital stock expense (26) (6,045) (6,045)
Retained earnings (26,092) 186,520 188,140
------------------------------------------------------------
Total common shareholders' equity 328,685 380,395 382,010
Long term debt 402,226 357,156 356,637
------------------------------------------------------------
Total capitalization 730,911 737,551 738,647
------------------------------------------------------------
Non-current Liabilities:
Reserve for claims and damages 8,484 4,078 4,756
Provision for rate refunds 26,820 1,223 572
Postretirement benefits 42,749 9,759 12,852
Pension cost 24,533 47,481 46,487
------------------------------------------------------------
Total Non-current Liabilities 102,586 62,541 64,667
------------------------------------------------------------
Current Liabilities:
Notes payable and obligations due within one year -- 150,740 133,193
Preferred stock redeemed -- 43,516 43,360
Accounts payable 67,562 60,573 72,747
Accrued Federal income and other taxes 3,998 516 4,174
Deferred fuel costs (1,573) 6,609 (19)
Refunds to customers 7,126 4,838 572
Other current liabilities 7,087 18,871 21,499
------------------------------------------------------------
Total current liabilties 84,200 285,663 275,526
------------------------------------------------------------
Provisions related to future federal income taxes
and other deferred credits
Deferred Federal income taxes 124,068 197,698 195,574
Deferred investment tax credits 7,459 13,654 13,904
Regulatory obligation - Pensions 22,546 -- --
Other Deferred Credits 17,661 11,033 5,945
------------------------------------------------------------
Total deferred credits 171,734 222,385 215,423
------------------------------------------------------------
Total $ 1,089,431 $ 1,308,140 $ 1,294,263
============================================================
The accompanying notes are an integral part of these financial statements.
-19-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 157,503 $ 159,173
Gas 12,731 12,792
Diversified 44 150
------------------------------------
Total operating revenues 170,278 172,115
------------------------------------
Operating expenses
Purchased power 63,319 14,032
Fuel (84) 30,335
Gas purchased for resale 5,759 6,390
Purchases from Con Ed -- 828
Other operations 34,999 40,195
Maintenance 7,833 9,081
Depreciation and amortization 6,739 9,162
Taxes, other than federal income tax 17,582 23,314
Federal income tax 9,052 11,875
------------------------------------
Total operating expenses 145,199 145,212
------------------------------------
Operating income 25,079 26,903
Other income (deductions)
Investment income 1,857 165
Allowance for equity funds used during construction 8 (7)
Other income and deductions (142) (264)
Taxes, other than federal income tax (93) (70)
Federal income tax (484) 305
------------------------------------
Total other income 1,146 129
------------------------------------
Income before interest charges 26,225 27,032
Interest Charges
Interest on long-term debt 7,030 6,240
Other interest 348 2,352
AFUDC - borrowed funds (60) (9)
------------------------------------
Total interest charges 7,318 8,583
------------------------------------
Net income 18,907 18,449
Preferred and preference stock requirements -- 861
------------------------------------
Net income for common stock $ 18,907 $ 17,588
====================================
Orange And Rockland Sales & Deliveries
Electric - Thousands of killowatthours (Mwhr's)
O&R Customers 1,473,895 1,273,426
Off-system sales 928 126,376
------------------------------------
Total Electric Sales & Deliveries 1,474,823 1,399,802
------------------------------------
Gas - Thousands of cubic feet (Mcf's) 2,993,516 3,033,114
------------------------------------
The accompanying notes are an integral part of these financial statements.
-20-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating revenues
Electric $ 359,214 $ 381,016
Gas 113,284 95,226
Diversified 661 508
-------------------------------------
Total operating revenues 473,159 476,750
-------------------------------------
Operating expenses
Purchased power 86,383 40,957
Fuel 43,504 71,636
Gas purchased for resale 62,703 49,401
Purchases from Con Ed 100 1,358
Other operations 138,731 108,494
Maintenance 26,443 27,111
Depreciation and amortization 25,960 26,527
Taxes, other than federal income tax 63,838 68,679
Federal income tax 3,631 21,490
-------------------------------------
Total operating expenses 451,293 415,653
-------------------------------------
Operating income 21,866 61,097
Other income (deductions)
Investment income 2,089 1,277
Allowance for equity funds used during construction 23 (4)
Other income and deductions 53,181 (728)
Taxes, other than federal income tax (251) (209)
Federal income tax (40,965) 397
-------------------------------------
Total other income 14,077 733
-------------------------------------
Income before interest charges 35,943 61,830
Interest Charges
Interest on long-term debt 20,431 18,769
Other interest 4,292 6,836
AFUDC - borrowed funds (177) (1,104)
-------------------------------------
Total interest charges 24,546 24,501
-------------------------------------
Net income 11,397 37,329
Preferred and preference stock requirements 886 2,260
-------------------------------------
Net income for common stock $ 10,511 $ 35,069
=====================================
Orange And Rockland Sales & Deliveries
Electric - Thousands of killowatthours (Mwhr's)
O&R Customers 3,727,678 3,252,858
Off-system sales 109,158 434,941
-------------------------------------
Total Electric Sales & Deliveries 3,836,836 3,687,799
-------------------------------------
Gas - Thousands of cubic feet (Mcf's) 19,207,086 17,350,066
-------------------------------------
The accompanying notes are an integral part of these financial statements.
-21-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
Operating revenues
Electric $ 468,076 $ 496,266
Gas 153,677 146,260
Diversified 760 757
-------------------------------------
Total operating revenues 622,513 643,283
-------------------------------------
Operating expenses
Purchased power 96,249 59,029
Fuel 64,982 87,565
Gas purchased for resale 83,507 78,826
Purchases from Con Ed 264 1,358
Other operations 179,303 145,472
Maintenance 36,015 35,685
Depreciation and amortization 35,296 35,301
Taxes, other than federal income tax 85,471 93,497
Federal income tax 4,653 26,662
-------------------------------------
Total operating expenses 585,740 563,395
-------------------------------------
Operating income 36,773 79,888
Other income (deductions)
Investment income 2,485 1,277
Allowance for equity funds used during construction 31 (28)
Other income and deductions 55,063 (438)
Taxes, other than federal income tax (335) (279)
Federal income tax (41,352) 504
-------------------------------------
Total other income 15,892 1,036
-------------------------------------
Income before interest charges 52,665 80,924
Interest Charges
Interest on long-term debt 26,667 23,867
Other interest 6,905 10,467
AFUDC - borrowed funds 58 (1,755)
-------------------------------------
Total interest charges 33,630 32,579
-------------------------------------
Net income 19,035 48,345
Preferred and preference stock requirements 1,423 2,961
-------------------------------------
Net income for common stock $ 17,612 $ 45,384
=====================================
Orange And Rockland Sales & Deliveries
Electric - Thousands of killowatthours (Mwhr's)
O&R Customers 4,791,698 4,335,309
Off-system sales 219,898 518,288
-------------------------------------
Total Electric Sales & Deliveries 5,011,596 4,853,597
-------------------------------------
Gas - Thousands of cubic feet (Mcf's) 26,236,566 26,028,175
-------------------------------------
The accompanying notes are an integral part of these financial statements.
-22-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income $ 11,397 $ 37,329
Principle non-cash charges (credits) to income
Depreciation and amortization 25,960 26,527
Deferred and refundable fuel and gas costs 1,730 (3,867)
Federal income taxes deferred (45,777) 4,150
Amortization of investment tax credit (6,194) (578)
Common equity component of allowance
for funds used during construction (68) (1,100)
Other non-cash changes (credits) 31,427 49
Changes in assets and liabilities
Accounts receivables, net and accrued
utility revenue (3,169) 10,292
Materials and supplies 15,681 2,305
Other-net 20,442 (8,827)
--------- ---------
Net cash flows from operating activities 51,429 66,280
--------- ---------
Investing activities including construction
(Additions) / Retirements of plant 236,542 (36,752)
Common equity component of allowance
for funds used during construction 68 1,100
--------- ---------
Net cash flows from investing activities
including construction 236,610 (35,652)
--------- ---------
Financing activities including dividends
Repurchase of Common stock -- (3,225)
Issuance of long-term debt 45,000 --
Retirement of long-term debt (2,354) (29)
Repurchase of preferred & preference stock (43,516) --
Capital lease obligations -- (120)
Net borrowings (repayments) under
short-term debt arrangements (148,386) 2,575
Dividends to parent (CEI) (45,000) --
Common stock dividends (17,447) (26,177)
Preferred & preference stock dividends (886) (2,098)
--------- ---------
Net cash flows from financing activities
including dividends (212,589) (29,074)
--------- ---------
Net increase (decrease) in cash and temporary
cash investments 75,450 1,554
Cash and temporary cash investments at beginning of period 6,143 3,513
--------- ---------
Cash and temporary cash investments at September 30, $ 81,593 $ 5,067
========= =========
Supplemental Disclosure of cash flow information:
Cash paid during the year for:
Interest $ 24,137 $ 25,577
Income Taxes 93,000 17,811
The accompanying notes are an integral part of these statements.
-23-
ORANGE AND ROCKLAND UTILITIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
(Thousands of Dollars)
Operating activities
Net income $ 19,035 $ 48,345
Principle non-cash charges (credits) to income
Depreciation and amortization 35,296 35,301
Deferred and refundable fuel and gas costs (42,734) 6,793
Federal income taxes deferred (6,444) (793)
Amortization of investment tax credit 3,228 (5,482)
Common equity component of allowance
for funds used during construction (26) (1,726)
Other non-cash changes (credits) 31,160 2,237
Changes in assets and liabilities
Accounts receivables, net and accrued
utility revenue (748) (14,016)
Materials and supplies 14,486 5,488
Other-net 3,357 (5,129)
--------- ---------
Net cash flows from operating activities 56,610 71,018
--------- ---------
Investing activities including construction
(Additions) / Retirements of plant 223,606 (62,916)
Common equity component of allowance
for funds used during construction 26 1,726
--------- ---------
Net cash flows from investing activities
including construction 223,632 (61,190)
--------- ---------
Financing activities including dividends
Repurchase of Common stock -- (6,237)
Issuance of long-term debt 48,200 80,000
Retirement of long-term debt (2,571) (78,039)
Repurchase of preferred & preference stock (43,360) --
Capital lease obligations (40) (158)
Net borrowings (repayments) under
short-term debt arrangements (133,193) 33,425
Dividends to parent (CEI) (45,000) --
Common stock dividends (26,167) (34,963)
Preferred & preference stock dividends (1,585) (2,820)
--------- ---------
Net cash flows from financing activities
including dividends (203,716) (8,792)
--------- ---------
Net increase (decrease) in cash and temporary
cash investments 76,526 1,036
Cash and temporary cash investments at beginning of period 5,067 4,031
--------- ---------
Cash and temporary cash investments at September 30, $ 81,593 $ 5,067
========= =========
Supplemental Disclosure of cash flow information:
Cash paid during the year for:
Interest $ 30,292 $ 32,065
Income Taxes 96,200 17,811
The accompanying notes are an integral part of these statements.
- 24 -
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), the regulated utility Orange and Rockland Utilities,
Inc. (O&R), which CEI acquired in July 1999, and several non-utility
subsidiaries, (ii) the interim consolidated financial statements of Con Edison
and its subsidiaries, and (iii) the interim consolidated financial statements of
O&R and its subsidiaries. These financial statements are unaudited but, in the
respective opinions of the managements of CEI, Con Edison and O&R, reflect all
adjustments (which include only normally recurring adjustments) necessary for a
fair statement of the results for the interim periods presented. These financial
statements should be read together with the audited 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 and the O&R Annual
Report on Form 10-K for the year ended December 31, 1998.
NOTE B - O&R
In July 1999, CEI completed its acquisition of O&R for $791.5 million in cash.
CEI is accounting for the acquisition under the purchase method of accounting in
accordance with generally accepted accounting principles.
CEI 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 was assumed to
approximate book value. All other assets and liabilities of O&R were adjusted to
their estimated fair values. The approximately $437 million excess of the
purchase price paid by CEI over the estimated fair value of net assets acquired
and liabilities assumed was recorded as goodwill (CEI's O&R Goodwill) and is
being amortized over 40 years. The effects of purchase accounting have not been
"pushed down" to the separate books and records of O&R, but rather are reflected
only in the consolidated financial statements of CEI. Costs to achieve the
merger have been incurred by both CEI and O&R. In accordance with regulatory
settlements, these costs have been deferred as regulatory assets and are being
amortized over a 5-year period ending May 2004. Such costs may continue to be
incurred for a period of one year following the consummation date of the merger.
The results of operations of O&R for the three months ended September 30, 1999
have been included in the consolidated income statement of CEI for the three
months ended September 30, 1999. The unaudited pro forma consolidated CEI
financial information shown below has been prepared based upon the historical
consolidated income statements of CEI and O&R for the nine month period ended
September 30, 1999 and the twelve month period ended December 31, 1998, giving
effect to CEI's acquisition of O&R as if it had occurred at the beginning of
each period. The historical information has been adjusted to reflect the
amortization of CEI's O&R Goodwill for the entire period and the after-tax cost
CEI would have incurred for financing the acquisition of O&R by issuing debt at
the beginning of the period at an assumed 7% per annum interest rate. The pro
forma information is not necessarily indicative of the results that CEI would
have had if its acquisition of O&R had been completed prior to July 1999,
or the results that CEI will have in the future.
- 25 -
(Dollars in Thousands, except
per share amounts)
Nine Months Ended Twelve Months Ended
September 30, 1999 December 31, 1998
-------------------------------------------
Revenues $ 5,904,787 $ 7,568,970
Operating Income $ 795,717 $ 1,082,336
Net Income $ 539,038 $ 710,730
Average Shares outstanding (000) 225,754 234,308
EPS $ 2.39 $ 3.03
- -----------------------
As a result of the July 1999 acquisition of O&R by CEI, O&R recognized
approximately $20.9 million of expenses for contractual termination benefits,
workforce reductions and curtailment losses under employee benefit plans,
including expenses to which Statement of Financial Accounting Standards No. 88
("SFAS No. 88"), "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", applies. O&R also
incurred $2.4 million of SFAS Nos. 88 and 106 costs in connection with the June
1999 sale of its electric generating assets, which amounts have been reflected
in the in determination of the net gain from the sale of the generating assets.
In addition, O&R paid the buyer $10.0 million with respect to certain pension
and other post employment benefit costs and reduced O&R's pension and other
post-retirement benefit liability by $10.0 million.
- 26 -
NOTE C - 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, the next of which is scheduled for
2000. 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 combined CEI and Con Edison Annual Reports on Form 10-K for the
year ended December 31, 1998) 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 September 30, 1999, the
highest amount that could be assessed for losses during the current policy year
under all of the policies was $18.6 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.
ENVIRONMENTAL MATTERS
The normal course of operations of certain of CEI's subsidiaries, including Con
Edison and O&R, 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.
- 27 -
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 and O&R have
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/or O&R (and, in most instances,
a large number of other potentially responsible parties) were deposited.
Estimates of liability for these sites range from extremely preliminary to
highly refined. At September 30, 1999, Con Edison had accrued a liability for
these sites of approximately $$27.6 million and O&R had accrued a liability of
approximately $0.8 million. 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, Con Edison and O&R.
Asbestos Claims. Suits have been brought in New York State and federal courts
against Con Edison, O&R and many other defendants, wherein a large number of
plaintiffs sought large amounts of compensatory and punitive damages for deaths
and injuries allegedly caused by exposure to asbestos at various premises of Con
Edison and O&R . Many of these suits have been disposed of without any payment
by Con Edison or O&R , or for immaterial amounts. The amounts specified in all
the remaining suits total billions of dollars but CEI, Con Edison and O&R
believe that these amounts are greatly exaggerated, as were the claims already
disposed of. Based on the information and relevant circumstances known to CEI,
Con Edison and O&R at this time, neither CEI, Con Edison nor O&R believe that
these suits will have a material adverse effect on its respective financial
position, results of operations or liquidity.
-28-
NOTE D - FINANCIAL INFORMATION BY BUSINESS SEGMENT
CONSOLIDATED EDISON, INC.
SEGMENT FINANCIAL INFORMATION
$000's
FOR THE THREE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
Electric Gas
-------- ---
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $2,005,653 $1,818,855 $ 154,428 $ 139,928
Intersegment revenues 56,484 23,286 878 638
Depreciation and amortization 108,362 110,284 17,826 15,235
Operating income 433,987 442,448 (1,963) 4,730
Steam Other
----- -----
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $ 66,808 $ 62,946 $ 119,350 $ 39,893
Intersegment revenues 423 414 -- (10)
Depreciation and amortization 4,513 4,357 3,801 330
Operating income (7,539) (5,109) (1,204) (3,666)
Total
-----
1999 1998
---- ----
Sales revenues $2,346,239 $2,061,622
Intersegment revenues 57,785 24,328
Depreciation and amortization 134,502 130,206
Operating income 423,281 438,403
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
Electric Gas
-------- ---
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $4,361,696 $4,396,499 $ 725,470 $ 735,660
Intersegment revenues 116,110 32,108 2,108 1,845
Depreciation and amortization 333,047 328,811 49,528 45,162
Operating income 711,343 719,471 111,104 112,151
Steam Other
----- -----
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $ 260,419 $ 255,747 $ 254,321 $ 87,805
Intersegment revenues 1,250 1,241 309 290
Depreciation and amortization 13,438 12,956 4,812 800
Operating income 19,777 20,352 (10,790) (10,959)
Total
-----
1999 1998
---- ----
Sales revenues $5,601,906 $5,475,711
Intersegment revenues 119,777 35,484
Depreciation and amortization 400,825 387,729
Operating income 831,434 841,015
-29-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
SEGMENT FINANCIAL INFORMATION
$000's
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Electric Gas
-------- ---
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $1,900,467 $1,839,330 $ 141,697 $ 139,928
Intersegment revenues 4,160 2,810 878 638
Depreciation and amortization 103,379 110,282 16,070 15,235
Operating income 403,102 442,448 3,919 4,730
Steam Total
----- -----
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $ 66,808 $ 62,946 $2,108,972 $2,042,204
Intersegment revenues 423 414 5,461 3,862
Depreciation and amortization 4,513 4,357 123,962 129,874
Operating income (7,539) (5,109) 399,482 442,069
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Electric Gas
-------- ---
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $4,310,741 $4,420,513 $ 712,739 $ 735,660
Intersegment revenues 9,555 8,093 2,108 1,845
Depreciation and amortization 328,064 328,811 47,772 45,162
Operating income 680,458 719,471 116,986 112,151
Steam Total
----- -----
1999 1998 1999 1998
---- ---- ---- ----
Sales revenues $ 260,419 $ 255,747 $5,283,899 $5,411,920
Intersegment revenues 1,250 1,241 12,913 11,179
Depreciation and amortization 13,438 12,956 389,274 386,929
Operating income 19,777 20,352 817,221 851,974
- 30 -
Orange and Rockland Utilities, Inc
Segment Financial Information
$000's
For The Three Months Ended September 30, 1999 and 1998
Electric Gas
-------- ---
1999 1998 1999 1998
---- ---- ---- ----
Sales Revenues $ 157,503 $ 159,173 $ 12,731 $ 12,792
Depreciation and amortization 4,982 7,648 1,756 1,493
Operating Income 30,885 33,423 (5,882) (6,270)
Other Total
----- -----
$ 1,999 $ 1,998 $ 1,999 $ 1,998
--------- --------- --------- ---------
Sales Revenues $ 44 $ 151 $ 170,278 $ 172,115
Depreciation and amortization 1 21 6,739 9,162
Operating Income 77 (251) 25,080 26,902
For The Nine Months Ended September 30, 1999 and 1998
Electric Gas
-------- ---
$ 1,999 $ 1,998 $ 1,999 $ 1,998
--------- --------- --------- --------
Sales Revenues $ 359,214 $ 381,016 $ 113,284 $ 95,226
Depreciation and amortization 20,889 22,345 5,068 4,120
Operating Income 19,733 55,524 3,676 6,140
Other Total
----- -----
$ 1,999 $ 1,998 $ 1,999 $ 1,998
------- ------- --------- ---------
Sales Revenues $ 661 $ 508 $ 473,159 $ 476,751
Depreciation and amortization 3 61 25,960 26,527
Operating Income (1,543) (568) 21,865 61,096
-31-
NOTE E - DILUTED EARNINGS PER SHARE
CEI's earnings per share (EPS) calculations are in accordance with SFAS No. 128,
"Earnings per Share". "Basic" EPS are computed by dividing net income for common
shares by the average number of shares outstanding for the period. "Diluted" EPS
are computed by dividing net income for common stock by the total average number
of shares outstanding for the period plus the dilutive effect of outstanding
stock options (applying the treasury stock method). Options to acquire
approximately 1,261,000 CEI common shares at an exercise price higher than CEI's
market price were excluded for the three, nine and twelve month periods.
- -------------------------------------------------------------------------------
(Amounts in thousands, except Three Months Nine Months Twelve Months
EPS) Ended Sept. Ended Sept. Ended Sept. 30,
30,1999 30, 1999 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net Income for Common stock $336,006 $579,052 $710,883
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average number of common 220,293 225,754 227,469
shares outstanding - Basic
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Basic EPS $1.50 $2.56 $3.13
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dilutive effect of 454 546 597
outstanding stock options
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average number of common 220,747 226,300 228,067
shares outstanding - Diluted
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Diluted EPS $1.50 $2.56 $3.12
- -------------------------------------------------------------------------------
-32-
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 subsidiaries are regulated utilities: Consolidated
Edison Company of New York, Inc. (Con Edison) and Orange and Rockland Utilities,
Inc. (O&R). CEI also has several non-utility subsidiaries. In October 1999, CEI
agreed to acquire Northeast Utilities. See "Liquidity and Capital Resources - NU
Merger," below.
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 (including Con Edison and, from its date of acquisition in July
1999, O&R) and (ii) Con Edison on a stand-alone basis. The O&R Management's
Narrative Analysis of the Results of Operations, appearing following Part I,
Item 3 of this report, relates to the interim consolidated financial statements,
included in Part I, Item 1 of this report, of O&R on a stand-alone basis.
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
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 periods ended March 31, 1999 and June 30,
1999 (the earlier 1999 Form 10-Qs). 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.
The acquisition by CEI of O&R in July 1999 (see "Liquidity and Capital
Resources - O&R Acquisition," below) and sales by Con Edison of approximately
6,300 MW of its approximately 8,300 MW of electric generating assets in June and
August 1999 (see "Liquidity and Capital Resources - PSC Settlement Agreement,"
below) are reflected in CEI's interim consolidated financial statements, and, in
part, explain variations between balance sheet amounts at September 30, 1999
compared to amounts at December 31, 1998 or September 30, 1998 and variations
between income statement amounts for the 1999 third quarter and the nine and
twelve-month periods ended September 30, 1999 compared to the corresponding
prior year periods. Also impacting reported amounts was the CEI common stock
repurchase program (see Liquidity and Capital Resources," below).
LIQUIDITY AND CAPITAL RESOURCES
Cash and temporary cash investments for CEI and Con Edison were as follows
at the dates indicated (amounts shown in millions):
- --------------------------------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
- --------------------------------------------------------------------------------
CEI $188.9 $102.3 $153.8
- --------------------------------------------------------------------------------
Con Edison $40.9 $30.0 $69.2
- --------------------------------------------------------------------------------
No commercial paper was outstanding at September 30, 1999, December 31,
1998 or September 30, 1998. During the quarter ended September 30, 1999, Con
Edison used net proceeds from the sale of electric generating assets to repay
its commercial paper, continue the CEI common stock repurchase program
(discussed below) and pay dividends to CEI. CEI used dividends received from Con
Edison to repay the commercial paper issued to initially fund CEI's acquisition
of O&R.
-33-
Pursuant to the $1 billion CEI common stock repurchase program, during the
third quarter of 1999, Con Edison purchased approximately 5.1 million shares of
CEI common stock. From May 1998, when the program began, through September 30,
1999, Con Edison purchased a total of approximately 17.1 million CEI shares at
an aggregate cost of $788.8 million. As of November 12, 1999, Con Edison had
purchased approximately 18.6 million CEI shares at an aggregate cost of $844.8
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 September 30, 1999, approximately
323,700 of these shares remained available for future option exercises. See
"Liquidity and Capital Resources - Sources of Liquidity - Stock Repurchases" in
Item 7 of the Form 10-K.
In July 1999, Con Edison issued $292.7 million of 35-year adjustable rate
tax-exempt debt, the proceeds of which, along with other Con Edison funds, were
used in August 1999 to redeem $150 million of 7 1/4% Series 1989 C tax-exempt
debt and $150 million of 7 1/2% Series 1990 A tax-exempt debt. In addition, Con
Edison repaid at maturity $150 million of floating rate taxable debentures in
July 1999 and $75 million of 7-year 6.5% debentures in September 1999.
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:
Sept. 30, 1999 December 31, 1998 Sept. 30, 1998
Earnings to fixed charges*:
CEI 4.32 4.29 4.22
Con Edison 4.38 4.36 4.21
Common equity ratio:
CEI 54.8 58.4 58.0
Con Edison 51.4 57.6 57.3
- ----------
* The "earnings" component of the ratio of earnings to fixed charges
includes net income plus federal income tax, federal income tax deferred,
investment tax credits deferred and fixed charges. Fixed charges include
interest on long-term debt and other interest expense, amortization of debt
expense, discount and premium, and the interest component of rentals.
The increase in interest coverage reflects higher pre-tax income and lower
interest expense as a result of debt refundings. The decrease in equity ratio
reflects the CEI common stock repurchase program and, in the case of Con Edison,
dividends of net proceeds of electric generating asset sales to CEI.
The increases at September 30, 1999 in CEI's accounts receivable -
customer, less allowance for uncollectible accounts and CEI's allowance for
uncollectible accounts at September 30, 1999 reflect primarily the O&R
acquisition and increased billings from CEI's non-utility subsidiaries.
-34-
Con Edison's equivalent number of days of revenue outstanding (ENDRO) of
customer accounts receivable was 27.5 days at September 30, 1999, compared with
28.0 days at December 31, 1998 and 26.3 days at September 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.
CEI's other receivables were higher at September 30, 1999 than at December
31, 1998 and September 30, 1998, reflecting the acquisition of O&R, increased
billings to other utilities and a New York State sales tax refund.
Materials and supplies decreased at September 30, 1999 compared to
December 31, 1998 and September 30, 1998, reflecting the sales by Con Edison of
electric generating assets and related inventories.
Prepayments at September 30, 1999 include prepaid property tax of $154.7
million for CEI, including $134.9 million for Con Edison, compared with $21.4
million at December 31, 1998 and $167.0 million at September 30, 1998. Property
taxes are generally prepaid on January 1 and July 1 of each year. The decrease
in prepaid property tax at September 30, 1999 compared to September 30, 1998
reflects sales by Con Edison of electric generating assets. Prepayments at
September 30, 1999 also reflect cumulative credits to pension expense for Con
Edison of $119.7 million, compared with $62.0 million at December 31, 1998 and
$39.5 million at September 30, 1998, resulting primarily from the amortization
of past investment gains. See Note D to the financial statements included in
Item 8 of the Form 10-K.
The increase in CEI's other investments reflects investments made by CEI's
non-utility subsidiaries.
For information about the goodwill recorded by CEI in connection with its
acquisition of O&R, see the notes to the financial statements in Part I, Item 1
of this report.
Recoverable fuel costs reflect the ongoing recovery of previously deferred
amounts and the changes in volumes and unit costs of purchased power, fuel and
gas purchased for resale discussed below in "Results of Operations."
CEI's other deferred charges increased reflecting primarily its acquisition
of O&R.
The regulatory asset for future federal income tax decreased reflecting
primarily the sales by Con Edison of electric generating assets. See Note I to
the financial statements included in Item 8 of the Form 10-K.
Other non-current liabilities include $237.0 million for unfunded other
post-employment benefit (OPEB) obligations ($169.7 million for Con Edison and
$67.3 for O&R) at September 30, 1999, $102.0 million at December 31, 1998 and
$79.9 million at September 30, 1998. 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 Form 10-K.
The increase in accrued taxes reflects federal income taxes on gains on
sales of electric generating assets. See "PSC Settlement Agreement," below.
-35-
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 Form 10-K. The New York State
Independent System Operator ("NYISO") is scheduled to start operation on
November 18, 1999.
PSC Settlement Agreement
Reference is made to "Liquidity and Capital Resources--PSC Settlement
Agreement" in Item 7 of the Form 10-K and "Liquidity and Capital Resources--PSC
Settlement Agreement" in Part I, Item 2 of the earlier 1999 Form 10-Qs.
In June and August 1999, Con Edison completed the sales of approximately
6,300 MW of its approximately 8,300 MW of electric generating assets for an
aggregate price of approximately $1.8 billion. Con Edison used net proceeds
received from these sales to pay dividends to CEI, repay commercial paper and
continue the CEI common stock repurchase program.
The approximately 6,300 MW of electric generating assets sold had a net
book value of approximately $940 million, and resulted in net after-tax gains of
approximately $400 million. Pursuant to the Settlement Agreement, as amended by
the July 1998 divestiture order of the New York Public Service Commission (PSC),
Con Edison has retained for shareholders $50 million of the net after-tax gains
and has applied $50 million of the net after-tax gains from the divestiture to
reduce the net book value of the Indian Point 2 nuclear generating unit (Indian
Point 2). The net gains in excess of $100 million have been deferred for
disposition by the PSC.
Con Edison has entered into contracts ("Transition Contracts") with the
new owners of the generating assets to purchase capacity from them at least
until the NYISO Installed Capacity (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 PSC relating to the recovery of 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 Settlement Agreement provides is to be recovered from net divestiture
proceeds) or through Con Edison's electric fuel adjustment clause. Con Edison
estimates that the incremental capacity costs under the Transition Contracts if
the NYISO ICAP market commences operation as now scheduled, in May 2000, would
be about $75 million. In the event of a prolonged delay in the commencement of
the NYISO ICAP market, additional incremental costs could be material.
O&R Acquisition
Reference is made to "Liquidity and Capital Resources - Sources of
Liquidity- Debt Financings - and - Acquisition" in Item 7 of the Form 10-K. In
July 1999, CEI completed its acquisition of O&R for an aggregate purchase price
of $791.5 million. CEI issued commercial paper to initially fund the
acquisition, and repaid the commercial paper using dividends it received from
Con Edison. For information about CEI's accounting for the acquisition, see the
notes to financial statements in Part I, Item 1 of this report. (Also see the
O&R Management's Narrative Analysis of the Results of Operations appearing
following Part I, Item 3 of this report.)
-36-
NU Merger
In October 1999, CEI agreed to acquire Northeast Utilities (NU) for a base
price of $25 per NU common share (subject to adjustment as discussed below),
payable 50 percent in cash and 50 percent in stock. To effect the acquisition,
CEI will merge into a new parent holding company (New CEI) which was
incorporated in Delaware and is also to be named Consolidated Edison, Inc., and
a subsidiary of New CEI will merge into NU (collectively these mergers are
referred to as the Merger). Upon completion of the Merger, the former holders of
CEI and NU common shares will together own all of the outstanding shares of
common stock of New CEI, and New CEI will in turn own all of the outstanding
common shares of Con Edison, NU (which will continue to own its regulated
utilities and non-utility subsidiaries), O&R and CEI's non-utility subsidiaries.
The price to be paid for each NU common share is subject to adjustment as
follows: (i) $1 per share will be added to the price if prior to the closing of
the Merger NU enters into binding agreements and receives certain regulatory
approvals with respect to the sale of certain nuclear facilities (the
"divestiture condition") and (ii) $0.0034 per share will be added to the price
for each day after August 5, 2000 through the date prior to the closing of the
Merger. The stock consideration (i.e., the number of shares of New CEI common
stock) to be received by NU shareholders in exchange for their NU shares will be
determined by dividing the adjusted price to be paid for each NU share by a
calculated average market price of CEI common shares over a specified period
prior to the closing. The calculated average market price to be used in this
determination is subject to a "price collar" of not more than $46 per share or
less than $36 per share. If the divestiture condition is satisfied following the
completion of the Merger but prior to December 31, 2000, the $1 per NU share
referred to above would be separately paid by New CEI to the former NU
shareholders in cash.
-37-
The aggregate price to be paid to NU shareholders (including the value of
the stock consideration), which is estimated to be not more than $3.8 billion,
will depend upon the adjustments described above and the number of NU common
shares outstanding at the completion of the Merger. It is expected that New CEI
will account for the Merger under the purchase method of accounting in
accordance with generally accepted accounting principles.
CEI expects that the cash consideration to be paid to the NU shareholders
will be funded from a combination of short-term borrowings, the issuance of new
securities and dividends from subsidiaries.
The Merger is subject to the approval of the shareholders of CEI and NU,
federal and state regulatory approvals and certain conditions customary for
transactions of this type. CEI expects to call a special meeting of its
shareholders, to be held in early 2000, to vote on approval of the Merger. CEI
plans to mail a joint proxy statement/prospectus, containing detailed
information about the Merger, to its shareholders after New CEI's registration
statement for the New CEI shares to be issued in connection with the Merger is
filed with, and declared effective by, the Securities and Exchange Commission.
Nuclear Generation
Reference is made to "Liquidity and Capital Resources--Nuclear Generation"
in Item 7 of the Form 10-K. In mid-October 1999, Indian Point 2 returned to
service from an unscheduled outage that commenced at the end of August 1999.
Financial Market Risks
Reference is made to "Liquidity and Capital Resources--Financial Market
Risks" in Item 7 of the Form 10-K. At September 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 in Part I, Item
1 in this report, Legal Proceedings in Part II, Item 1 of this report and to
Part I, Item 3, Legal Proceedings in the Form 10-K 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.
-38-
Year 2000 Readiness Disclosure
Reference is made to "Liquidity and Capital Resources--Year 2000 Readiness
Disclosure" in Item 7 of the Form 10-K and in Part I, Item 2 of the earlier 1999
Form 10-Qs. Con Edison has completed its Year 2000 program.
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, the Merger, 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 1999 third quarter and the nine
and twelve-month periods ended September 30, 1999 was lower than the
corresponding 1998 periods by $11.0 million, $1.9 million and $9.1 million,
respectively. Earnings per share increased $0.01 per share, $0.08 per share and
$0.06 per share, respectively. The increases in earnings per share reflect the
CEI common stock repurchase program (see "Liquidity and Capital Resources,"
above).
The results of operations of CEI include the results of Con Edison, CEI's
non-utility subsidiaries and, starting in July 1999, O&R (see "Liquidity and
Capital Resources - O&R Acquisition," above). Con Edison's earnings for the 1999
periods compared to the 1998 periods were favorably affected by higher electric
sales resulting from the continued strength of the New York City economy, warmer
than normal weather and increased availability of Con Edison's Indian Point 2
nuclear generating unit (see "Liquidity and Capital Resources - Nuclear
Generation," above). These factors were offset by rate reductions implemented
pursuant to the Settlement Agreement, the impact of Hurricane Floyd and its
aftermath and increased electric distribution expenses associated with the very
hot summer weather. Con Edison's earnings also reflect the effects of the sale
by Con Edison of approximately 6,300 MW of its approximately 8,300 MW of
electric generating assets (see "Liquidity and Capital Resources - PSC
Settlement Agreement," above).
A comparison of the results of operations of each of CEI, Con Edison and
CEI's non-utility subsidiaries for the 1999 third quarter and the nine and
twelve-month periods ended September 30, 1999 is shown on the tables that
follow. For a comparison of the results of operations of O&R, see the O&R
Management's Narrative Analysis of the Results of Operations appearing following
Part I, Item 3 of this report.
-39-
CEI
Increases (Decreases)
-------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1999 Twelve Months Ended
Compared With Three Compared With Nine Sept. 30, 1999 Compared
Months Ended Sept. 30, Months Ended Sept. With Twelve Months Ended
1998 30, 1998 Sept. 30, 1998
-------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Amounts are for CEI and are in Millions)
Operating revenues $284.6 13.8% $126.2 2.3% $(1.6) --%
Purchased power-
electric and steam 325.2 Large 211.8 21.1 115.2 8.5
Fuel-electric and
steam (92.8) (45.7) (112.2) (24.3) (129.2) (21.7)
Gas purchased for
resale 19.9 32.6 2.1 0.6 (46.8) (9.6)
---- --- ------
Operating revenues
less purchased
power, fuel and gas
purchased for resale
(Net revenues) 32.3 2.2 24.5 0.7 59.2 1.2
Other operations and
maintenance 52.6 13.5 15.8 1.3 54.1 3.4
Depreciation and
amortization 4.3 3.3 13.1 3.4 15.7 3.0
Taxes, other than
federal income tax (8.2) (2.5) (15.5) (1.7) (18.7) (1.5)
Federal income tax (1.3) (0.7) 20.7 6.5 32.7 8.3
----- ---- ----
Operating income (15.1) (3.4) (9.6) (1.1) (24.6) (2.3)
Other income less
deductions and
related federal
income tax 12.0 Large 6.6 Large 6.1 Large
Net interest charges 9.0 11.2 2.3 0.9 (4.9) (1.5)
Preferred stock
dividend
requirements (1.1) (25.1) (3.4) (25.1) (4.5) (25.1)
----- ----- -----
Net income for
common stock $(11.0) (3.2)% $(1.9) (0.3)% $(9.1) (1.3)%
-40-
Con Edison
Increases (Decreases)
----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1999 Twelve Months Ended
Compared With Three Compared With Nine Sept. 30, 1999 Compared
Months Ended Sept. 30, Months Ended Sept. With Twelve Months Ended
1998 30, 1998 Sept. 30, 1998
----------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Amounts are for Con Edison and are in Millions)
Operating revenues $66.8 3.3% $(128.0) (2.4)% $(262.4) (3.7)%
Purchased power-
electric and steam 253.2 78.7 129.8 13.0 34.1 2.5
Fuel-electric and
steam (92.7) (45.6) (112.2) (24.3) (129.1) (21.7)
Gas purchased for
resale 3.6 7.4 (22.8) (7.9) (90.0) (20.6)
--- ----- -----
Operating revenues
less purchased
power, fuel and gas
purchased for resale
(Net revenues) (97.3) (6.6) (122.8) (3.4) (77.4) (1.6)
Other operations and
maintenance (4.6) (1.2) (56.6) (4.8) (31.0) (2.0)
Depreciation and
amortization (5.9) (4.5) 2.3 0.6 5.1 1.0
Taxes, other than
federal income tax (30.4) (9.3) (42.6) (4.6) (50.8) (4.2)
Federal income tax (13.8) (7.1) 8.8 2.7 22.6 5.6
----- --- ----
Operating income (42.6) (9.6) (34.7) (4.1) (23.3) (2.2)
Other income less
deductions and
related federal
income tax 5.1 Large 1.8 75.0 1.4 31.8
Net interest charges 0.4 0.5 (6.7) (2.7) (13.9) (4.2)
Preferred stock
dividend
requirements (1.1) (24.4) (3.4) (25.0) (4.6) (25.4)
---- ---- ----
Net income for
common stock $(36.8) (10.3)% $(22.8) (3.8)% $(3.4) (0.5)%
-41-
CEI's Non-Utility Subsidiaries
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
------ --------- ------ ---------
Third Quarter $ (1.1) $ -- $ (9.9) $(.04)
Nine Months ended Sept. 30 $ (9.0) $(.04) $(15.0) $(.06)
Twelve Months ended Sept. 30 $(12.4) $(.05) $(17.5) $(.07)
CEI's investment in its non-utility subsidiaries was $268.4 million at
September 30, 1999. For additional information about CEI's non-utility
subsidiaries, see "Non-Utility Subsidiaries" in Item 1 of the Form 10-K.
For information about the operating segments of CEI, see the notes to the
financial statements included in Part I, Item 1 of this report.
Third Quarter 1999 Compared with Third Quarter 1998
The $32.3 million increase in CEI's net revenues (operating revenues less
purchased power, fuel and gas purchased for resale) in the 1999 period compared
to the 1998 period reflects the inclusion of $101.3 million of O&R net revenues
in the 1999 period and a $28.3 million increase in the net revenues of CEI's
non-utility subsidiaries, partially offset by a $97.3 million decrease in Con
Edison's net revenues.
CEI's non-utility net revenues increased in the 1999 period due primarily
to participation in electric and gas retail access programs.
Con Edison's electric, gas and steam net revenues decreased $95.3 million,
$1.9 million and $0.1 million, respectively, in the 1999 period compared with
the 1998 period.
Con Edison's 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 Form 10-K.
Con Edison's electric sales, excluding off-system sales, in the 1999
period compared with the 1998 period were:
Millions of Kwhrs.
3rd Quarter 3rd Quarter Percent
Description 1999 1998 Variation Variation
----------- ---- ---- --------- ---------
Residential/Religious 4,031 3,589 442 12.3
Commercial/Industrial 5,612 6,562 (950) (14.5)
Other 142 178 (36) (20.2)
Total Full Service Customers 9,785 10,329 (544) (5.3)
Retail Choice Customers 2,744 1,306 1,438 Large
Sub-total 12,529 11,635 894 7.7
NYPA, Municipal Agency
and Other Sales 2,754 2,616 138 5.3
Total Service Area 15,283 14,251 1,032 7.2
-42-
Electric sales in Con Edison's service area increased by 7.2 percent in
the 1999 period compared to the 1998 period. 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 Form 10-K and "PSC Settlement
Agreement," above.
For the 1999 period, Con Edison's firm gas sales and transportation
volumes increased 0.9 percent, and interruptible sales increased 2.8 percent,
compared with the 1998 period. 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 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
3.5 percent in the 1999 period, firm gas sales and transportation volume
increased 0.3 percent and steam sales volume decreased 2.5 percent.
Electric fuel costs decreased in the 1999 period due principally to a
decrease in generation as result of sales by Con Edison of its electric
generating assets. Electric purchased power costs increased in the 1999 period
due to higher purchased volumes and increased unit cost. Electric fuel and
purchased power costs reflect the availability of Indian Point 2 which was in
service for most of the 1999 period but not in service for most of the 1998
period (see "Liquidity and Capital Resources - Nuclear Generation").
-43-
The cost of gas purchased for resale in the 1999 period increased,
reflecting higher sendout (and for CEI, its acquisition of O&R).
Steam fuel costs increased due to higher unit cost and higher sendout.
Steam purchased power costs also increased due to higher unit cost, partially
offset by lower purchased volumes.
The $52.6 million increase in CEI's other operations and maintenance (O&M)
expenses in the 1999 period compared to the 1998 period reflects the inclusion
of $42.8 million of O&R O&M expenses in the 1999 period and $17.1 million of
increased O&M expenses of CEI's non-utility subsidiaries, partially offset by a
$4.6 million decrease in Con Edison's O&M expenses. (Amounts exclude $2.7
million of eliminated intercompany expenses attributable to the O&R purchase.)
Con Edison's O&M expenses decreased due primarily to lower expenses at Indian
Point 2 and lower administrative and general expenses, offset partially by the
expenses incurred in responding to Hurricane Floyd and its aftermath and by
increased electric distribution expenses associated with the very hot summer
weather.
CEI's depreciation and amortization increased $4.3 million in the 1999
period compared to the 1998 period, reflecting amortization by CEI of $2.7
million of goodwill relating to its acquisition of O&R and inclusion of
approximately $6.7 million of O&R depreciation and amortization in the 1999
period, partially offset by a $5.9 million decrease in Con Edison's depreciation
and amortization as a result of its sales of electric generating assets.
Taxes other than federal income tax decreased in the 1999 period compared
to the 1998 period due principally to lower property taxes, which resulted from
sales by Con Edison of electric generating assets, and lower sales taxes, which
resulted from a New York State tax refund to Con Edison.
Federal income tax decreased in the 1999 period compared to the 1998
period due to lower taxable income, partially offset by lower tax credits.
CEI's net interest charges increased $9.0 million in the 1999 period
compared to the 1998 period due primarily to interest on commercial paper issued
to initially finance CEI's O&R acquisition.
Nine Months Ended September 30, 1999 Compared with
Nine Months Ended September 30, 1998
The $24.5 million increase in CEI's net revenues in the 1999 period
compared with the 1998 period reflects the inclusion of $101.3 million of O&R
net revenues in the 1999 period and $46.0 million of increased net revenues of
CEI's non-utility subsidiaries, partially offset by a $122.8 million decrease in
Con Edison's net revenues. Con Edison's electric and gas net revenues decreased
$128.0 million and $0.1 million, respectively, and its steam net revenues
increased $5.3 million, in the 1999 period compared with the 1998 period.
Con Edison's electric net revenues in the 1999 period 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, partially offset by higher sales
resulting from continued strength in the New York City economy.
-44-
Con Edison's electric sales, excluding off-system sales, for the 1999
period compared with the 1998 period were:
Millions of Kwhrs.
Nine Months Ended Percent
Description Nine Months Ended Sept. 30, 1999 Sept. 30, 1998 Variation Variation
----------- -------------------------------- -------------- --------- ---------
Residential/Religious 9,224 8,671 553 6.4%
Commercial/Industrial 15,731 18,954 (3,223) (17.0)
Other 404 495 (91) (18.4)
Total Full Service Customers 25,359 28,120 (2,761) (9.8)
Retail Choice Customers 5,610 1,326 4,284 Large
Sub-total 30,969 29,446 1,523 5.2
NYPA, Municipal Agency
and Other Sales 7,483 7,422 61 0.8
Total Service Area 38,452 36,868 1,584 4.3%
Electric sales in Con Edison's service area increased by 4.3 percent in
the 1999 period compared to the 1998 period. 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 6.2 percent, and interruptible sales decreased 22.5 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 6.2 percent compared with the 1998 period as
a result of somewhat colder weather in 1999 as compared to 1998.
-45-
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 2.7 percent. Similarly adjusted, firm gas sales and
transportation volume increased 1.7 percent and steam sales volume decreased 1.5
percent.
Electric fuel costs decreased in the 1999 period compared to the 1998
period due to a decrease in the unit cost of fuel, partially offset by an
increase in generation. Electric purchased power costs increased in the 1999
period, reflecting increased purchased volumes and higher unit cost of
purchases. Electric fuel and purchased power costs reflect the availability of
Indian Point 2 which was in service for most of the 1999 period but not in
service for most of the 1998 period (see "Liquidity and Capital Resources -
Nuclear Generation," above) and sales by Con Edison of its electric generating
assets.
The $2.1 million increase in CEI's cost of gas purchased for resale in the
1999 period compared to the 1998 period reflects inclusion in the 1999 period of
$5.8 million of O&R cost of gas purchased for resale and a $19.2 million
increase in the cost of gas purchased for resale by CEI's non-utility
subsidiaries, partially offset by a $22.8 million decrease in Con Edison's cost
of gas purchased for resale. The decrease in Con Edison's cost of gas purchased
for resale reflects lower unit cost of purchases, partially offset by higher
sendout. Steam fuel costs increased, reflecting increased generation, partially
offset by lower unit cost. Steam purchased power costs decreased as a result of
decreased purchased volumes and lower unit cost of purchases.
-46-
The $15.8 million increase in CEI's O&M expenses in the 1999 period
compared to the 1998 period reflects the inclusion in the 1999 period of $42.8
million of O&R O&M expenses and $31.8 million of increased O&M expenses of CEI's
non-utility subsidiaries, partially offset by a $56.6 million decrease in Con
Edison's O&M expenses. (Amounts exclude $2.2 million of eliminated intercompany
expenses.) Con Edison's O&M expenses decreased due primarily to lower nuclear
expenses and lower administrative and general expenses, offset partially by the
expenses incurred in responding to Hurricane Floyd and its aftermath and by
increased electric distribution expenses associated with the very hot summer
weather.
CEI's depreciation and amortization increased $13.1 million in the 1999
period compared to the 1998 period, reflecting amortization by CEI of $2.7
million of goodwill relating to its acquisition of O&R, inclusion of
approximately $6.7 million of O&R depreciation and amortization and a $2.3
increase in Con Edison's depreciation and amortization reflecting principally
higher average plant balances.
Taxes other than federal income tax decreased in the 1999 period compared
to the 1998 period due principally to lower property taxes, which resulted from
sales by Con Edison of electric generating assets, lower sales taxes, which
resulted from a refund received by Con Edison from New York State, and lower
revenue taxes.
Federal income tax increased in the 1999 period compared to the 1998
period due to higher taxable income and lower tax credits.
CEI's net interest charges increased $2.3 million in the 1999 period
compared to the 1998 period due primarily to interest on commercial paper issued
to initially finance CEI's O&R acquisition, partially offset by a $6.7 million
decrease in Con Edison's net interest charges that resulted primarily from the
refunding of long-tem debt issues.
Twelve Months Ended September 30, 1999 Compared with
Twelve Months Ended September 30, 1998
The $59.2 million increase in CEI's net revenues in the 1999 period
compared with the 1998 period reflects the inclusion of $101.3 million of O&R
net revenues in the 1999 period and a $35.3 million increase in the net revenues
of CEI's non-utility subsidiaries, partially offset by a $77.4 million decrease
in Con Edison's net revenues. Con Edison's electric and steam net revenues
decreased $67.3 million and $8.2 million, respectively, and its gas net revenues
increased $23.1 million, in the 1999 period compared with the 1998 period. Con
Edison's net revenues in the 1998 period included $25.0 million in net revenues
attributable to the non-utility subsidiaries. No such revenues were included in
the 1999 period because, in connection with the January 1, 1998 establishment of
CEI as the holding company for Con Edison, the non-utility subsidiaries of Con
Edison were transferred to CEI.
Con Edison's 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 and April 1998, partially offset by higher sales resulting
from continued strength in the New York City economy and warmer than normal 1999
summer weather.
-47-
The increase in Con Edison's gas net revenues in the 1999 period compared
to the 1998 period reflects principally the lower cost of gas purchased for
resale (see fuel cost discussion, below).
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 Percent
Description Twelve Months Ended Sept. 30, 1999 Sept. 30, 1998 Variation Variation
----------- ---------------------------------- -------------- --------- ---------
Residential/Religious 11,836 11,292 544 4.8%
Commercial/Industrial 21,233 25,404 (4,171) (16.4)
Other 544 645 (101) (15.6)
Total Full Service Customers 33,613 37,341 (3,728) (10.0)
Retail Choice Customers 6,701 1,326 5,375 Large
Sub-total 40,314 38,667 1,647 4.3
NYPA, Municipal Agency
and Other Sales 9,916 9,856 60 0.6
Total Service Area 50,230 48,523 1,707 3.5%
Electric sales in Con Edison's service area increased 3.5 percent in the
1999 period compared to the 1998 period. 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.
-48-
For the 1999 period, firm gas sales and transportation volumes were
unchanged. Interruptible sales decreased 29.6 percent in the 1999 period
compared to the 1998 period. 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.
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 2.6 percent. Similarly adjusted, firm gas sales and
transportation volume increased 1.3 percent and steam sales volume decreased 1.3
percent.
Electric fuel costs decreased in the 1999 period compared to the 1998
period due to a decrease in the unit cost of fuel, partially offset by an
increase in generation. Electric purchased power costs increased in the 1999
period, reflecting higher unit cost of purchases, partially offset by decreased
purchased volumes. Electric fuel and purchased power costs in the 1999 period
reflect the availability of Indian Point 2 which was in service for most of the
1999 period but not in service for most of the 1998 period (see "Liquidity and
Capital Resources - Nuclear Generation") and sales by Con Edison of its electric
generating assets.
The $46.8 million decrease in CEI's cost of gas purchased for resale in
the 1999 period compared to the 1998 period reflects a $90 million decrease in
Con Edison's cost of gas purchased for resale, partially offset by the inclusion
of approximately $5.8 million of O&R cost of gas purchased for resale in the
1999 period and an increased cost of gas purchased for resale of $13.1 million
by CEI's non-utility subsidiaries. The decrease in Con Edison's cost of gas
purchased for resale reflects lower sendout and lower unit cost. In the 1998
period, Con Edison's cost of gas purchased for resale included $24.3 million
attributable to the non-utility subsidiaries. Steam fuel costs decreased in the
1999 period due to a lower unit cost of fuel, partially offset by increased
generation of steam by Con Edison. Steam purchased power costs decreased due to
decreased purchased volumes and lower unit cost of purchases.
The $54.1 million increase in CEI's O&M expenses in the 1999 period
compared to the 1998 period reflects the inclusion of $42.8 million of O&R O&M
expenses in the 1999 period and $40.7 million of increased O&M expenses of CEI's
non-utility subsidiaries, partially offset by a $31 million decrease in Con
Edison's O&M expenses. (Amounts exclude $2.6 million of eliminated intercompany
expenses.) Con Edison's O&M expenses decreased in the 1999 period due primarily
to lower nuclear expenses and lower administrative and general expenses. In the
1998 period, Con Edison's O&M expenses included $4.2 million attributable to the
non-utility subsidiaries.
Depreciation and amortization increased in the 1999 period due principally
to higher average plant balances.
Taxes other than federal income tax decreased in the 1999 period due
principally to lower sales taxes as a result of a refund received by Con Edison
from New York State and lower revenue taxes.
-49-
Federal income tax increased in the 1999 period compared to the 1998
period due to higher taxable income and lower tax credits.
CEI's net interest charges decreased $4.9 million in the 1999 period
compared to the 1998 period due primarily to a $13.9 million decrease in Con
Edison's net interest charges (resulting primarily from the refunding of
long-tem debt issues), partially offset by interest associated with commercial
paper issued to initially finance CEI's O&R acquisition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information about the primary market risks associated with the
activities of CEI and Con Edison 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 Form 10-K.
O&R MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
O&R, a wholly-owned subsidiary of CEI, meets the conditions specified in
General Instruction H of Form 10-Q and is permitted to use the reduced
disclosure format for wholly-owned subsidiaries of companies, such as CEI, that
are reporting companies under the Securities Exchange Act of 1934. Accordingly,
this O&R Management's Narrative Analysis of the Results of Operations is
included in this report and O&R has omitted from this report the information
called for by Part 1, Item 2 (Management's Discussion and Analysis of Financial
Condition and Results of Operations), Part 1, Item 3 (Quantitative and
Qualitative Disclosure About Market Risk), Part II, Item 2 (Changes in
Securities and Use of Proceeds), Part II, Item 3 (Defaults Upon Senior
Securities) and Part II, Item 4 (Submission of Matters to a Vote of Security
Holders).
O&R's net income for common stock for the third quarter ended September
30, 1999 was $1.3 million higher than the corresponding 1998 period, and for the
nine months and twelve months ended September 30, 1999 was $24.6 million and
$27.8 million, respectively, lower than the corresponding 1998 periods. O&R's
earnings reflect the sale of its electric generating assets, which was completed
in June 1999, and costs relating to its acquisition by CEI, which was completed
in July 1999.
A comparison of the results of operations of O&R for the 1999 third
quarter and the nine and twelve month periods ended September 30, 1999 are shown
on the tables that follow. Starting in July 1999, O&R's results of operations
are included in the results of operations of CEI. See "Results of Operations" in
Part I, Item 2 of this report.
-50-
Increases (Decreases)
-----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1999 Twelve Months Ended
Compared With Three Compared With Nine Sept. 30, 1999 Compared
Months Ended Sept. 30, Months Ended Sept. With Twelve Months Ended
1998 30, 1998 Sept. 30, 1998
-----------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Amounts are for O&R and are in Millions)
Operating revenues $(1.8) (1.1)% $(3.6) (0.8)% $(20.8) (3.2)%
Purchased power-electric 48.4 Large 44.1 104.4 36.1 59.8
Fuel used in power
generation (30.4) (99.7) (28.1) (39.3) (22.6) (25.8)
Gas purchased for resale (0.6) (9.9) 13.3 26.9 4.7 5.9
Operating revenues less
purchased power, fuel
and gas Purchased for resale
(Net revenues) (19.2) (16.0) (32.9) (10.5) (39.0) (9.4)
Other operations and
maintenance (6.5) (13.1) 29.6 21.8 34.1 18.9
Depreciation and
amortization (2.4) (26.5) (0.6) (2.1) -- --
Taxes, other than
federal income tax (5.7) (24.8) (4.8) (7.1) (8.0) (8.6)
Federal income tax (2.8) (23.8) (17.9) (83.1) (22.0) (82.6)
Operating income (1.8) (6.8) (39.2) (64.2) (43.1) (54.0)
Other income less
deductions and
Related federal
Income tax 1.0 Large 13.3 Large 14.9 Large
Net interest charges (1.3) (14.7) -- -- 1.0 3.2
Preferred stock dividend
requirements (0.8) (100.0) (1.3) (57.8) (1.4) (53.6)
Net income for
common stock $1.3 7.5% $(24.6) (70.0)% $(27.8) (61.2)%
-51-
Third Quarter 1999 Compared with Third Quarter 1998
O&R's net operating revenues in the 1999 period were $19.2 million lower
than in the 1998 period, primarily as a result of a $19.7 million decrease in
electric net revenues. This decrease was attributable to rate decreases
implemented in July and August designed to eliminate electric generation
services from base rates in New York, New Jersey and Pennsylvania. Gas net
revenues increased by $0.5 million, due to higher firm gas transportation
deliveries for the period.
O&R's total sales of electric energy during the 1999 period increased 5.4%
compared to the 1998 period. This increase was due primarily to warmer weather
and customer growth.
O&R's total sales of gas to customers during the 1999 period decreased
1.3% compared to the 1998 period. The decrease was primarily due to the warmer
weather.
O&R's cost of fuel used in the production of electricity and energy
purchased for resale increased $18.0 million in the 1999 period compared to the
1998 period. This increase was primarily attributable to capacity purchases made
to replace the capacity of the electric generating assets sold in June 1999,
higher customer sales, and increases in the cost of purchased energy.
O&R's cost of gas purchased for resale decreased $0.6 million in the 1999
period compared to the 1998 period due primarily to lower firm sales for the
period.
O&R's O&M expenses decreased $6.5 million in the 1999 period compared to
the 1998 period due primarily to the June 1999 sale by O&R of its electric
generating assets.
-52-
O&R's other income, net of interest charges and other deductions,
increased by $2.3 million during the 1999 period compared to the 1998 period due
primarily to interest income earned on proceeds received from the June 1999 sale
of electric generating assets.
O&R had no preferred stock dividend requirements in the 1999 period
because it redeemed all outstanding shares of its preferred stock in April 1999.
Nine Months Ended September 30, 1999 Compared with
Nine Months Ended September 30, 1998
O&R's net revenues in the 1999 period were $32.9 million lower than in the
1998 period. Electric net revenues were $37.8 million lower as a result of rate
decreases implemented in July and August designed to eliminate electric
generation services from base rates in New York, New Jersey and Pennsylvania.
Additionally, O&R recorded revenues subject to refund in June 1999 to reflect
the customers' share of proceeds from the sale of electric generating assets.
Gas net revenues were $4.9 million higher due primarily to higher sales.
O&R's total sales of electric energy during the 1999 period increased 4.0%
compared to the 1998 period. This increase was due primarily to warmer weather
and customer growth.
O&R's total sales of gas to customers during the 1999 period increased
10.7% compared to the 1998 period. The increase in comparison to the prior year
was primarily the result of much warmer than normal weather experienced during
1998. Revenues from O&R's gas sales to retail customers in New York are subject
to a weather normalization clause that substantially eliminates the effect of
weather on O&R's net gas revenues.
-53-
O&R's cost of fuel used in the production of electricity and electricity
purchased for resale increased $16 million in the 1999 period compared to the
1998 period. This increase was primarily attributable to capacity purchases made
to replace the capacity of the electric generating assets sold in June 1999,
higher customer sales, and increases in the cost of purchased energy.
O&R's cost of gas purchased for resale increased $13.3 million in the 1999
period compared to the 1998 period due primarily to the higher volume of gas
purchased for resale and increases in the price of gas.
O&M expenses increased $29.6 million in the 1999 period compared to the
1998 period, due primarily to expenses related to the June 1999 sale of O&R's
electric generating assets and the July 1999 acquisition by CEI. Non-recurring
employee severance and pension costs for the period have been offset, in part,
by the elimination of O&M expenses relating to electric generation function
following the sale.
O&R's other income, net of interest charges and other deductions,
increased by $13.3 million during the 1999 period compared to the 1998 period
due primarily to proceeds from the sale of generating assets offset by federal
income tax.
O&R's preferred stock dividend requirements in the 1999 period were lower
than in the 1998 period because it redeemed all outstanding shares of its
preferred stock in April 1999.
-54-
Twelve Months Ended September 30, 1999 Compared with
Twelve Months Ended September 30, 1998
O&R's net revenues in the 1999 period were $39.0 million lower than in the
1998 period. Electric net revenues were $41.7 million lower as a result of rate
decreases implemented in July and August designed to eliminate electric
generation services from base rates in New York, New Jersey and Pennsylvania.
Additionally, O&R recorded revenues subject to refund in June 1999 to reflect
the customers' share of proceeds from the sale of electric generating assets.
Gas net revenues were $2.7 million higher due primarily to higher sales, offset
in part by lower incentive revenues earned for gas line losses.
O&R's total sales of electric energy during the 1999 period increased 3.3%
compared to the 1998 period. This increase was due primarily to warmer weather
and customer growth.
O&R's total sales of gas to customers during the 1999 period increased
0.8% compared to the 1998 period. This increase was due primarily to weather and
customer growth.
O&R's cost of fuel used in the production of electricity and energy
purchased for resale increased $13.5 million in the 1999 period compared to the
1998 period. This increase was primarily attributable to capacity purchases made
to replace the capacity of the electric generating assets sold in June 1999,
higher customer sales, and increases in the cost of purchased energy.
O&R's cost of gas purchased for resale increased $4.7 million in the 1999
period compared to the 1998 period due primarily to the higher volume of gas
purchased for resale and increases in the price of gas.
-55-
O&R's O&M expenses increased $34.1 million in the 1999 period compared to
the 1998 period, due primarily to expenses related to the June 1999 sale of
O&R's electric generating assets, the July 1999 acquisition by CEI, and startup
costs associated with O&R's new customer billing system. Non-recurring employee
severance and pension costs for the period have been offset, in part, by the
elimination of O&M expenses relating to electric generation function following
the sale.
O&R's other income, net of interest charges and other deductions,
increased by $13.9 million during the 1999 period compared to the 1998 period,
due primarily to proceeds from the sale of generating assets offset by federal
income tax.
O&R's preferred stock dividend requirements in the 1999 period were lower
than in the 1998 period because it redeemed all outstanding shares of its
preferred stock in April 1999.
- 56-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Con Edison
WASHINGTON HEIGHTS POWER OUTAGE
Reference is made to "Washington Heights Power Outage" 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 June
30, 1999.
CHALLENGE TO THE SETTLEMENT AGREEMENT
Reference is made to "Challenge to the Settlement Agreement" in Part
I, Item 3, Legal Proceedings of the combined CEI and Con Edison
Annual Reports on Form 10-K for the year ended December 31, 1998 and
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
June 30, 1999.
In September 1999, Public Utility Law Project of New York, Inc.
filed a motion with the Court of Appeals (the highest court in New
York State) to appeal the lower courts' dismissal of its lawsuit
against the PSC with respect to the PSC's "Competitive
Opportunities" proceeding.
SUPERFUND - ECHO AVENUE SITE
Reference is made to "Superfund- Echo Avenue Site" in Part I, Item 3
, Legal Proceedings of the combined CEI and Con Edison Annual
Reports on Form 10-K for the year ended December 31, 1998 and 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
June 30, 1999.
Plaintiffs have appealed the court's July 1999 dismissal of 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, Legal Proceedings of the combined CEI and Con Edison
Annual Reports on Form 10-K for the year ended December 31, 1998 and
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
June 30, 1999.
- 57 -
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.
EMPLOYEES' CLASS ACTION
Reference is made to "Employees' Class Action" in Part I, Item 3,
Legal Proceedings of the combined CEI and Con Edison Annual Reports
on Form 10-K for the year ended December 31, 1998.
In September 1999, the court's magistrate judge issued a recommended
decision recommending that a class be certified.
O&R
HENNESSY, ET AL. V. PEOPLES, ET AL.
Reference is made to Part II, Item 1, Legal Proceedings in O&R's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999.
In September 1999, defendants filed a motion to dismiss the
complaint and for sanctions against plaintiff and their counsel.
CROSSROADS CONGENERATION CORPORATION V. O&R
Reference is made to "Other Litigation" in Part I, Item 3, Legal
Proceedings of O&R's Annual Report on Form 10-K for the year ended
December 31, 1998.
In September 1999, plaintiff filed a motion for summary judgment
with the United States District Court for the District of New Jersey
relating to its state contract claims. In October 1999, O&R filed
its opposition to plaintiff"s motion.
O&R ENVIRONMENTAL LITIGATION AND ADMINISTRATIVE PROCEEDINGS
Reference is made to "Environmental Litigation and Administrative
Proceedings" in Part I, Item 3, Legal Proceedings of O&R's Annual
Report on Form 10-K for the year ended December 31, 1998 and in Part
II, Item 1, Legal Proceedings in O&R's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1999.
- 58 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
CEI
Exhibit 2.1 Agreement and Plan of Merger, dated October 13, 1999, among
CEI, Northeast Utilities and two wholly-owned direct or indirect
subsidiaries of CEI. (Incorporated by reference to Exhibit 2 to
CEI's Current Report on Form 8-K, dated October 13, 1999, in
Commission File No. 1-14514.)
Exhibit 12.1 Statement of computation of CEI's ratio of earnings to
fixed charges for the twelve-month periods ended
September 30, 1999 and 1998.
Exhibit 27.1 Financial Data Schedule for CEI.*
Con Edison
Exhibit 10.2 Amendment, dated July 27, 1999, to Employment Contract,
dated May 22, 1990, between Con Edison and Eugene R. McGrath.
Exhibit 12.2 Statement of computation of Con Edison's ratio of
earnings to fixed charges for the twelve-month periods ended
September 30, 1999 and 1998. (Incorporated by reference to
Exhibit 12.2 to Con Edison's Registration Statement on Form
S-3 (No. 333-90385).)
Exhibit 27.2 Financial Data Schedule for Con Edison.*
O&R
Exhibit 27.3 Financial Data Schedule for O&R.*
- -----------
*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.
- 59 -
(b) REPORTS ON FORM 8-K
CEI filed a Current Report on Form 8-K, dated July 8, 1999, reporting (under
Item 5) the completion of its acquisition of O&R. O&R filed a Current Report on
Form 8-K, dated July 8, 1999, reporting (under Item 1) the completion of its
acquisition by CEI and (under Item 4) the appointment of PricewaterhouseCoopers
LLP, CEI's independent accountants, as O&R's independent accountants. No other
CEI, Con Edison or O&R Current Reports on Form 8-K were filed during the quarter
ended September 30, 1999.
CEI filed a Current Report on Form 8-K, dated October 13, 1999, reporting (under
Item 5) that it had agreed to acquire Northeast Utilities.
- 60 -
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: November 12, 1999 By: JOAN S. FREILICH
Joan S. Freilich
Executive Vice President, Chief
Financial Officer and Duly
Authorized Officer
ORANGE AND ROCKLAND UTILITIES, INC.
DATE: November 12, 1999 By: HYMAN SCHOENBLUM
Hyman Schoenblum
Vice President, Chief Financial
Officer and Duly Authorized Officer