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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 2000
OR
|_| Transition Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
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 ID. 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
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Consolidated Edison, Inc.,
Common Shares ($ .10 par value) New York Stock Exchange
Consolidated Edison Company of New York, Inc.,
7 3/4% Quarterly Income Capital Securities (Series A
Subordinated Deferrable Interest Debentures) New York Stock Exchange
7.35% Public Income NotES (7.35% Debentures,
Series 1999A) due 2039 New York Stock Exchange
$5 Cumulative Preferred Stock, without par value New York Stock Exchange
Cumulative Preferred Stock, 4.65% Series C ($100 par value) New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Consolidated Edison Company of New York, Inc.,
Cumulative Preferred Stock, 4.65% Series D ($100 par value)
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Indicate by check mark whether the 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the common equity of Consolidated Edison, Inc.
("Con Edison") held by non-affiliates of Con Edison, as of January 31, 2001, was
approximately $7.4 billion. Not reflected in this amount are the 60,606 Con
Edison Common Shares ($.10 par value) held by Con Edison's Directors who are the
only stockholders of Con Edison, known to Con Edison, who might be deemed
"affiliates" of Con Edison. As of February 28, 2001, Con Edison had outstanding
212,031,531 Common Shares ($.10 par value).
All of the outstanding common equity of Consolidated Edison Company of New York,
Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R")
is held by Con Edison.
O&R MEETS THE CONDITIONS SPECIFIED IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF
FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
Documents Incorporated By Reference
Portions of Con Edison's definitive joint proxy statement for its 2000 Annual
Meeting of Stockholders, to be filed with the Commission pursuant to Regulation
14A not later than 120 days after December 31, 2000, are incorporated in Part
III of this report.
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FILING FORMAT
This Annual Report on Form 10-K is a combined report being filed separately by
three different registrants: Con Edison, Con Edison of New York and O&R. Neither
Con Edison of New York nor O&R makes any representation as to the information
contained in this report relating to Con Edison or the subsidiaries of Con
Edison other than itself.
TABLE OF CONTENTS
Page
----
FORWARD-LOOKING STATEMENTS 5
PART I
ITEM 1. Business 5
Con Edison 6
Con Edison of New York 7
O&R 15
ITEM 2. Properties
Con Edison 18
Con Edison of New York 18
O&R 19
ITEM 3. Legal Proceedings
Con Edison 20
Con Edison of New York 20
O&R 27
ITEM 4. Submission of Matters to a Vote of Security Holders None
Executive Officers of the Registrant
Con Edison 29
Con Edison of New York 29
O&R Omitted*
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Con Edison 33
Con Edison of New York None
O&R None
ITEM 6. Selected Financial Data
Con Edison 34
Con Edison of New York 34
O&R Omitted*
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ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Con Edison 35
Con Edison of New York 47
O&R Omitted*
O&R Management's Narrative Analysis of the Results of
Operations 56
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Con Edison 59
Con Edison of New York 59
O&R 59
ITEM 8. Financial Statements and Supplementary Data 59
Con Edison 63
Con Edison of New York 89
O&R 112
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Con Edison None
Con Edison of New York None
O&R 2
PART III
ITEM 10. Directors and Executive Officers
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
ITEM 13. Certain Relationships and Related Transactions
Con Edison Incorporated**
Con Edison of New York 132
O&R Omitted*
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 133
SIGNATURES 140
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* O&R is omitting the information pursuant to General Instruction I of Form
10-K.
** Incorporated by reference from Con Edison's definitive proxy statement for
its Annual Meeting of Stockholders to be held on May 21, 2001.
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are statements of future
expectations and not facts. Words such as "expects," "anticipates," "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 those discussed under the caption
"Forward-Looking Statements" in each of Con Edison's and Con Edison of New
York's Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") in Item 7.
PART I
ITEM 1. BUSINESS
Contents of Item 1 Page
Con Edison
Corporate Overview 6
Operating Segments 6
Regulation 6
Competition 6
Unregulated Subsidiaries 7
Capital Requirements and Financing 7
State Antitakeover Law 7
Employees 7
Con Edison of New York
Corporate Overview 7
Operating Segments 8
Electric Operations 8
Gas Operations 9
Steam Operations 10
Regulation 11
Competition 11
Capital Requirements and Financing 11
Environmental Matters 12
Operating Statistics 13
O&R
General Nature and Scope of Business 15
Operating Statistics 16
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CON EDISON
Corporate Overview
Consolidated Edison, Inc. ("Con Edison"), incorporated in New York State in
1997, became the holding company for Consolidated Edison Company of New York,
Inc. ("Con Edison of New York") on January 1, 1998 and acquired Orange and
Rockland Utilities, Inc. ("O&R") in July 1999. Con Edison has no significant
business operations other than those of its regulated utility subsidiaries, Con
Edison of New York and O&R, and its unregulated subsidiaries.
For information about legal proceedings relating to Con Edison's October 1999
agreement to acquire Northeast Utilities, see Note P to the Con Edison financial
statements in Item 8 (which information is incorporated herein by reference).
Operating Segments
Con Edison's principal business segments are its regulated electric, gas and
steam utility businesses. In 2000, electric, gas and steam utility operating
revenues were 73.5 percent, 13.3 percent and 4.8 percent, respectively, of Con
Edison's operating revenues. For a discussion of operating revenues and
operating income for each segment, see "Results of Operations" in Con Edison's
MD&A in Item 7 (which information is incorporated herein by reference). For
additional information about the segments, see Note N to the Con Edison
financial statements in Item 8 (which information is incorporated herein by
reference) and the discussions of the businesses of Con Edison of New York and
O&R below in this Item 1.
Regulation
Con Edison's utility subsidiaries are subject to extensive federal and state
regulation, including by state utility commissions, the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission. Con Edison, itself,
is not subject to such regulation except to the extent that the rules or orders
of these agencies impose restrictions on relationships between Con Edison and
its utility subsidiaries.
Con Edison is a "holding company" under the Public Utility Holding Company Act
of 1935 ("PUHCA"). Con Edison is exempt from all provisions of PUHCA, except
Section 9(a)(2) (which requires SEC approval for a direct or indirect
acquisition of 5 percent or more of the voting securities of any other electric
or gas utility company) on the basis that Con Edison, Con Edison of New York and
O&R are each organized and carry on their utility businesses substantially in
the State of New York and that neither derives any material part of its income
from a public utility company organized outside of the State of New York. This
exemption is available even though Con Edison subsidiaries that are neither an
"electric utility company" nor a "gas utility company" under PUHCA will engage
in interstate activities.
Con Edison has been and is expected to continue to be impacted by legislative
and regulatory developments. The electric and gas utility industries are
undergoing restructuring, deregulation and increased competition. Con Edison's
utility subsidiaries are subject to extensive regulation in New York, New Jersey
and Pennsylvania. Changes in regulation or legislation applicable to the
company's utility subsidiaries could have a material adverse effect on the
company. For information about such changes, see "State Regulatory Matters" in
the MD&As of Con Edison and Con Edison of New York in Item 7 (which information
is incorporated herein by reference).
Competition
Legislative and regulatory developments are promoting increased competition in
Con Edison's businesses. For information about competition, see "Competition,"
below in the discussion of Con Edison of New York's business in this Item 1 and
"Unregulated Subsidiaries," below.
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Unregulated Subsidiaries
Con Edison has unregulated subsidiaries that are subject to competition and
different business risks than Con Edison's utility subsidiaries. In March 2001,
a competitor of Consolidated Edison Communications, Inc. petitioned the New York
State Public Service Commission ("NYPSC") to revoke the Con Edison subsidiary's
authority to provide fiber-optic transport services in New York City. The
petition, which alleges anti-competitive conduct and practices by the subsidiary
and Con Edison of New York, also seeks commencement of a penalty action. The
NYSPSC has established procedures "to resolve the issues presented efficiently
and expeditiously." Con Edison believes that the petition is without merit. For
information about Con Edison's unregulated subsidiaries, see "Liquidity and
Capital Resources - Unregulated Subsidiaries" and "Results of Operations" in Con
Edison's MD&A in Item 7 (which information is incorporated herein by reference).
Capital Requirements and Financing
For information about Con Edison's capital requirements, financing and
securities ratings, see "Liquidity and Capital Resources - Capital Resources,
Capital Requirements" and "Financial Market Risks" in Con Edison's MD&A in Item
7 (which information is incorporated herein by reference). Securities ratings
assigned by rating organizations are expressions of opinion and are not
recommendations to buy, sell or hold securities. A securities rating is subject
to revision or withdrawal at any time by the assigning rating organization. Each
rating should be evaluated independently of any other rating.
State Antitakeover Law
New York State law provides that a "resident domestic corporation," such as Con
Edison, may not consummate a merger, consolidation or similar transaction with
the beneficial owner of a 20 percent or greater voting stock interest in the
corporation, or with an affiliate of the owner, for five years after the
acquisition of the voting stock interest, unless the transaction or the
acquisition of the voting stock interest was approved by the corporation's board
of directors prior to the acquisition of the voting stock interest. After the
expiration of the five-year period, the transaction may be consummated only
pursuant to a stringent "fair price" formula or with the approval of a majority
of the disinterested stockholders.
Employees
Con Edison has no employees other than those of Con Edison of New York, O&R and
Con Edison's unregulated subsidiaries (which at December 31, 2000 had 13,231,
999 and 233 employees, respectively).
CON EDISON OF NEW YORK
Corporate Overview
Con Edison of New York, incorporated in New York State in 1884, is a subsidiary
of Con Edison which has no significant subsidiaries of its own. Con Edison of
New York provides electric service in all of New York City (except part of
Queens) and most of Westchester County, an approximately 660 square mile service
area with a population of more than 8 million. It also provides gas service in
Manhattan, The Bronx and parts of Queens and Westchester, and steam service in
part of Manhattan.
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Operating Segments
Con Edison of New York's principal business segments are its regulated electric,
gas and steam utility businesses. In 2000, electric, gas and steam operating
revenues were 80.8 percent, 13.5 percent and 5.7 percent, respectively, of its
operating revenues. For a discussion of the company's operating revenues and
operating income for each segment, see "Results of Operations" in its MD&A in
Item 7 (which information is incorporated herein by reference). For additional
information about the segments, see Note L to the company's financial statements
in Item 8 (which information is incorporated herein by reference).
Electric Operations
There have been and are continuing to be significant changes in Con Edison of
New York's electric operations, including the establishment of the company's
electric Retail Choice program (under which all of the company's electric
customers are able to purchase electricity from other suppliers) and the
company's sale of most of its electric generating capacity. See "State
Regulatory Matters - Electric" in the MD&As of Con Edison and Con Edison of New
York in Item 7 and "Rate and Restructuring Agreements" in Note A to the Con
Edison and Con Edison of New York financial statements in Item 8 (which
information is incorporated herein by reference).
Electric Sales. Electric operating revenues were $6.5 billion in 2000 or
80.8 percent of Con Edison of New York's operating revenues. The percentages
were 81.5 and 81.7, respectively, in the two preceding years. In 2000, 62.1
percent of the electricity delivered by Con Edison of New York in its service
area was sold by Con Edison of New York to its full-service customers, 18.1
percent was sold by other suppliers, including Consolidated Edison Solutions,
Inc., an unregulated subsidiary of Con Edison, to the company's customers under
its electric Retail Choice program and the balance was delivered to the state
and municipal customers of the New York Power Authority ("NYPA") and the
customers of municipal electric agencies. The company charges for the delivery
of electricity sold by other suppliers to customers in its service area.
For additional information about electricity sales, see "Operating Statistics,"
below, and "Results of Operations - Electric" in the MD&As of Con Edison and Con
Edison of New York in Item 7 (which information is incorporated herein by
reference).
Electric Peak Load. The electric peak load in Con Edison of New York's
service area occurs during the summer air conditioning season. The record
one-hour service area peak load, which occurred on July 6, 1999, was 11,850
thousand kilowatts ("MW"). The 2000 peak load, which occurred on June 26, 2000,
was 11,231 MW, including an estimated 7,503 MW for Con Edison of New York's
full-service customers, 1,903 MW for the company's customers participating in
its electric Retail Choice program and 1,825 MW for NYPA's customers and
municipal electric agency customers. The 2000 peak, if adjusted to historical
design weather conditions, would have been 11,825 MW, 175 MW higher than the
record peak in 1999 when similarly adjusted. Con Edison of New York estimates
that, under design weather conditions, the summer 2001 service peak load would
be 12,025 MW, including an estimated 7,555 MW for the company's full-service
customers, 2,500 for its electric Retail Choice program customers and 1,970 MW
for NYPA's customers and municipal electric agency customers. "Design weather"
for the electric system is a standard to which the actual peak load is adjusted
for evaluation.
Electric Supply. Most of the electricity sold by Con Edison of New York to
its customers in 2000 was purchased under firm power contracts or through the
wholesale electricity market administered by the New York State Independent
System Operator (the "NYISO"). The firm power contracts were with non-utility
generators ("NUGs") and utilities (including Hydro-Quebec). The company sold
most of its electric generating capacity in 1999 (see Note I to the Con Edison
and Con Edison of New York financial statements in Item 8).
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The company plans to meet its continuing obligation to supply electricity to its
customers with electric energy purchased under contracts with NUGs or others,
generated from its remaining electric generating facilities (which, including
Indian Point 2, have a capacity of approximately 1,500 MW) or purchased through
the NYISO's wholesale electricity market. The company is entering into financial
arrangements to mitigate market price volatility for a portion of its expected
electric energy purchases in 2001. For additional information about electric
power purchases, see "Electric Power Purchases" in Con Edison and Con Edison of
New York's MD&As in Item 7 and "Recoverable Energy Costs" in Note A to the Con
Edison and Con Edison of New York financial statements in Item 8 (which
information is incorporated herein by reference).
For information about the company's contracts with NUGs for approximately 2,100
MW of electric generating capacity, see Note H to the Con Edison and Con Edison
of New York financial statements in Item 8 (which information is incorporated
herein by reference).
Con Edison of New York has an agreement with Hydro-Quebec (a government-owned
Canadian electric utility) for the five-year period ending March 2004 to
purchase 400 MW of firm capacity during the months of April through October. The
amount and price of a "basic amount" of energy the company is entitled to
purchase in each year is subject to negotiation with Hydro-Quebec. In accordance
with the agreement, the company can also purchase additional energy during the
summer, which it would be obligated to return to Hydro-Quebec during the
following winter.
The company's Indian Point 2 nuclear generating unit, which has a capacity of
approximately 1,000 MW, was out of service for most of 2000 but returned to
service in January 2001 following replacement of its steam generators. In
November 2000, the company agreed to sell Indian Point 2 and enter into a power
purchase agreement for the output from Indian Point 2 through the end of 2004.
For more information about Indian Point 2, see Note G to the Con Edison and Con
Edison of New York financial statements in Item 8 (which information is
incorporated herein by reference). For additional information about the
company's remaining electric generating facilities, see Item 2 (which
information is incorporated herein by reference).
The NYISO is a not-for-profit organization which controls and operates most of
the electric transmission facilities in New York State as an integrated system
and administers a wholesale market for electricity in New York State. The NYISO,
for reliability reasons, requires that entities supplying electricity to
customers in New York State have generating capacity (either owned or contracted
for) in an amount that is 18 percent or more above the expected peak load for
their customers. In addition, entities that serve customers in New York City
must have enough New York City-located capacity to cover 80 percent of their New
York City customer peak load. Con Edison of New York met these requirements in
2000 with respect to its full-service customers and expects to meet them in
2001.
In February 2001, the NYISO issued a study which found that approximately 300 MW
of additional capacity, or a similar reduction in electricity demand, will be
needed in New York City to meet reliability standards in summer 2001. Additional
capacity that would meet this requirement is currently under construction. In
March 2001, the NYISO issued a report recommending the addition of 8,600 MW of
new installed electric generating capacity in New York State by 2005, a
substantial portion of which would need to be located in New York City, in order
to avoid serious electricity shortages, improve air quality, continue New York's
economic growth, and avert strong upward pressure on prices.
Gas Operations
There have been and are continuing to be significant changes in Con Edison of
New York's gas operations in recent years, including the establishment of the
company's gas Retail Choice program under which all of the company's gas
customers are able to purchase gas from other suppliers.
Gas Sales. Gas operating revenues in 2000 were $1.1 billion or 13.5
percent of Con Edison of New York's operating revenues. The percentages were
13.6 and 13.7, respectively, in the two preceding years. In 2000, 41 percent of
the gas delivered by the company in its service area was sold by the company to
its full-service (firm and interruptible) customers and 59 percent was sold by
other suppliers, including Consolidated Edison Solutions, Inc., to their supply
customers. For additional information about gas sales, see "Operating
Statistics," below, and "Results of Operations - Gas" in the MD&As of Con Edison
and Con Edison of New York in Item 7 (which information is incorporated herein
by reference).
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Gas Requirements. Firm demand for gas in Con Edison of New York's service
area peaks during the winter heating season. The design criteria for the
company's gas system assume severe weather conditions that have not occurred in
the service area since 1934. Under these criteria, the company estimates that
the requirements to supply its firm gas customers would amount to 64,800
thousand dekatherms (mdth) of gas during the November 2000/March 2001 winter
heating season and that gas available to the company would amount to 85,000
mdth. For the November 2001/March 2002 winter heating season, the company
estimates that the requirements would amount to approximately 65,100 mdth and
that the gas available to the company would amount to approximately 85,000 mdth.
As of March 15, 2001, the November 2000/March 2001 winter heating season peak
day sendout to the company's customers was 880 mdth, which occurred on December
28, 2000. The company estimates that, under the design criteria, the peak day
requirements for firm customers during the November 2001/March 2002 winter
heating season would amount to approximately 877 mdth and expects that it would
have sufficient gas available to meet these requirements.
Gas Supply. Con Edison of New York has contracts with suppliers for the
firm purchase of natural gas. Charges under these contracts, which are based on
formulas or indexes or are subject to negotiation, are generally designed to
approximate market prices. The contracts are for various terms extending to
2006. The company also has contracts with interstate pipeline companies for the
purchase of firm transportation and storage services. Charges under these
contracts are approved by the Federal Energy Regulatory Commission. The
contracts are for various terms extending to 2013. The company is required to
pay certain charges under the supply, transportation and storage contracts
whether or not it actually uses the contracted capacity. These fixed charges
amounted to approximately $122 million in 2000.
In addition, Con Edison of New York purchases gas on the spot market and has
interruptible gas transportation contracts. The company has no obligation to
make any such purchases and any such purchases are at market prices.
Con Edison of New York recovers its gas supply, transportation and storage
costs, less net proceeds of sales of excess capacity (excluding any incentives
earned by the company for such sales), from customers pursuant to rate
provisions approved by the NYPSC. See "Recoverable Energy Costs" in Note A to
the Con Edison and Con Edison of New York financial statements in Item 8 (which
information is incorporated herein by reference).
In 1998, the NYPSC issued a policy statement recommending that all New York
State gas utilities terminate their gas supply or "merchant" functions within
three to seven years. The policy statement provides that utilities will have a
reasonable opportunity to recover any stranded costs. A NYPSC proceeding to
address the company's plans and rate issues resulted in a November 2000
agreement extending the company's 1996 gas settlement agreement through
September 2001. See "Rate and Restructuring Agreements" in Note A to the Con
Edison of New York financial statements in Item 8. Discussions are continuing on
a longer-term rate agreement and reliability, provider of last resort and market
power issues.
Steam Operations
Steam Sales. Con Edison of New York sells steam in Manhattan south of 96th
Street, mostly to large office buildings, apartment houses and hospitals. In
2000, steam operating revenues were $452 million or 5.7 percent of the company's
operating revenues. The percentages were 4.9 and 4.6, respectively, in the two
preceding years.
For information about Con Edison of New York's steam operations, see "State
Regulatory Matters - Steam" and "Results of Operations - Steam" in the MD&As of
Con Edison and Con Edison of New York in Item 7, the discussion of Con Edison of
New York's steam facilities in Item 2 and "Operating Statistics"," below (which
information is incorporated herein by reference).
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Steam Peak Load and Capacity. Demand for steam in Con Edison of New York's
service area peaks during the winter heating season. The one-hour peak load
during the winter of 2000/2001 (through March 15, 2001) occurred on December 26,
2001 when the load reached 9.2 million pounds. The company's estimate for the
winter of 2001/2002 peak demand of its steam customers is approximately 12.0
million pounds per hour under design criteria, which assume severe weather.
On December 31, 2000, the steam system had the capability of delivering about
13.4 million pounds of steam per hour. This figure does not reflect the
unavailability or reduced capacity of generating facilities resulting from
repair or maintenance. Con Edison of New York estimates that, on a comparable
basis, the system will have the capability to deliver approximately 13.4 million
pounds of steam per hour in the 2001/2002 winter.
Steam Supply. 37 percent of the steam sold by Con Edison of New York in
2000 was produced in the company's steam/electric generating stations, where it
is first used to generate electricity. 15 percent of the steam sold by the
company in 2000 was purchased from a NUG. The remainder was produced in the
company's steam-only generating units. See Item 2 for a discussion of Con Edison
of New York's steam facilities (which information is incorporated herein by
reference).
Regulation
The NYPSC regulates, among other things, Con Edison of New York's electric, gas
and steam rates, the siting of its transmission lines and the issuance of its
securities. Certain activities of Con Edison of New York are subject to the
jurisdiction of the Federal Energy Regulatory Commission. The Nuclear Regulatory
Commission regulates Con Edison of New York's Indian Point 2 and its retired
Indian Point 1 nuclear units. In addition, various matters relating to the
construction and operation of Con Edison of New York's facilities are subject to
regulation by other governmental agencies. Changes in regulation or legislation
applicable to Con Edison of New York could have a material adverse effect on the
company. For additional information, including information about the company's
electric, gas and steam rates, see "State Regulatory Matters" in Con Edison of
New York's MD&A in Item 7 (which information is incorporated herein by
reference).
Competition
For information about federal and state initiatives promoting the development of
competition in the supply of electricity and gas, see "State Regulatory Matters"
in the MD&As of Con Edison and Con Edison of New York in Item 7 (which
information is incorporated herein by reference). In addition, competition from
other suppliers of electricity or gas, suppliers of oil and other sources of
energy, including distributed generation (such as fuel cells and micro-turbines)
may provide alternatives for Con Edison of New York customers. The company's
electric, gas and steam rates are among the highest in the country.
Capital Requirements and Financing
For information about Con Edison of New York's capital requirements, financing
and securities ratings, see "Liquidity and Capital Resources - Capital
Resources" and "Capital Requirements and Financial Market Risks" in Con Edison
of New York's MD&A in Item 7 (which information is incorporated herein by
reference).
Securities ratings assigned by rating organizations are expressions of opinion
and are not recommendations to buy, sell or hold securities. A securities rating
is subject to revision or withdrawal at any time by the assigning rating
organization. Each rating should be evaluated independently of any other rating.
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Environmental Matters
General. Con Edison of New York's capital expenditures for environmental
protection facilities and related studies were approximately $14 million in 2000
and are estimated to be approximately $29 million in 2001.
Superfund. The Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("Superfund") by its terms imposes joint and several
strict liability, regardless of fault, upon generators of hazardous substances
for resulting removal and remedial costs and environmental damages. In the
course of Con Edison of New York's operations, materials are generated that are
deemed to be hazardous substances under Superfund. These materials include
asbestos and dielectric fluids containing polychlorinated biphenyls ("PCBs").
Other hazardous substances are generated in Con Edison of New York's operations
or may be present at company locations. Also, hazardous substances were
generated at the manufactured gas plants that the company and its predecessor
companies used to operate. See "Superfund" in the discussion of Con Edison of
New York's legal proceedings in Item 3 and Note F to the Con Edison and Con
Edison of New York financial statements in Item 8 (which information is
incorporated herein by reference).
Asbestos. Asbestos is present in numerous Con Edison of New York
facilities. For information about asbestos, see "Asbestos Litigation" in the
discussion of the company's legal proceedings in Item 3 and Note F to the Con
Edison and Con Edison of New York financial statements in Item 8 (which
information is incorporated herein by reference).
Toxic Substances Control Act. Virtually all electric utilities, including
Con Edison of New York, own equipment containing PCBs. PCBs are regulated under
the Federal Toxic Substances Control Act of 1976. The company has reduced
substantially the amount of PCBs in electrical equipment it uses, including
transformers located in or near public buildings.
Indian Point. Con Edison of New York believes that a serious accident at
its Indian Point 2 nuclear unit is extremely unlikely, but despite substantial
insurance coverage, the losses to the company in the event of a serious accident
could materially adversely affect the company's financial position and results
of operations. For additional information about Indian Point 2 and the company's
retired Indian Point 1 nuclear unit, including their pending sale, see Note G to
the Con Edison and Con Edison of New York financial statements in Item 8 (which
information is incorporated herein by reference).
Water Quality. The Federal Clean Water Act provides for effluent
limitations, to be implemented by a permit system, to regulate the discharge of
pollutants, including heat, into United States waters. In 1981, Con Edison of
New York entered into a 10-year agreement with the United States Environmental
Protection Agency ("EPA") and others with respect to Indian Point 2 (which is
located adjacent to the Hudson River) in which the company agreed to certain
plant modifications, operating restrictions and other measures. In 1991, three
environmental interest groups commenced litigation challenging Indian Point 2's
permit status pending renewal of its discharge permits, which expired in October
1992. Under a consent order settling this litigation, certain restrictions on
Indian Point 2's usage of Hudson River water were imposed on an interim basis.
Permit renewal applications were filed in April 1992, after which the New York
State Department of Environmental Conservation ("DEC") determined that the
company must submit a draft environmental impact statement ("DEIS") to provide a
basis for determining new permit conditions. A preliminary DEIS, which includes
an evaluation of the costs and environmental benefits of potential mitigation
alternatives (one of which is the installation of cooling towers), has been
released for public comment. Pending issuance of final renewal permits, the
terms and conditions of the expired permits continue in effect.
Certain governmental authorities are investigating contamination in the Hudson
River and the New York Harbor. These waters are along the shoreline of Con
Edison of New York's service area. Governmental authorities could require
entities that generated hazardous substances that contaminated these waters to
bear the costs of investigation and remediation, which could be substantial.
- 13 -
OPERATING STATISTICS - CON EDISON OF NEW YORK
Year Ended December 31 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
ELECTRIC ENERGY (MWhrs)
Generated (a) 3,259,790 15,266,628 16,541,078 15,877,467 17,823,778
Purchased from others (a) 35,780,429 29,303,386 26,372,576 27,105,143 26,178,042
--------------------------------------------------------------
Total Generated and Purchased 39,040,219 44,570,014 42,913,654 42,982,610 44,001,820
Less: Supplied without
direct charge -- 38 68 71 71
Used by
Company 191,445 151,090 155,172 155,934 164,206
Distribution losses and
other variances 2,768,249 2,682,594 2,429,301 2,799,039 2,716,235
--------------------------------------------------------------
Net Generated and Purchased 36,080,525 41,736,292 40,329,113 40,027,566 41,121,308
Electric Energy Sold
Residential 11,637,167 11,854,995 11,282,669 11,002,745 10,867,085
Commercial and
Industrial 19,930,376 20,238,777 24,455,265 25,911,199 25,725,502
Railroads and Railways 95,457 71,447 87,514 75,392 47,004
Public Authorities 257,706 465,287 548,569 538,643 564,363
--------------------------------------------------------------
Total Sales to Con Edison of New York 31,920,706 32,630,506 36,374,017 37,527,979 37,203,954
Customers
Off-System Sales (a)(b) 4,159,819 9,105,786 3,955,096 2,499,587 3,917,354
--------------------------------------------------------------
Total Electric Energy Sold 36,080,525 41,736,292 40,329,113 40,027,566 41,121,308
==============================================================
Total Sales to Con Edison of New York
Customers 31,920,706 32,630,506 36,374,017 37,527,979 37,203,954
Delivery Service for Retail Choice 9,321,630 7,935,827 2,417,321 -- --
Delivery Service to NYPA
Customers and Others 9,631,618 9,335,230 9,039,674 8,793,378 8,816,873
Service for Municipal Agencies 526,816 624,229 814,575 845,895 617,293
--------------------------------------------------------------
Total Sales in Franchise Area 51,400,770 50,525,792 48,645,587 47,167,252 46,638,120
==============================================================
Average Annual kWhr Use Per
Residential Customer (c) 4,372 4,487 4,303 4,225 4,184
Average Revenue Per kWhr Sold (cents)
Residential (c) 18.5 15.9 16.2 16.6 16.5
Commercial and Industrial (c) 15.5 12.7 12.7 13.0 12.9
(a) For 1997, 1996 and 1995, amounts generated include 973,483, 1,672,603 and
3,159,047 MWhrs., respectively, that Con Edison of New York, for a fee,
generated for others using as boiler fuel the gas that they provided.
These amounts are also included in off-system sales. For 1997, 1996 and
1995, amounts purchased include 929,483, 1,553,764 and 2,666,837 MWhrs.,
respectively, of such electric energy that was subsequently purchased by
Con Edison.
(b) For 2000, 1999 and 1998, includes sales to Consolidated Edison Solutions,
Inc., an unregulated subsidiary of Con Edison.
(c) Includes Municipal Agency sales.
- 14 -
OPERATING STATISTICS - CON EDISON OF NEW YORK (continued)
Year Ended December 31 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
GAS (Dth)
Purchased 157,800,083 245,496,798 232,560,023 242,296,610 219,439,813
Storage - net change 774,660 1,964,581 (4,404,888) (1,630,463) (4,032,224)
Used as boiler fuel at Electric
and Steam Stations (27,674,312) (67,331,325) (109,240,109) (109,508,555) (84,849,049)
----------------------------------------------------------------------------
Gas Purchased for Resale 130,900,431 180,130,054 118,915,026 131,157,592 130,558,540
Less: Gas used by Company 294,937 369,938 376,577 239,359 272,040
Off-System Sales & NYPA 29,563,339 92,072,772 26,104,143 14,216,403 11,023,023
Distribution losses and
other variances 7,060,117 1,998,637 (820,174) 104,531 176,930
----------------------------------------------------------------------------
Total Gas Sold to Con Edison of New York 93,982,038 85,688,707 93,254,480 116,597,299 119,086,547
Customers
Gas Sold
Firm Sales
Residential 47,602,792 44,705,689 45,106,269 53,217,428 56,590,018
General 30,468,676 27,271,134 30,685,310 39,468,337 42,190,091
----------------------------------------------------------------------------
Total Firm Sales 78,071,468 71,976,823 75,791,579 92,685,765 98,780,109
Interruptible Sales 15,910,570 13,711,884 17,462,901 23,911,534 20,306,438
----------------------------------------------------------------------------
Total Gas Sold to Con Edison of New York 93,982,038 85,688,707 93,254,480 116,597,299 119,086,547
Customers
Transportation of Customer-owned Gas
Firm Transportation 18,215,120 17,382,490 8,634,659 808,026 --
NYPA 19,857,321 11,268,947 4,260,908 17,041,695 4,966,983
Other 97,155,425 22,560,029 14,478,269 7,656,874 5,011,124
Off-System Sales 23,067,713 32,942,436 25,982,200 13,958,984 11,293,425
----------------------------------------------------------------------------
Total Sales and Transportation 252,277,617 169,842,609 146,610,516 156,062,878 140,358,079
============================================================================
Average Revenue Per Dth Sold
Residential $ 11.62 $ 11.20 $ 11.75 $ 11.22 $ 10.00
General $ 8.44 $ 7.70 $ 7.95 $ 8.14 $ 7.15
STEAM Sold (Mlbs) 26,733,260 26,532,797 24,995,694 27,422,561 29,995,762
Average Revenue Per Mlb Sold $ 16.37 $ 12.80 $ 12.83 $ 14.23 $ 13.34
CUSTOMERS - Average for year
Electric 3,078,648 3,054,693 3,030,746 3,010,139 3,001,870
Gas 1,051,555 1,046,133 1,040,410 1,036,098 1,035,528
Steam 1,861 1,879 1,898 1,920 1,932
- 15 -
O&R
General Nature and Scope of Business
O&R, incorporated in New York State in 1926, is a subsidiary of Con Edison which
has two wholly-owned utility subsidiaries, Rockland Electric Company ("RECO"), a
New Jersey corporation, and Pike County Light & Power Company ("Pike"), a
Pennsylvania corporation.
O&R and its utility subsidiaries provide electric service in southeastern New
York and in adjacent sections of New Jersey and northeastern Pennsylvania, an
approximately 1,350 square mile service area. They also provide gas service in
southeastern New York and Pennsylvania. O&R's business is subject to regulation
by the NYPSC, the New Jersey and Pennsylvania state utility commissions and the
Federal Energy Regulatory Commission. Changes in regulation or legislation
applicable to O&R could have a material adverse effect on the company's
financial position, results of operations or liquidity.
O&R's principal business segments are its regulated electric and gas utility
businesses. In 2000, electric and gas operating revenues were 73.2 percent and
26.2 percent, respectively, of its operating revenues.
For additional information about O&R's business, see O&R Management's Narrative
Analysis of the Results of Operations in Item 7 and the notes to the O&R
financial statements in Item 8 (which information is incorporated herein by
reference).
- 16 -
OPERATING STATISTICS - O&R
Year Ended December 31 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
ELECTRIC ENERGY (MWhrs)
Generated -- 1,871,898 4,061,371 3,059,038 2,545,717
Purchased from others 4,879,400 3,153,359 1,198,709 1,786,381 2,539,710
----------------------------------------------------------
Total Generated and Purchased 4,879,400 5,025,257 5,260,080 4,845,419 5,085,427
Less: Supplied without direct charge 20 23 166 -- --
Used by Company 19,337 134,587 251,947 211,023 187,558
Distribution losses and other variances 410,469 369,433 314,909 315,699 285,072
----------------------------------------------------------
Net Generated and Purchased 4,449,574 4,521,214 4,693,058 4,318,697 4,612,797
Electric Energy Sold
Residential 1,881,680 1,942,347 1,836,916 1,791,676 1,731,105
Commercial and Industrial 2,463,745 2,373,415 2,228,938 2,182,433 2,610,384
Public Authorities 104,150 96,294 70,525 39,143 80,914
----------------------------------------------------------
Total Sales to Orange and Rockland Customers 4,449,574 4,412,056 4,136,379 4,013,252 4,422,403
Off-System Sales -- 109,158 556,679 305,445 190,394
----------------------------------------------------------
Total Electric Energy Sold 4,449,574 4,521,214 4,693,058 4,318,697 4,612,797
==========================================================
Total Sales to Orange and Rockland Customers 4,449,574 4,412,056 4,136,379 4,013,252 4,422,403
Delivery Service for Retail Choice 606,793 589,223 691,891 617,280 182,859
----------------------------------------------------------
Total Sales in Franchise Area 5,056,368 5,001,279 4,828,270 4,630,532 4,605,262
==========================================================
Average Annual kWhr Use Per
Residential Customer 7,854 8,065 7,716 7,642 7,459
Average Revenue Per kWhr Sold (cents)
Residential 12.22 11.84 12.01 12.32 12.19
Commercial and Industrial 9.93 8.18 8.38 8.54 8.84
- 17 -
OPERATING STATISTICS - O&R (continued)
Year Ended December 31 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
GAS (Dth)
Purchased 25,042,346 36,711,658 53,030,119 42,492,515 35,294,805
Storage - net change (1,099,134) 890,604 (278,878) (1,242,537) (252,743)
Used as boiler fuel at Electric Stations -- (15,252,652) (31,757,453) (16,567,916) (8,903,618)
-----------------------------------------------------------------------
Gas Purchased for Resale 23,943,212 22,349,610 20,993,788 24,682,062 26,138,444
Less: Gas used by Company 57,828 77,612 54,392 163,089 74,015
Distribution losses and
other variances 841,295 705,214 1,395,332 840,198 534,412
-----------------------------------------------------------------------
Total Gas Sold to Orange and Rockland Customers 23,044,089 21,566,784 19,544,064 23,678,775 25,530,017
Gas Sold
Firm Sales
Residential 14,281,013 13,702,735 12,913,578 15,477,043 16,154,948
General 4,473,533 4,389,977 3,410,481 4,561,624 5,258,857
-----------------------------------------------------------------------
Total Firm Sales 18,754,546 18,092,712 16,324,059 20,038,667 21,413,805
Interruptible Sales 3,260,329 3,474,072 3,220,005 3,640,108 4,116,212
Sales to Con Edison 1,029,214 -- -- -- --
-----------------------------------------------------------------------
Total Gas Sold to Orange and Rockland Customers 23,044,089 21,566,784 19,544,064 23,678,775 25,530,017
Transportation of Customer-owned Gas
Firm Transportation 3,415,804 2,207,541 1,614,284 935,231 135,424
Other 4,222,835 1,905,807 4,059,829 3,660,687 3,233,442
Off-System Sales 4,984,794 264,277 -- -- --
-----------------------------------------------------------------------
Total Sales and Transportation 35,667,522 25,944,409 25,218,177 28,274,693 28,898,883
=======================================================================
Average Revenue Per Dth Sold
Residential $ 8.32 $ 7.77 $ 7.25 $ 7.45 $ 7.24
General $ 7.65 $ 6.92 $ 6.87 $ 7.13 $ 6.93
CUSTOMERS - Average for year
Electric 278,851 275,640 272,111 268,233 264,877
Gas 118,707 117,283 115,708 113,852 112,588
- 18 -
ITEM 2. PROPERTIES
CON EDISON
Con Edison has no significant properties other than those of Con Edison of New
York, O&R and Con Edison's unregulated subsidiaries. At December 31, 2000, the
capitalized cost of Con Edison's utility plant, net of accumulated depreciation,
was comprised as follows (in millions of dollars):
Con Edison of Unregulated
New York O&R Subsidiaries Con Edison
Electric Amount Percent Amount Percent Amount Percent Amount Percent
Generation $ 497.5 4% $ -- -- -- -- $ 497.5 4%
Transmission 1,075.6 10% 78.7 11% -- -- 1,154.3 10%
Distribution 5,862.1 54% 349.2 49% -- -- 6,211.3 52%
Gas 1,520.5 14% 190.1 26% -- -- 1,710.6 14%
Steam 528.8 5% -- -- -- -- 528.8 5%
General 868.3 8% 72.0 10% -- -- 940.3 8%
Held for Future Use 6.2 -- 1.9 -- -- -- 8.1 --
Unregulated generating assets -- -- -- -- 230.4 100% 230.4 2%
Construction Work in Progress 476.4 4% 28.1 4% -- -- 504.5 4%
Nuclear fuel assemblies and components,
less accumulated
amortization 107.6 1% -- -- -- -- 107.6 1%
----------------------------------------------------------------------
Net Utility Plant $10,943.0 100% $720.0 100% $230.4 100% $11,893.4 100%
CON EDISON OF NEW YORK
Electric Facilities
Generating Facilities. Con Edison of New York has sold most of its
electric generating facilities, and has agreed to sell its approximately 1,000
MW Indian Point 2 nuclear generating unit and related assets (located in
Westchester County, New York). See Notes G and I to the Con Edison and Con
Edison of New York financial statements in Item 8 (which information is
incorporated herein by reference). The company expects to have sufficient
amounts of fuel available in 2000 for use in its remaining electric generating
facilities. Immediately following the sale of Indian Point 2, the company's
remaining electric generating facilities will consist of plants located in New
York City with an aggregate capacity of approximately 500 MW, including its
approximately 300 MW East River and 160 MW Waterside steam-electric generating
stations. The company intends to add incremental generating capacity of
approximately 200 MW through the repowering of its East River station and the
closing of its Waterside station. See "Liquidity and Capital Resources - Capital
Requirements" in the MD&As of Con Edison and Con Edison of New York in Item 7
(which information is incorporated herein by reference).
Transmission Facilities. Con Edison of New York's transmission facilities,
other than those located underground, are controlled and operated by the NYISO.
See "Electric Operations- Electric Supply" in Item 1 (which information is
incorporated herein by reference). At December 31, 2000, Con Edison of New
York's transmission system had approximately 432 miles of overhead circuits
operating at 138, 230, 345 and 500 kilovolts and approximately 381 miles of
underground circuits operating at 138 and 345 kilovolts. There are approximately
267 miles of radial subtransmission circuits operating at 69 and 138 kilovolts.
The company's 14 transmission substations, supplied by circuits operated at 69
kilovolts and above, have a total transformer capacity of approximately 15,731
megavolt amperes. The company's transmission facilities are located in New York
City and Westchester, Orange, Rockland, Putnam and Dutchess counties in New York
State.
Con Edison of New York has transmission interconnections with Niagara Mohawk,
Central Hudson Gas & Electric Corporation, O&R, New York State Electric and Gas
Corporation, Connecticut Light and Power Company, Long Island Lighting Company,
NYPA and Public Service Electric and Gas Company.
- 19 -
Distribution Facilities. Con Edison of New York owns various distribution
substations and facilities located throughout New York City and Westchester
County. At December 31, 2000, the company's distribution system had a
transformer capacity of approximately 20,300 megavolt amperes, approximately
32,500 miles of overhead distribution lines and approximately 88,800 miles of
underground distribution lines.
Gas Facilities
Natural gas is delivered by pipeline to Con Edison of New York at various points
in its service territory and is distributed to customers by the company through
approximately 4,200 miles of mains and 368, service lines. The company owns a
natural gas liquefaction facility and storage tank at its Astoria property in
Queens, New York. The plant can store approximately 1,000 mdth of which a
maximum of about 250 mdth can be withdrawn per day. The company has about 1,230
mdth of additional natural gas storage capacity at a field in upstate New York,
owned and operated by Honeoye Storage Corporation, a corporation 28.8 percent
owned by Con Edison of New York.
Steam Facilities
Con Edison of New York generates steam for distribution at two steam/electric
generating stations and six steam-only generating stations and distributes steam
to customers through approximately 87 miles of mains and 18 miles of service
lines. For information about the planned repowering of the East River
steam-electric station, see "Electric Facilities- Generating Facilities," above.
O&R
Electric Transmission and Distribution Facilities
O&R and its utility subsidiaries, RECO and Pike, own, in whole or in part,
transmission and distribution facilities which include 601 circuit miles of
transmission lines, 13 transmission substations (with a total transformer
capacity of approximately 3,362 megavolt amperes), 58 distribution substations
(with a total transformer capacity of 1,867 megavolt amperes), 88,892 in-service
line transformers, 5,062 pole miles of overhead distribution lines and 2,519
miles of underground distribution lines.
Gas Facilities
O&R and Pike own their gas distribution systems, which include 1,765 miles of
mains.
RECO & Pike Mortgages
Substantially all of the utility plant and other physical property of O&R's
utility subsidiaries, RECO and Pike, is subject to the liens of the respective
indentures securing first mortgage bonds of each company.
- 20 -
ITEM 3. LEGAL PROCEEDINGS
CON EDISON
For information about legal proceedings relating to Con Edison's October 1999
agreement to acquire Northeast Utilities, see Note P to the Con Edison financial
statements in Item 8 (which information is incorporated herein by reference).
Con Edison's only other material pending legal proceedings are those of Con
Edison of New York and O&R discussed below.
CON EDISON OF NEW YORK
Superfund
The following is a discussion of significant proceedings pending under Superfund
or similar statutes involving sites for which Con Edison of New York has been
asserted to have a liability. Additional such proceedings may arise in the
future. For a further discussion of claims and possible claims against Con
Edison of New York under Superfund, the estimated liability accrued for certain
Superfund claims and recovery from customers of site investigation and
remediation costs, see "Environmental Matters - Superfund" in Item 1, and
"Environmental Matters " in Note F to Con Edison of New York's financial
statements in Item 8 (which information is incorporated herein by reference).
Maxey Flats Nuclear Disposal Site. In 1986, the EPA designated Con Edison
of New York a potentially responsible party (PRP) under Superfund for the
investigation and cleanup of the Maxey Flats Nuclear Disposal Site in Morehead,
Kentucky. The site is owned by the State of Kentucky and was operated as a
disposal facility for low level radioactive waste from 1963 through 1977 by the
Nuclear Engineering Corporation (now known as U.S. Ecology Corporation). In
1995, the United States, the State of Kentucky and various de minimis PRPs,
large private party PRPs (including Con Edison of New York) and large federal
agency PRPs entered into consent decrees with respect to the funding and
implementation of the cleanup program required by EPA for the site. Under the
consent decrees, the large private party PRPs are responsible for implementing
phase one of the program and any corrective actions required during the first 10
years following completion of phase one. The costs of those activities are being
shared with the large federal agency PRPs. Also, if during this ten-year period
the EPA determines that horizontal flow barriers are required, the large private
party PRPs will construct the barriers and share the cost of that work with the
large federal agency PRPs and the State of Kentucky. The large private party
PRPs are not responsible for any costs after the ten-year period expires. The
State of Kentucky will implement and fund the remainder of the cleanup program.
Con Edison of New York's share of the cleanup costs is estimated to be between
$500,000 and $600,000.
Curcio Scrap Metal Site. In 1987, the EPA designated Con Edison of New
York, a Superfund PRP for the Curcio Scrap Metal, Inc. Site in Saddle Brook, New
Jersey, because Con Edison of New York had previously sold PCB-contaminated
scrap electric transformers to a metal broker who in turn sold them to the owner
of the site for salvaging. In 1991, the EPA issued a Unilateral Administrative
Order which required Con Edison of New York and three other PRPs to implement a
soil and sediment cleanup program at and around the site. In 1997, the EPA
issued a Record of Decision in which it concluded that the soil and sediment
cleanup had successfully remediated the principal threats associated with the
site and required periodic groundwater monitoring at the site for five years.
Con Edison of New York is conducting the required groundwater monitoring
program, which is expected to cost about $300,000, under an EPA Administrative
Consent Order. Depending on the results of the monitoring, the EPA could extend
the monitoring program for an additional five years or require remedial
measures, such as groundwater treatment or cleanup work.
- 21 -
Metal Bank of America Site. In 1987, the EPA designated Con Edison of New
York a Superfund PRP for the Metal Bank of America Site in Philadelphia. The
site, a former metal recycling facility, was placed on the EPA's national
priority list in 1983. PCBs have been found in the site soil and groundwater and
in the sediment from areas of a tidal mudflat and the Delaware River along the
site's shoreline. During the 1970s, Con Edison of New York sold approximately
125 transformers to scrap metal dealers who salvaged or may have salvaged the
transformers at the site. In 1997, the EPA issued a Record of Decision that
calls for, among other things, the removal and disposal of contaminated
sediments in the areas of the tidal mudflat and the Delaware River along the
site's shoreline. In 1998, the EPA ordered the electric utility PRPs to design
and implement the cleanup program. The cost of the required cleanup program,
estimated at between $24 million and $30 million, will be allocated among the
utilities, with Con Edison of New York's share expected to be approximately one
percent.
Narrowsburg Site. In 1987, the New York State Attorney General notified
Con Edison of New York that it is a Superfund PRP for the Cortese Landfill Site
in Narrowsburg, New York, because during 1974 the company had disposed of waste
oil at the landfill. The Cortese Landfill is listed on the EPA's Superfund
National Priorities List. In 1983, the Attorney General commenced an action
under Superfund in the United States District Court for the Southern District of
New York against the Cortese Landfill site owner and operator and SCA Services
("SCA"), an alleged transporter of hazardous substances to the site. In 1989,
SCA commenced a third-party action for contribution against Con Edison of New
York and various other parties whose chemical waste was allegedly disposed of at
the site. Con Edison of New York and SCA have reached a settlement of the
third-party action under which Con Edison of New York paid $114,485 toward the
cost of the site environmental studies and will pay 6 percent of the first $25
million of remedial costs for the site. SCA has agreed to indemnify Con Edison
of New York for any other remedial costs and natural resource damages that it
has to pay. The EPA has selected a cleanup program for the site that is
estimated to cost $12 million and the court has approved a consent decree under
which SCA, Con Edison of New York and various other site PRPs have agreed to
implement the cleanup program, pay the EPA's oversight costs for the site and
pay approximately $220,000 for natural resource damages.
Carlstadt Site. In 1990, Con Edison of New York was served with a
third-party complaint in a Superfund cost contribution action for a former waste
solvent and oil recycling facility located in Carlstadt, New Jersey. The
complaint in the action, which is pending before the United States District
Court for the District of New Jersey, alleges that Con Edison of New York is one
of several hundred parties who are responsible under Superfund for the study and
cleanup of the facility. The plaintiffs in the action, which include a group of
former customers of the facility, have completed a $3 million remedial
investigation and feasibility study for the site. Plaintiffs estimate that 7 to
15 million gallons of waste solvents and oil were recycled at the site and based
on this estimate, Con Edison of New York's share of the cleanup costs is
estimated at about 0.8 to 1.7 percent. The costs of the cleanup alternatives
that were evaluated in the remedial investigation and feasibility study range
from $8 million to $321 million. Plaintiffs have completed an interim remedy,
which plaintiffs claim cost more than $10 million, to control releases from the
site while the EPA evaluates and develops a final cleanup remedy.
Global Landfill Site. Con Edison of New York is a PRP under Superfund and
the New Jersey Spill Compensation and Control Act (Spill Act) for the Global
Landfill Site in Old Bridge, New Jersey. The site, a former sanitary landfill
that was authorized to accept municipal refuse and industrial waste, is included
on the Superfund National Priorities List and is being administered by the New
Jersey Department of Environmental Protection and Energy ("NJDEPE") pursuant to
an agreement between the EPA and the State of New Jersey. In 1993, a group of
site PRP's, including Con Edison of New York, entered into a consent decree with
the NJDEPE to implement, with partial funding from NJDEPE, a Phase I remedy,
estimated to cost $30 million. In 1997, the EPA issued a Record of Decision in
which it selected a Phase II remedy. The site PRP group and the NJDPE are
currently negotiating a consent decree under which the site PRP group would also
design and implement the Phase II remedy. Con Edison of New York's share of the
costs of the Phase I and Phase II remedies is not expected to exceed $150,000.
- 22 -
Chemsol Site. In 1991, the EPA advised Con Edison of New York that it had
documented the release of hazardous substances at the Chemsol Site in
Piscataway, New Jersey and that it had reason to believe that Con Edison of New
York sent waste materials to the site during the period from 1960 through 1965.
In response to the EPA's demand for records relating to the Con Edison of New
York's dealings with the site and various specified companies, including Cenco
Instruments Corporation, the company submitted to the EPA records of payments to
Central Scientific Company, a Division of Cenco Instruments Corporation. Con
Edison of New York is unable at this time to determine either the purpose of the
payments to Central Scientific Company or the connection of that company to the
site. The EPA has not designated Con Edison of New York as a PRP and has not yet
selected a final cleanup program for the site. However, the EPA has selected an
interim remedy, expected to cost about $8 million, for the site groundwater
contamination and has ordered several designated PRPs to implement that remedy.
Echo Avenue Site. In 1987, the DEC classified Con Edison of New York's
former Echo Avenue substation site in New Rochelle, New York as an "Inactive
Hazardous Waste Disposal Site" because of the presence of PCBs in the soil and
in the buildings on the site. Remedial action has been taken under a consent
order with the DEC. In 1993, the owners of Echo Bay Marina filed suit in the
United States District Court for the Southern District of New York alleging that
PCBs were being discharged into the Long Island Sound from the substation site.
Plaintiffs sought $24 million for personal injuries and property damages, a
declaration that Con Edison of New York is in violation of the Clean Water Act,
civil penalties of $25,000 per day for each violation, remediation costs, an
injunction against further discharges and legal fees. In 1994, the court
dismissed plaintiffs' claims for property damage, including loss of business. In
July 1999, the court dismissed the remaining claims. In June 2000, the United
States Court of Appeals for the Second Circuit affirmed the trial court's
dismissal of plaintiffs' personal injury and property damage claims, but
remanded the case to the trial court for further proceedings on plaintiffs' site
clean up claims. In February 2001, the trial court granted summary judgment to
the company and dismissed the claims that had been remanded.
PCB Treatment, Inc. Sites. In 1994, the EPA designated Con Edison of New
York as a Superfund PRP for the PCB Treatment, Inc. (PTI) Sites in Kansas City,
Kansas and Kansas City, Missouri, because during the mid-1980's it shipped
almost 2.9 million pounds of PCB-containing oil and electric equipment to two
buildings that PTI used at the sites for the storage, processing, and treatment
of PCB-containing electric equipment, dielectric oils, and materials. Con Edison
of New York is member of a PRP steering committee that, in May 2000, completed
environmental studies and engineering evaluations for the sites under an EPA
administrative consent order. The results of the studies indicate that portions
of the buildings' floor slabs, support columns, and walls and the soil around
the buildings' outdoor loading dock areas are contaminated with PCBs. In August
2000, EPA selected a removal action program for the contaminated buildings and
soil at the sites. Under the program, which could cost as much as $34 million to
complete, the buildings will be demolished and the contaminated soil will be
excavated and shipped to off-site disposal facilities. Based on allocation
information recently developed by EPA, Con Edison of New York believes that its
share of the investigation and remediation costs for the sites could range
between $2.5 and $5 million.
Astoria Site. Con Edison of New York is required to conduct a site
investigation and, where necessary, a remediation program as a condition to
renewal by the DEC of Con Edison of New York's permit to store PCBs at Con
Edison of New York's former Astoria generating station site in Queens, New York.
The site investigation was completed in 1998 and reports, indicating
PCB-contamination of portions of the site, have been submitted to the DEC and
the New York State Department of Health. Depending on the remediation action
required, the costs of remediation could be material. In 1999, Con Edison of New
York completed the sale of its Astoria generating station pursuant to an
agreement in which the buyer has generally agreed to assume all environmental
liabilities relating to the assets sold other than those for prior offsite
disposal of hazardous waste.
- 23 -
Borne Chemical Site. In 1997, Con Edison of New York was named as an
additional third-party defendant in a private cost recovery action in the New
Jersey Superior Court (Union County) under the New Jersey Spill Compensation and
Control Act for the Borne Chemical site in Elizabeth, New Jersey. Borne Chemical
used the site for the processing and blending of various types of petroleum,
dyes and chemical products from approximately 1917 until 1985 when it became
bankrupt and abandoned the site. Between 1971 and 1981, a portion of the site
was occupied by a waste transporter and oil spill cleanup contractor that did
work for Con Edison of New York at various times. Con Edison of New York and
four other third-party defendants in the lawsuit have entered into a settlement
with the third-party plaintiffs under which Con Edison of New York paid $70,434
towards the cost of certain work that plaintiffs had already completed and
agreed to assume responsibility for approximately 0.67% of the expenses that the
third-party plaintiffs incured conducting the site investigation study ordered
by the NJDEPE and any soil or groundwater cleanup program that the NJDEPE may
require after the site investigation study is completed.
Capasso Site. In 1997, Con Edison of New York was served with a complaint
by DMJ Associates seeking to compel Con Edison of New York and 16 other
defendants to clean up contamination at the Capasso property located in Long
Island City, New York. The complaint alleges that Con Edison of New York sent
waste to the Quanta Resources facility (Quanta) and that contamination,
including PCB contamination, has migrated from Quanta to the Capasso property
and is contributing to the contamination on or about the Capasso property. Con
Edison of New York is continuing to investigate whether it sent any waste to
Quanta. Con Edison of New York is defending this action pursuant to a joint
defense agreement with the other generator defendants.
Arthur Kill Transformer Site. Following a September 1998 transformer fire
at Con Edison of New York's former Arthur Kill generating station, it was
determined that oil containing high levels of PCBs was released to the
environment during the incident. Con Edison of New York is cooperating with the
investigations and has completed DEC-approved cleanup programs for the station's
facilities and various soil and pavement areas of the site affected by the PCB
release. Pursuant to a July 1999 DEC consent order, Con Edison of New York is
carrying out a DEC-approved Remedial Investigation/Feasibility Program to assess
the nature and extent of the contamination in, and to recommend a proposed
remediation program for, the waterfront area of the station. After soliciting
public comment, the DEC will select a remedial alternative to be implemented by
Con Edison of New York. In 1999, Con Edison of New York completed the sale of
its Arthur Kill generating station pursuant to an agreement in which the buyer
generally agreed to assume all environmental liabilities relating to the assets
sold other than those for prior offsite disposal of hazardous waste and
liabilities arising out of the transformer fire. In April 2000, Con Edison of
New York entered into a Stipulation and Order of Consent with the United States
Attorney for the Southern District of New York pursuant to which the United
States Attorney agreed not to prosecute the company in connection with its
response to the release of PCBs during the September 1998 transformer fire and,
among other things, the company agreed to continue to develop, implement and
maintain an effective environmental compliance program and to submit the program
to an examination and evaluation by a person selected by the United States
Attorney.
BCF Oil Refining Site. In May 2000, the EPA designated Con Edison of New
York and numerous other parties as PRPs for the BCF oil refining site in
Brooklyn, New York. The site was operated as a waste oil reprocessing facility
from the late 1970's until August 1994, when the facility was forced to close
down because its storage and processing tanks had become contaminated with
elevated concentrations of PCBs. In November 1994, the owners of the site sued
Con Edison of New York, alleging that its shipments of waste oil and oily
wastewater to the facility were the source of the high concentration of PCBs
that had contaminated the facility's tanks. The action was dismissed after a
jury verdict in Con Edison of New York's favor. However, the facility's tanks
still contain significant quantities of PCB-contaminated oil and EPA has
determined that an emergency cleanup program estimated to cost $2.1 million is
required for them. EPA is currently attempting to negotiate with the owners of
the facility for the implementation of the required emergency cleanup program,
but has indicated that it may order PRPs who shipped waste oil to the facility
to implement or to fund the program if the facility owners do not agree to carry
out the program.
- 24 -
Mattiace Petrochemical Company Site. In July 2000, Con Edison of New York
was served with an EPA Superfund information request for the Mattiace
Petrochemical Company Superfund site in Glen Cove, New York. According to EPA,
the Mattiace Petrochemical Company processed, blended, repacked, and distributed
solvents at the site from the mid-1960's until 1987. Between 1974 and 1982,
Mattiace Petrochemical's affiliate, the M&M Drum Company, cleaned and
refurbished metal drums at the site. EPA has reportedly incurred expenses
totaling approximately $21 million since 1988, conducting emergency removal and
cleanup work and other response actions at the site, including the portions of
the site used by the M&M Drum Company. During the late 1970's and early 1980's,
Con Edison of New York purchased naphta and a mineral spirit-based solvent
product from Mattiace Petrochemical and sold empty scrap drums to Mattiace
Petrochemical and M&M Drum. Based on Con Edison of New York's response to the
information request for the site and M&M Drum Company records that EPA recently
obtained from the Nassau County District Attorney's office, EPA claims that Con
Edison of New York is responsible for about 53% of the scrap drums that Mattiace
Petrochemical and M&M Drums handled at site. EPA has indicated that it is
developing an allocation proposal for its past site costs and that it will begin
settlement negotiations with site PRPs as soon as its allocation proposal has
been approved by the United States Department of Justice.
Croton Point Sanitary Landfill Site. The New York Attorney General has
alleged that Con Edison of New York and numerous other businesses with
commercial and industrial facilities within Westchester County, New York are
Superfund PRPs for the County of Westchester's Croton Point Sanitary Landfill in
Croton on the Hudson, New York, because they formerly used the landfill for the
disposal of refuse and waste materials that contained hazardous substances.
According to the New York Attorney General, the State of New York has spent over
$27 million since 1993 assisting the County of Westchester in implementing
response actions needed to prevent releases of hazardous substances from the
landfill and to properly close the landfill. Con Edison of New York intends to
join a group of other designated site PRPs that is currently attempting to
negotiate with the Attorney General a settlement under which the State of New
York's past response costs would be equitably allocated among all known site
PRPs, including the County of Westchester and various municipalities within
Westchester County that disposed of incinerator ash and other materials
containing hazardous substances at the landfill.
Manufactured Gas Sites. In 1999, Con Edison of New York submitted a report
to the DEC identifying 32 sites where Con Edison of New York or its predecessors
manufactured gas many years ago and 17 sites where the company or its
predecessors maintained storage holders for manufactured gas in the past. The
company may be required to investigate and, if necessary, remediate each of the
sites, the cost of which is not presently determinable but may be material to
its financial position, results of operations or liquidity. Coal tar and other
manufactured gas plant-related environmental contaminants have been detected at
several of the sites, including lower Manhattan and the Hunts Point section of
New York City and in Tarrytown, Pelham Manor and White Plains in Westchester
County.
As to the lower Manhattan site, located near the Hudson River, the cost of the
DEC-approved cleanup work is estimated at $10 million, and the DEC has demanded
that the company conduct off-site testing to determine whether the contamination
has migrated.
As to the Hunts Point site, which was sold to New York City in the 1960's, the
New York City Economic Development Corporation ("EDC") is implementing
DEC-approved investigation programs for five vacant parcels at the site for
which development is planned and will implement DEC-approved remediation
programs for the five parcels. Con Edison of New York and the City have
negotiated a settlement agreement under which the company would reimburse the
City for up to $14.2 million of the expenses it incurs to implement the
remediation programs for the four vacant parcels for which it has already
completed the required DEC-approved investigation programs. The proposed
settlement agreement is currently being reviewed by the New York City
Controller. DEC has demanded that the company assess the current environmental
conditions of the remaining parcels at the site.
- 25 -
As to the Tarrytown site, which is adjacent to the Hudson River, the company
recently completed a DEC-approved supplemental investigation program to compile
the additional data needed by the DEC to determine the scope of the required
cleanup program for the contaminated sections of the site and the Hudson River.
Depending on DEC requirements, the costs of the remediation programs could
exceed $20 million.
As to the Pelham Manor site, now used as a shopping center, the company is
funding site studies and has agreed to participate with the site ground lessee
in the development and implementation of a cleanup plan that is acceptable to
the DEC, the costs of which have not yet been determined.
As to the White Plains site, based on the limited testing conducted to date, it
appears that the contamination extends to at least one neighboring property and
possibly others. Additional studies are planned to delineate the full extent of
the contamination. Depending on the results of those studies and the cleanup
requirements imposed by the DEC, the costs of cleaning up the contamination
could exceed $10 million.
Asbestos Litigation
Asbestos is present in numerous Con Edison of New York facilities. The following
is a discussion of the significant suits involving asbestos in which Con Edison
of New York has been named a defendant. The listing is not exhaustive and
additional suits may arise in the future. See "Environmental Matters" in Note F
to the Con Edison of New York financial statements in Item 8 (which information
is incorporated herein by reference).
Mass Tort Cases. Numerous suits have been brought in New York State and
Federal courts against Con Edison of New York and many other defendants for
death and injuries allegedly caused by exposure to asbestos at various Con
Edison of New York premises. Many of these suits have been disposed of without
any payment by Con Edison of New York, or for immaterial amounts. The amounts
specified in the remaining suits, including the Moran v. Vacarro suit discussed
below, total billions of dollars, but Con Edison of New York believes that these
amounts are greatly exaggerated, as were the claims already disposed of.
Moran, et al. v. Vacarro, et al. In 1988, Con Edison of New York was
served with a complaint and an amended complaint in an action in the New York
State Supreme Court, New York County, in which approximately 188 Con Edison of
New York employees and their union alleged that the employees were exposed to
dangerous levels of asbestos as a result of alleged intentional conduct of
supervisory employees. Each of the employee plaintiffs sought $1 million in
punitive damages, $1 million in damages for mental distress, unspecified
additional compensatory damages, and to enjoin Con Edison of New York from
violating EPA regulations and exposing employees to asbestos without first
taking certain safety measures. In 1990, the complaint was amended to add the
spouses of 131 plaintiffs as additional plaintiffs and to remove the union as a
plaintiff. Each spouse seeks medical monitoring, $1 million for emotional
distress and $1 million for punitive damages. In 1995, the court dismissed the
claims of the employee plaintiffs, leaving employee spouses as the only
plaintiffs.
- 26 -
Employees' Class Action
In January 1998, seven current employees and one former employee of Con Edison
of New York sought class certification in a proceeding, entitled Sheppard, et
al. v. Con Edison of New York, that had been initiated 1994 in the United States
District Court for the Eastern District of New York. Plaintiffs allege denial of
promotions or transfer because of their race and seek back-pay, compensatory and
punitive damages, injunctive relief (including promotions for those allegedly
improperly denied promotions), and reformation of Con Edison of New York's
personnel practices. In December 2000, the court issued a decision in which it
disapproved a settlement with the plaintiffs (that the court had preliminarily
approved in June 2000) pursuant to which company was to pay an estimated
aggregate $10 million (including attorneys' fees) and take certain actions with
respect to its personnel practices. At December 31, 2000, the company had
accrued an approximately $12.1 million liability with respect to this action.
Nuclear Fuel Disposal
Reference is made to the discussion of nuclear fuel in Note G to the Con Edison
and Con Edison of New York financial statements in Item 8 for information
concerning proceedings brought by Con Edison of New York and a number of other
utilities against the United States Department of Energy (which information is
incorporated herein by reference). The proceedings are entitled Northern States
Power Co., et al. v. Department of Energy, et al.
Washington Heights Power Outage
Lawsuits relating to a July 1999 interruption of electric service to customers
served by Con Edison of New York's Washington Heights distribution network are
pending in New York State Supreme Court, New York County. The plaintiffs are
seeking aggregate damages in excess of in excess of $100 million compensatory
damage and injunctive relief. In August 2000, the court denied plaintiffs'
motion to certify a class action. In September 2000, plaintiffs appealed the
court's denial to the Appellate Division of the New York State Supreme Court,
First Department. The City of New York has petitioned the NYPSC to impose a $3
million penalty on the company. The NYPSC may sue the company for penalties
relating to the outage. The company does not expect that the outage will have a
material adverse effect on its financial position, results of operation or
liquidity.
Ronel Bennett
In December 1999, Ronel Bennett, Inc. and its president commenced an action in
the Supreme Court of the State of New York, County of Queens, against Con Edison
of New York and six of its employees seeking $300 million in damages and
alleging breach of contract and torts. Ronel Bennett performed work for the
company at its former Ravenswood generating station from September 1996 through
sometime in Spring 1997. Plaintiffs claim that the company failed to maintain a
safe working environment, misrepresented conditions, failed to disclose
information about hazardous and toxic substances, violated federal and New York
laws regarding hazardous substances and retaliated against the plaintiffs. The
company does not expect this proceeding to have a material adverse effect on its
financial condition, results of operation or liquidity.
- 27 -
O&R
Superfund
The following is a discussion of significant proceedings pending under Superfund
or similar statutes involving sites for which O&R has been asserted to have a
liability. Additional such proceedings may arise in the future. For a further
discussion of claims and possible claims against O&R under Superfund and the
estimated liability accrued for certain Superfund claims, see "Environmental
Matters " in Note F to the O&R financial statements in Item 8 (which information
is incorporated herein by reference).
Metal Bank of America Site. O&R is a PRP with respect to the site
described under "Superfund - Metal Bank of America Site" above in the
description of Con Edison of New York's legal proceedings in this Item 3. O&R's
share of the estimated $24 million to $30 million cost of the cleanup program is
expected to be approximately 4.6 percent.
Borne Chemical Site. O&R is a PRP with respect to the site described under
"Superfund - Borne Chemical Site" above in the description of Con Edison of New
York's legal proceedings in this Item 3. In October 1995, various site PRPs,
including O&R, entered into an administrative consent order with the NJDEPE
which obligates them to perform a remedial investigation to determine what, if
any, subsurface remediation at is required.
West Nyack Site. In 1994 and 1997, O&R entered into consent orders with
DEC pursuant to which O&R agreed to conduct a remedial investigation and
remediate certain property it owns in West Nyack, New York at which PCBs were
discovered. Petroleum contamination related to a leaking underground storage
tank was found as well. O&R has completed all remediation at the site that the
DEC has to date required. The DEC is expected to determine whether any
additional groundwater remediation will be required.
Orange County Landfill Site. In August 2000, the New York Attorney General
informed O&R that it had been identified as a Superfund PRP for the Orange
County Landfill Site in Goshen, New York. The site, a former sanitary landfill,
was operated by the Orange County Department of Works between 1974 and January
1992 and was reportedly used for the disposal of approximately 7 million cubic
yards of municipal waste as well as small quantities of waste oil, industrial
waste, septic sludge, and hazardous waste. In March 1992, the DEC designated the
landfill site a Class 2 Inactive Hazardous Waste Disposal Site after finding
groundwater contamination in the vicinity of the site. Since then, the State of
New York has incurred expenses totaling more than $12 million in connection with
various required response actions for the site, including the capping and proper
closure of the landfill. Orange County has reportedly spent an additional $5
million in connection with those actions. O&R's records indicate that during the
period 1988 through 1990, it disposed of approximately 1.5 cubic yards of
oil-soaked debris and four cubic yards of oil and/or solvent-contaminated metal
at the landfill. O&R is investigating whether private refuse carters that picked
up trash from its facilities may have used the landfill for the disposal of the
trash.
Ramapo Landfill Site. In November 2000, the New York Attorney General
informed O&R that it was considered a Superfund PRP for the Ramapo Landfill Site
in the Town of Ramapo, New York, because a commercial carting company that had
picked up trash from its facilities in Rockland County, New York during the
early 1980's may have disposed of that material at the site. The site, a former
municipal waste and construction and demolition debris landfill, is included on
the Superfund National Priorities List and is being administered by the DEC. In
1992, the EPA issued a Record of Decision selecting a comprehensive cleanup
program for the site which is estimated will cost between $21 million and $28
million to complete. The State of New York has reportedly spent more than $19
million assisting the Town of Ramapo to implement the required cleanup program.
- 28 -
Manufactured Gas Sites. Coal tar and related environmental contaminants
have been detected at the sites where the company or its predecessors
manufactured gas many years ago. O&R and the DEC executed consent orders in
1996, 1998 and 1999 requiring O&R to investigate and remediate seven such sites,
the aggregate cost of which is currently estimated at as much as $64.8 million.
Pursuant to a NYPSC order, O&R may defer as a regulatory asset the costs of
investigating and remediating these sites. At December 31, 2000, O&R has paid
$2.3 million of such costs, accrued a liability of $31.7 million for the sites,
and recorded a related regulatory asset of $34.0 million.
O&R Clean Air Act Proceeding
In May 2000, the DEC issued notices of violation to O&R and four other companies
that have operated coal-fired electric generating facilities in New York State.
The notices allege violations of the federal Clean Air Act and the New York
State Environmental Conservation Law resulting from the alleged failure of the
companies to obtain DEC permits for physical modifications to their generating
facilities and to install air pollution control equipment that would have
reduced harmful emissions. The notice of violation received by O&R relates to
the Lovett Generating Station that it sold in June 1999. O&R is unable to
predict whether or not the alleged violations will have a material adverse
effect on its financial position, results of operation or liquidity.
Asbestos Litigation
Asbestos is present in numerous O&R facilities. Numerous suits have been brought
in New York State and Federal courts against O&R and many other defendants for
death and injuries allegedly caused by exposure to asbestos at various O&R
premises. Many of these suits have been disposed of without any payment by O&R,
or for immaterial amounts. The amounts specified in the remaining suits total
billions of dollars, but O&R believes that these amounts are greatly
exaggerated, as were the claims already disposed of. See "Environmental Matters"
in Note F to the O&R financial statements in Item 8 (which information is
incorporated herein by reference).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 29 -
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information about the executive officers
of Con Edison and Con Edison of New York, as of March 1, 2001. Unless otherwise
indicated, all positions and offices listed are at Con Edison of New York. Mr.
McGrath has an employment agreement with Con Edison which provides that he will
serve as Chairman of the Board and Chief Executive Officer of Con Edison and Con
Edison of New York through August 31, 2005 (subject to one year extensions
unless terminated on six months prior notice). Messrs. Burke and McMahon and Ms.
Freilich have employment agreements with Con Edison which provide that they will
serve in senior executive positions through August 31, 2005 (subject to one year
extensions unless terminated on six months prior notice).The term of office of
each other officer is until the next election of directors (trustees) of their
company and until his or her successor is chosen and qualifies. Officers are
subject to removal at any time by the board of directors (trustees) of their
company.
Name Age Offices and Positions During Past Five Years
Eugene R. McGrath 59 10/97 to present - Chairman, President, Chief Executive Officer
and Director of Con Edison
3/98 to present - Chairman, Chief Executive Officer and
Trustee of Con Edison of New York
9/90 to 2/98 - Chairman, President, Chief Executive Officer and
Trustee of Con Edison of New York
Kevin Burke 50 9/00 to present - President and Chief Operating Officer
7/99 to 8/00 - President of Orange and Rockland Utilities, Inc.
7/98 to 6/99 - Senior Vice President - Customer Service
3/98 to 6/98 - Senior Vice President - Corporate Planning
3/93 to 2/98 - Vice President - Corporate Planning
Joan S. Freilich 59 3/98 to present - Executive Vice President, Chief Financial
Officer and Director (Trustee) of Con Edison and Con Edison of
New York
10/97 to 2/98 - Senior Vice President, Chief Financial Officer
and Director of Con Edison
3/97 to 2/98 - Trustee of Con Edison of New York
7/96 to 2/98 - Senior Vice President and Chief Financial Officer
9/94 to 7/96 - Vice President, Controller and Chief Accounting
Officer
Charles F. Soutar 64 7/95 to present - Executive Vice President - Central Services
Robert W. Donohue, Jr. 58 8/99 to present - Senior Vice President - Electric Operations
1/98 to 7/99 - Vice President - Brooklyn & Queens Customer Service
2/94 to 12/97 - Vice President - Queens Customer Service
John F. Groth 63 7/99 to present - Senior Vice President - Nuclear Operations
5/93-6/99 - Vice President - Nuclear Generation, Houston
Lighting & Power
Mary Jane McCartney 52 10/93 to present - Senior Vice President - Gas
John D. McMahon 49 8/98 to present - Senior Vice President and General Counsel
of Con Edison and Con Edison of New York
10/97 to 8/98 - Deputy General Counsel, Corporate and
Regulatory
2/96 to 10/97 - Associate General Counsel, Utility Affairs
- 30 -
Name Age Offices and Positions During Past Five Years
Luther Tai 52 9/00 to present - Senior Vice President - Central Operations
7/98 to 8/00- Vice President - Corporate Planning
7/94 to 6/98 - Director - Corporate Planning
Stephen B. Bram 58 9/00 to present - President of Orange and Rockland Utilities, Inc.
4/95 to 8/00 - Senior Vice President - Central Operations
Archie M. Bankston 63 12/97 to present - Secretary of Con Edison
6/89 to present - Secretary and Associate General Counsel
A. Alan Blind 47 6/98 to present - Vice President - Nuclear Power
1/98 to 5/98 - Vice President, Nuclear Engineering -
American Electric Power
5/94 to 1/98 - Site Vice President, American Electric Power
James S. Baumstark 58 7/98 to present - Vice President - Nuclear Engineering
1/98 to 7/98 - Engineering Director, Crystal River Nuclear
Plant, Florida Power Corp.
6/96 to 12/97 - Quality Programs Director, Crystal River Nuclear
Plant, Florida Power Corp.
6/94 to 5/96 - Plant Manager, Sequoyah Nuclear Plant,
Tennessee Valley Authority
Marilyn Caselli 46 8/98 to present - Vice President - Customer Operations
10/97 to 7/98 - Vice President - Staten Island Customer Service
5/96 to 9/97 - General Manager - Queens
3/96 to 4/96 - General Manager - Gas Operations
V. Richard Conforti 62 8/96 to present - Vice President - Central Field Services
7/92 to 7/96 - Assistant Vice President - Gas Operations
Richard P. Cowie 54 3/94 to present - Vice President - Employee Relations
David Davidowitz 54 12/00 to present - Vice President - Gas Engineering
4/00 to 11/00 - General Manager - Manhattan Gas Operations
7/99 to 10/99 - General Manager - Environmental, Health & Safety
12/95 to 6/99 - General Manager - Tunnel Maintenance
David F. Gedris 52 8/99 to present - Vice President - Brooklyn & Queens Customer Service
10/97 to 7/99 - Vice President - Fossil Power
2/96 to 9/97 - Vice President - Westchester Customer Service
2/94 to 1/96 - Vice President - Maintenance and Construction
George Greenwood 54 12/00 to present - Vice President - Emergency Management
1/00 to 11/00 - General Manager - Environmental Affairs
12/95 to 12/99 - General Manager - Customer Service
William A. Harkins 55 2/97 to present - Vice President - Energy Management
2/89 to 2/97 - Vice President - Planning and Inter-Utility Affairs
- 31 -
Name Age Offices and Positions During Past Five Years
Andrew L. Jacob 52 8/99 to present - Vice President - Steam Operations
1/93 to 7/99 - Chief Engineer
Paul H. Kinkel 56 9/98 to present - Vice President - Bronx and Westchester
Customer Service
1/98 to 9/98 - Vice President - Nuclear Power
2/96 to 12/97 - Vice President - Maintenance and Construction
M. Peter Lanahan, Jr. 57 8/96 to present - Vice President - Environment, Health & Safety
5/95 to 8/96 - Vice President - Environmental Affairs
Thomas Newell 42 12/00 to present - Vice President - Gas Operations
10/97 to 11/00 - General Manager - Manhattan Gas Operations
1/95 to 9/97 - Department Manager - Steam
James P. O'Brien 53 3/99 to present - Vice President & General Auditor
1/98 to 2/99 - General Auditor
3/94 to 12/97 - Vice President - Information Resources
Stephen E. Quinn 54 1/98 to present - Vice President - Maintenance Services
9/94 to 12/97 - Vice President - Nuclear Power
Louis L. Rana 52 4/00 to present - Vice President - Manhattan Customer Service
3/98 to 3/00 - Vice President - System and Transmission
Operations
10/97 to 2/98 - General Manager - System Operation
8/97 to 9/97 - General Manager - Manhattan Electric Operations
1/94 to 7/97 - Chief Distribution Engineer
Edward J. Rasmussen 52 12/00 to present - Vice President and Controller of Con Edison
and Con Edison of New York
4/93 to 11/00 - Assistant Controller
Frances A. Resheske 40 5/99 to present - Vice President - Public Affairs
2/99 to 4/99 - Director - Public Affairs
6/95 to 2/99 - General Manager - Government Relations and
Community Development, Brooklyn Union
Robert A. Saya 59 4/00 to present - Vice President - System and Transmission
Operations
1/95-3/00 - Chief Engineer, Substation and Transmission
Engineering
Hyman Schoenblum 52 12/00 to present - Vice President - Corporate Planning
12/97 to 11/00 - Vice President and Controller of Con Edison
10/97 to 11/00 - Vice President and Controller
3/97 to 9/97 - Vice President and Treasurer
6/96 to 2/97 - Director - Financial Restructuring
11/93 to 5/96 - Director - Corporate Planning
Edwin W. Scott 62 6/89 to present - Vice President and Deputy General Counsel
- 32 -
Name Age Offices and Positions During Past Five Years
Wanda Skalba 51 1/98 to present- Vice President - Information Resources
4/96 to 12/97 - Director - Information Resources
Minto L. Soares 64 1/98 to present - Vice President - Substation Operations
6/91 to 12/97 - Vice President - Bronx Customer Service
Saddie L. Smith 48 8/98 to present -Vice President - Staten Island Customer
Service
7/97 to 7/98 - Director - Facilities and Office Services
7/95 to 7/97 - Director - Equal Employment Opportunity Affairs
Robert P. Stelben 58 12/97 to present - Vice President and Treasurer of Con Edison
10/97 to present - Vice President and Treasurer
8/97 to 9/97 - Vice President - Finance
11/95 to 8/97 - Vice President and Treasurer, Johnson & Higgins
Alfred R. Wassler 56 8/96 to present - Vice President - Purchasing
3/94 to 8/96 - Vice President - Purchasing, Transportation & Stores
Stephen F. Wood 48 7/00 to present - Vice President - Engineering Services
2/95 to 6/00 - President and Chief Executive Officer,
Constellation Energy Projects & Services, Inc.
- 33 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
CON EDISON
Con Edison's Common Shares ($.10 par value), the only class of common equity of
Con Edison, are traded on the New York Stock Exchange. As of January 31, 2001,
there were 108,999 holders of record of Con Edison's Common Shares.
The market price range for Con Edison's Common Shares during 2000 and 1999, as
reported in the consolidated reporting system, and the dividends paid by Con
Edison in 2000 and 1999 were as follows:
2000 1999
Dividends Dividends
High Low Paid High Low Paid
- --------------------------------------------------------------------------------
1st Quarter $36.19 $26.19 $ .545 $53.44 $45.13 $ .535
2nd Quarter 36.81 28.88 .545 49.88 43.88 .535
3rd Quarter 35.56 29.81 .545 46.63 40.00 .535
4th Quarter 39.50 32.06 .545 43.06 33.56 .535
On January 18, 2001, Con Edison's Board of Directors declared a quarterly
dividend of $.55 per Common Share which was paid on March 15, 2001.
Con Edison expects to pay dividends to its shareholders primarily from dividends
and other distributions it receives from its subsidiaries. The payment of
dividends, however, is subject to approval and declaration by Con Edison's Board
of Directors, and will depend on a variety of factors, including business,
financial and regulatory considerations. For additional information about the
payment of dividends by Con Edison, see "Dividends" in Note B to the Con Edison
financial statements in Item 8 (which information is incorporated herein by
reference).
CON EDISON OF NEW YORK
The outstanding shares of Con Edison of New York's Common Stock ($2.50 par
value), the only class of common equity of Con Edison of New York, are held by
Con Edison and are not traded.
The dividends declared by Con Edison of New York in 2000 and 1999 are shown in
its Consolidated Statement of Retained Earnings included in Item 8 (which
information is incorporated herein by reference). For additional information
about the payment of dividends by Con Edison of New York, and restrictions
thereon, see "Dividends" in Note B to the Con Edison of New York financial
statements in Item 8 (which information is incorporated herein by reference).
O&R
The outstanding shares of O&R's Common Stock ($5.00 par value), the only class
of common equity of O&R, are held by Con Edison and are not traded.
The dividends declared by O&R in 2000 and 1999 are shown in its Consolidated
Statement of Retained Earnings included in Item 8 (which information is
incorporated herein by reference).
- 34 -
ITEM 6. SELECTED FINANCIAL DATA
CON EDISON*
Year Ended December 31 (Millions of Dollars) 2000 1999 1998 1997 1996
Operating revenues $ 9,431.4 $ 7,491.3 $ 7,093.0 $ 7,196.2 $ 7,133.1
Purchased power 3,642.9 1,824.0 1,253.8 1,349.6 1,272.9
Fuel 350.8 430.1 579.0 596.8 573.3
Gas purchased for resale 790.9 485.2 437.3 552.6 590.4
Operating income 1,016.1 1,019.8 1,053.3 1,035.3 1,012.5
Net income for common stock 582.8 700.6 712.7 694.5 688.2
Total assets 16,767.2 15,531.5 14,381.4 14,722.5 14,057.2
Long-term debt 5,415.4 4,524.6 4,050.1 4,188.9 4,238.6
Preferred stock subject to
mandatory redemption 37.1 37.1 37.1 84.6 84.6
Common shareholders' equity 5,472.4 5,412.0 6,025.6 5,930.1 5,727.6
Basic earnings per share $ 2.75 $ 3.14 $ 3.04 $ 2.95 $ 2.93
Diluted earnings per share $ 2.74 $ 3.13 $ 3.04 $ 2.95 $ 2.93
Cash dividends per
common share $ 2.18 $ 2.14 $ 2.12 $ 2.10 $ 2.08
Average common shares
outstanding (millions) 212.2 223.4 234.3 235.1 235.0
* Con Edison, which was established as the parent holding company for Con Edison
of New York effective January 1, 1998, owns all of Con Edison of New York's
outstanding shares of common stock.
CON EDISON OF NEW YORK*
Year Ended December 31 (Millions of Dollars) 2000 1999 1998 1997 1996
Operating revenues $ 8,000.7 $ 6,956.0 $ 6,998.7 $ 7,196.2 $ 7,133.1
Purchased power 2,988.1 1,669.2 1,252.0 1,349.6 1,272.9
Fuel 322.1 430.2 579.0 596.8 573.3
Gas purchased for resale 490.6 351.8 370.1 552.6 590.4
Operating income 952.1 1,001.5 1,067.1 1,035.3 1,012.5
Net income for common stock 570.1 698.3 728.1 694.5 688.2
Total assets 14,547.9 13,682.2 14,172.8 14,722.5 14,057.2
Long-term debt 4,915.1 4,243.1 4,050.1 4,188.9 4,238.6
Preferred stock subject to
mandatory redemption 37.1 37.1 37.1 84.6 84.6
Common shareholder's equity 4,479.6 4,393.8 5,842.7 5,930.1 5,727.6
Basic earnings per share * * * $ 2.95 $ 2.93
Diluted earnings per share * * * $ 2.95 $ 2.93
Cash dividends per
common share * * * $ 2.10 $ 2.08
Average common shares
outstanding (millions) * * * 235.1 235.0
* Con Edison, which was established as the parent holding company for Con Edison
of New York effective January 1, 1998, owns all of Con Edison of New York's
outstanding shares of common stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis relates to the accompanying consolidated financial
statements of Consolidated Edison, Inc. (Con Edison) and should be read in
conjunction with the consolidated financial statements and the notes thereto.
CON EDISON'S BUSINESS
Con Edison is a holding company that provides a wide range of energy-related
services to its customers through its regulated and unregulated subsidiaries.
Con Edison's core business is energy distribution and it is also pursuing
related growth opportunities in competitive businesses.
Con Edison's principal subsidiary is Consolidated Edison Company of New York,
Inc. (Con Edison of New York), a regulated utility that provides electric
service to over three million customers and gas service to over one million
customers in New York City and Westchester County. It also provides steam
service in parts of Manhattan.
Orange and Rockland Utilities, Inc. (O&R) is also a regulated utility subsidiary
of Con Edison. O&R, along with its regulated utility subsidiaries, provides
electric service to over 278,000 customers and gas service to over 118,000
customers in southeastern New York and in adjacent sections of New Jersey and
northeastern Pennsylvania.
SIGNIFICANT DEVELOPMENTS
Con Edison's results of operations for 2000 were materially affected by electric
rate reductions of (on an annual basis) $103 million, effective April 2000, and
$170 million, effective October 2000, (see "State Regulatory Matters -
Electric," below) and a $130 million charge relating to the Indian Point 2
nuclear plant (see Note G to the financial statements). Indian Point 2 returned
to service in January 2001 following installation of new steam generators.
Other significant developments in 2000 included agreements to sell, subject to
approval of the New York State Public Service Commission (PSC) and other
conditions, Indian Point 2 and related assets (including fuel) for approximately
$602 million, subject to certain adjustments, and a nine-acre development site
in midtown Manhattan along the East River (the First Avenue Properties) for an
expected price of $576 million to $680 million, depending on zoning and other
adjustments.
Results of operations for 2000 reflect for the entire year Con Edison's
ownership of O&R (which it acquired in July 1999) and Con Edison of New York's
sales (in June and August 1999) of most of its electric generating capacity. See
Notes I and K to the financial statements.
In March 2001 Con Edison and Northeast Utilities commenced litigation relating
to their October 1999 merger agreement. (See Note P to the financial
statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash and Short-Term Borrowing
Cash and temporary cash investments decreased $390.2 million at December 31,
2000 compared to December 31, 1999, reflecting repayment of notes payable
(primarily commercial paper), including short-term borrowing done in December
1999 in
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anticipation of January 2000 cash requirements, and the changes in cash
flows from operating, investing and financing activities discussed below.
Con Edison's average daily commercial paper outstanding in 2000 was $319 million
compared to $125 million in 1999. The weighted average interest rate was
approximately 6.4 percent in 2000 compared to approximately 5.00 percent in
1999. For additional information about Con Edison's commercial paper programs,
see Note C to the financial statements.
Cash Flows From Operating Activities
Net cash flows from operating activities in 2000 decreased $245.1 million
compared to 1999, due principally to lower net income (which included increased
pension credits) and increased purchased power and gas costs. Net cash flows
from operating activities in 1999 decreased $184.5 million compared to 1998, due
principally to higher charges for purchased electric generating capacity and
other cash flow effects of generation divestiture.
Cumulative credits to pension expense for Con Edison of New York amounted to
$366.7 million at December 31, 2000, compared with $116.0 million at December
31, 1999. Pension credits, which result from favorable performance by the
company's pension plans in past years, increase net income but do not provide
cash for the company's operations. See Note D to the financial statements.
Con Edison's accounts receivable - customer, less allowance for uncollectible
accounts increased $262.8 million at December 31, 2000 compared with year-end
1999, due primarily to increased customer billings by Con Edison's utility
subsidiaries, reflecting higher purchased power and gas costs. Con Edison of New
York's equivalent number of days of revenue outstanding (ENDRO) of customer
accounts receivable was 29.7 days at December 31, 2000, compared with 28.8 days
at December 31, 1999. For O&R, the ENDRO was 35.4 days at December 31, 2000 and
36.5 days at December 31, 1999.
Recoverable energy costs increased $245.3 million at December 31, 2000 compared
with year-end 1999, reflecting increased purchased power and gas costs, offset
in part by the ongoing recovery of previously deferred amounts. See "Recoverable
Energy Costs" in Note A to the financial statements.
Deferred charges for divestiture - capacity replacement reconciliation increased
$49.5 million at December 31, 2000 compared with year-end 1999, reflecting
incremental electric capacity costs under contracts with the buyers of the
generating assets sold by Con Edison of New York. See Note I to the financial
statements.
Deferred environmental remediation costs increased $35.7 million at
December 31, 2000 compared with year-end 1999, reflecting site investigation and
remediation costs for Con Edison's utility subsidiaries deferred under current
rate agreements. See Note F to the financial statements.
Unfunded other post-employment benefit (OPEB) obligations (shown as pension and
benefits reserve on the balance sheet) were $181.3 million at December 31, 2000,
compared to $143.8 million at December 31, 1999. Con Edison of New York's policy
is to fund its OPEB costs to the extent deductible under current tax
limitations. O&R's policy is to fund its OPEB costs to the extent of its rate
recovery. The reserve also includes a minimum liability for Con Edison of New
York's and O&R's supplemental executive retirement programs. A portion of this
minimum liability has been included in other comprehensive income. See Note E to
the financial statements.
The accumulated provision for injuries and damages was $160.7 million at
December 31, 2000, compared to $119.0 million at December 31, 1999. The increase
resulted primarily from increased workers' compensation claims relating to
alleged asbestos exposure.
Accounts payable increased $404.4 million at December 31, 2000 compared with
year-end 1999, due primarily to the higher costs of electric power and gas
purchases.
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Accrued taxes increased $46.0 million at December 31, 2000 compared to year-end
1999, due principally to timing differences.
The New York State tax laws applicable to utility companies were changed,
effective January 1, 2000. Certain revenue-based taxes were repealed or reduced
and replaced by a net income-based tax. In addition, a compensating use tax was
imposed on gas and electricity purchased outside New York State for use within
the state. In December 2000 the PSC issued its requirements relating to the tax
law changes. The amounts applicable to the provisions of the previous tax laws
will continue to be collected through base rates and tariff surcharges, until
the PSC directs otherwise, with the differences between those collections and
the tax expense under the new law to be deferred, pending future disposition by
the PSC. At December 31, 2000 Con Edison's utility subsidiaries had accrued a
liability of $59.5 million reflecting these differences.
Under Con Edison's 1997 Restructuring Agreement (see "State Regulatory Matters -
Electric," below), $50 million of the net after-tax gain on divestiture of most
of Con Edison of New York's electric generating assets has been retained for
shareholders (and is to be recognized in income during the 12 months ending
March 2002), and the remaining net gain was deferred for future customer
benefit. Under the electric agreement approved by the PSC in November 2000 (see
"State Regulatory Matters - Electric," below), $188.2 million was credited
against electric distribution plant balances, $107.3 million was used to offset
a like amount of existing regulatory assets (including deferred power contract
termination costs) and $12 million has been set aside as a partial funding
source for low-income customer programs.
Other regulatory liabilities increased $48.0 million at December 31, 2000
compared with year-end 1999, reflecting primarily the deferral under Con Edison
of New York's current gas rate agreement of $12.1 million of earnings above a 13
percent threshold that are to be shared with customers (see "State Regulatory
Matters - Gas," below) and deferral of a portion of the divestiture gain to
partially fund retail access incentives and a low income program of $19.8
million and $12.0 million, respectively (see Note I to the financial
statements), offset by the recognition of $22.3 million of previously deferred
revenues relating to Indian Point refueling and maintenance work. See Note G to
the financial statements.
Cash Flows Used in Investing Activities
Cash flows used in investing activities, including construction, in 2000
increased $991.1 million compared to 1999, primarily because 1999 cash flows
included proceeds from generation divestiture. In addition, in 2000 there were
higher utility construction expenditures and greater investments by unregulated
subsidiaries than in 1999.
Utility construction expenditures during 2000 increased $280.8 million compared
to 1999, principally as a result of expenditures related to meeting load growth
on Con Edison of New York's electric distribution system and replacement of the
steam generators at its nuclear generating unit.
In June 2000 Con Edison Development purchased an 80 percent interest in a
partnership that owns a 236-MW electric generating unit in Lakewood, New Jersey
(the Lakewood Project) for $98.1 million.
Deferred real estate sale costs were $103 million at year-end 2000, reflecting
costs related to the demolition and remediation of the First Avenue Properties,
which the company has agreed to sell, subject to PSC approval and other
conditions, for an expected price of $576 million to $680 million, depending on
zoning and other adjustments. See "Capital Requirements," below. The buyer paid
Con Edison of New York $50 million as a down payment, which the company used to
fund a portion of the demolition and remediation expenses. The down payment has
been recorded as a regulatory liability.
Cash Flows Used in Financing Activities
Cash flows used in financing activities in 2000 decreased $463.3 million
compared to 1999, because of increased debt issuances and decreased repurchases
of common stock.
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During 2000, Con Edison of New York repaid at maturity $275 million of
debentures, with a weighted average annual interest rate of approximately 7.48
percent, and issued $975 million of 5-year and 10-year debentures, with a
weighted average annual interest rate of approximately 7.39 percent. During this
period O&R repaid at maturity $120 million of debentures, with a weighted
average annual interest rate of 8.27 percent, and issued $55 million of 10-year
7.5 percent debentures. Also during 2000 the Lakewood Project retired $8.3
million of debt. In addition, the Lakewood Project had $174.2 million of
long-term debt outstanding at December 31, 2000, which has been included in Con
Edison's consolidated financial statements.
During 1999, Con Edison of New York repaid at maturity $150 million of floating
rate taxable debentures and $75 million of 6.5 percent debentures, and issued
$475 million of 40-year and 10-year debentures, with a weighted average annual
interest rate of approximately 7.27 percent. In addition, it issued $292.7
million of 35-year adjustable rate tax-exempt debt in July 1999, the proceeds of
which, along with other funds, were used in August 1999 to redeem $150 million
of 7 1/4 percent Series 1989 C tax-exempt debt and $150 million of 7 1/2 percent
Series 1990 A tax-exempt debt.
Con Edison purchased approximately 1.9 million shares of its common stock, at an
aggregate cost of $60.7 million in 2000. Through December 31, 2000, a total of
23.2 million shares was purchased under a stock repurchase program begun in
1998, at an average price of $43.13 per share, and a total cost of $1.0 billion.
In addition, Con Edison purchased 432,400 shares of its common stock (at an
aggregate cost of approximately $19.8 million) in April and May 1999 to be used
for exercise of options under its 1996 Stock Option Plan. At December 31, 2000,
250,263 of these shares remained available for future option exercises. Shares
of Con Edison common stock to be issued upon the exercise of options may be
either purchased in the market or newly issued shares. See Note M to the
financial statements.
Capital Resources
Con Edison expects to finance its operations, capital requirements and the
payment of dividends to its shareholders primarily from dividends and other
distributions it receives from its subsidiaries and through external borrowings,
including commercial paper. For information about restrictions on the payment of
dividends by Con Edison of New York, see Note B to the financial statements.
Con Edison's ratio of earnings to fixed charges for 2000, 1999 and 1998 and
common equity ratio at December 31, 2000, 1999 and 1998 were:
2000 1999 1998
-----------------------------
Earnings to fixed
charges (SEC basis) 3.10 4.04 4.29
Common equity 49.1 53.1 58.4
The changes in interest coverage in these years reflect changes in pre-tax
income and changes in interest charges due to debt issuances and refundings.
Excluding the $130 million charge for replacement power costs incurred in
connection with an outage at the Indian Point nuclear plant (see Note G to the
financial statements) and the charge for merger-related expenses (see Note P to
the financial statements), Con Edison's ratio of earnings to fixed charges for
2000 would have been 3.47. The changes in the equity ratio reflect the issuance
of debt and the repurchase of approximately $1.0 billion of common stock.
The commercial paper of Con Edison and its utility subsidiaries is rated P-1 and
A-1, respectively, by Moody's Investors Service, Inc. (Moody's) and Standard &
Poor's Rating Services (S&P). S&P has assigned an issuer rating of A to Con
Edison, which has not yet issued any long-term debt. The senior unsecured debt
of Con Edison's utility subsidiaries is rated A1 and A+, respectively, by
Moody's and S&P.
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Capital Requirements
The following table compares Con Edison's capital requirements relating to its
regulated and unregulated subsidiaries for the years 1998 through 2000 and
estimated amounts for 2001 and 2002:
(Millions of Dollars) 1998 1999 2000 2001* 2002*
- --------------------------------------------------------------------------------
Utility
construction
expenditures $ 619 $ 678 $ 959 $ 993 $ 943
Investment in
unregulated
subsidiaries 56 165 121 400 335
- --------------------------------------------------------------------------------
Sub-total 675 843 1,080 1,393 1,278
Nuclear
decommissioning
trust 21 21 21 21 21
Nuclear fuel 7 17 27 3 47
- --------------------------------------------------------------------------------
Sub-total 28 38 48 24 68
Retirement of
long-term
securities at
maturity 200 225 395 300 337
- --------------------------------------------------------------------------------
Total $ 903 $1,106 $1,523 $1,717 $1,683
*Does not reflect the pending sale of Indian Point 2, which is expected to be
completed in 2001.
The increased utility construction expenditures in 2001 and 2002 reflect
expenditures to repower Con Edison of New York's East River steam-electric
generating plant and expenditures related to meeting load growth on its electric
distribution system, as well as the construction programs of O&R. The repowering
will provide additional, cost efficient steam generating capacity and
approximately 360 MW of electric capacity. The increased generating capacity
will more than offset the 160 MW of electric capacity that will be lost upon the
closing of the company's Waterside generating station, which is located on the
First Avenue Properties.
Unregulated Subsidiaries
Con Edison's unregulated subsidiaries provide competitive gas and electric
supply and energy-related products and services (Con Edison Solutions); invest
in and manage energy infrastructure projects (Con Edison Development); market
specialized energy supply services to wholesale customers (Con Edison Energy);
and invest in telecommunications infrastructure (Con Edison Communications).
These subsidiaries operate primarily in the New England and Mid-Atlantic states.
Con Edison's investment in these subsidiaries was $405.6 million at December 31,
2000. See "Capital Requirements," above.
The unregulated subsidiaries participate in competitive energy supply and
services businesses that are subject to different investment risks than those
found in the businesses of the regulated utility subsidiaries.
ELECTRIC POWER PURCHASES
In December 1999, following approval by the Federal Energy Regulatory
Commission, the New York State Independent System Operator (ISO) commenced
operations. The ISO controls and operates most electric transmission facilities
in New York State as an integrated system and administers a wholesale
electricity market in the state. Con Edison's utility subsidiaries continue to
own and maintain, but not operate, their transmission facilities and receive
fees for use of the facilities by other parties.
In 2000 Con Edison's utility subsidiaries purchased substantially all of the
energy they sold to customers pursuant to firm contracts with non-utility
generators and others or through the ISO's wholesale electricity market.
Electric energy prices during summer 2000 increased significantly compared with
summer 1999. The higher energy prices increased the working capital requirements
of Con Edison's utility subsidiaries. Accounts receivable (and uncollectible
bills) and recoverable energy costs increased in 2000 compared to 1999. See
"Cash Flows From Operating Activities," above.
In general, Con Edison's utility subsidiaries recover prudently incurred
purchased power costs pursuant
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to rate provisions approved by the relevant state public utility commission. See
"Financial MarketRisks," below and "Recoverable Energy Costs" in Note A to the
financial statements. From time to time certain parties have petitioned the PSC
to review these provisions. Con Edison believes that the petitions are without
merit, but is unable to predict whether or not any related proceedings or other
actions will have a material adverse effect on its financial position, results
of operations or liquidity.
The PSC has established a proceeding to consider rate measures that could reduce
the volatility of electric energy costs experienced during the months of peak
usage. The Agreement (see "State Regulatory Matters - Electric," below) provides
that such measures may neither be materially inconsistent with the Agreement nor
adversely impact Con Edison of New York's financial integrity.
To reduce the volatility of electric energy costs, Con Edison's utility
subsidiaries have firm contracts to purchase electric energy and have entered
into derivative transactions to hedge expected purchases for a substantial
portion of the electric energy expected to be sold to their customers in summer
2001 (see Note O to the financial statements). In addition, Con Edison of New
York's Indian Point generating plant, which was out of service during summer
2000, is in service and expected to be available in summer 2001. Following
completion of Indian Point's pending sale, Con Edison of New York, pursuant to a
power purchase agreement with the buyer, will be allowed to purchase its output
at an annual average price of 3.9 cents per kilowatthour, through the end of
2004.
To further mitigate price volatility, the company is seeking changes in the way
the ISO administers its wholesale energy market. Those changes include a new
"circuit breaker" mechanism to prevent unreasonable price volatility when the
wholesale electric market is not competitive, which could occur when usage is
high and power supplies are extremely tight, and making customers eligible for
retroactive refunds if a power generator abuses the system and charges more than
a competitive price.
Con Edison's utility subsidiaries do not expect to add long-term electric
generation resources other than in connection with the repowering of Con Edison
of New York's East River generating plant, which will add incremental electric
capacity of approximately 200 MW. In a July 1998 order, the PSC indicated that
it "agree(s) generally that Con Edison of New York need not plan on constructing
new generation as the competitive market develops," but considers "overly broad"
and did not adopt its request for a declaration that, solely with respect to
providing generating capacity, it will no longer be required to engage in
long-range planning to meet potential demand and, in particular, that it will no
longer have the obligation to construct new generating facilities, regardless of
the market price of capacity.
STATE REGULATORY MATTERS
Electric
In 1996 the PSC, in its Competitive Opportunities proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry.
In September 1997 the PSC approved a restructuring agreement among Con Edison of
New York, the PSC staff and certain other parties (the 1997 Restructuring
Agreement). Pursuant to the 1997 Restructuring Agreement, Con Edison of New York
reduced electric rates by approximately $129 million in 1998, $80 million in
1999 and $103 million in 2000, made available "retail choice" to all of its
electric customers and divested most of its electric generation capacity. For
additional information about the 1997 Restructuring Agreement, see Note A to the
financial statements.
In November 2000 the PSC approved an October 2000 agreement (the Agreement)
that, among other things, revises and extends the electric rate plan provisions
of the 1997 Restructuring Agreement and addresses certain generation
divestiture-related issues.
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The electric rate plan provisions of the Agreement cover the five-year period
ending March 2005. Pursuant to the Agreement Con Edison of New York reduced the
distribution component of its electric rates by $170 million on an annual basis,
effective October 2000, and, in accordance with the 1997 Restructuring
Agreement, will reduce the generation-related component of its electric rates by
$208.7 million on an annual basis, effective April 2001.
The Agreement continues the rate provisions pursuant to which Con Edison of New
York recovers prudently incurred purchased power and fuel costs from customers.
See "Recoverable Energy Costs" in Note A to the financial statements.
For additional information about the Agreement, see Note A to the financial
statements.
O&R has entered into settlement agreements or similar arrangements with the PSC
and the New Jersey and Pennsylvania public utility commissions, which provide
for a transition to a competitive electric market, and address
customer/shareholder sharing of net synergy savings from Con Edison's July 1999
acquisition of O&R. See "Restructuring Agreements" in Note A to the financial
statements.
Gas
In November 2000 the PSC approved an agreement among Con Edison of New York, the
PSC staff and certain other parties that extended the 1996 gas rate settlement
agreement through September 2001. The 1996 agreement, with limited exceptions,
continued base rates at September 1996 levels through September 2000.
In November 2000 the PSC also approved a gas rate settlement agreement among
O&R, the PSC Staff, and certain other parties covering the three-year period
November 2000 through October 2003.
For additional information about the new gas rate agreements, see Note A to the
financial statements.
Steam
In November 2000 the PSC approved an agreement between Con Edison of New York,
the PSC staff and certain other parties with respect to the steam rate plan
filed by the company in November 1999. The agreement provides for a $16.6
million steam rate increase, which took effect October 2000 and, with limited
exceptions, no further changes in steam rates prior to October 2004.
For additional information about the agreement, see Note A to the financial
statements.
NUCLEAR GENERATION
In January 2001 Con Edison of New York's Indian Point 2 nuclear generating
station returned to service following an outage that commenced in February 2000.
During the outage Indian Point's four steam generators were replaced and
refueling and maintenance work was performed. For information about the recovery
of replacement power costs incurred during the outage, the pending sale of
Indian Point 2 and additional information about nuclear generation, see Note G
to the financial statements.
FINANCIAL MARKET RISKS
Con Edison's primary market risks associated with activities in derivative
financial instruments, other financial instruments and derivative commodity
instruments, are interest rate risk and commodity price risk.
The interest rate risk relates primarily to new debt financing needed to fund
capital requirements, including utility construction expenditures and maturing
debt securities, and to variable rate debt. See "Capital Requirements," above.
In general, the rates Con Edison's utility subsidiaries charge customers for
electric, gas and steam service are not subject to change for fluctuations in
the cost of capital during the respective terms of the current rate agreements.
The utility subsidiaries manage interest rate risk
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through the issuance of mostly fixed-rate debt with varying maturities and
through opportunistic refundings of debt through optional redemptions and tender
offers. In addition, Con Edison and its subsidiaries, from time to time, have
entered into derivative financial instruments to hedge interest rate risk.
In general, the rates Con Edison's utility subsidiaries charge customers for
electric, gas and steam service are subject to change for fluctuations in the
cost of purchased power or gas during the respective terms of the current rate
agreements. See "Electric Power Purchases," above and "Recoverable Energy Costs"
in Note A to the financial statements. Con Edison's subsidiaries have, from time
to time, used derivative instruments to hedge purchases of electricity and gas
and gas in storage.
At December 31, 2000 neither the fair value of the hedged positions outstanding
nor potential, near-term derivative losses from reasonably possible near-term
changes in market prices were material to the financial position, results of
operations or liquidity of Con Edison. See Note O to the financial statements.
ENVIRONMENTAL MATTERS
For information concerning potential liabilities arising from laws and
regulations protecting the environment, including the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (Superfund), and
from claims relating to alleged exposure to asbestos, see Note F to the
financial statements.
IMPACT OF INFLATION
Con Edison is affected by the decline in the purchasing power of the dollar
caused by inflation. Regulation permits Con Edison's utility subsidiaries to
recover through depreciation only the historical cost of their plant assets even
though in an inflationary economy the cost to replace the assets upon their
retirement will substantially exceed historical costs. The impact is, however,
partially offset by the repayment of the utility subsidiaries' long-term debt in
dollars of lesser value than the dollars originally borrowed.
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, developments relating to
Indian Point 2 (see Note G to the financial statements), developments relating
to Northeast Utilities (see Note P to the financial statements), developments in
wholesale energy markets, technological developments, changes in economic
conditions, changes in historical weather patterns, changes in laws, regulations
or regulatory policies, developments in legal or public policy doctrines, and
other presently unknown or unforeseen factors.
RESULTS OF OPERATIONS
Con Edison's earnings per share in 2000 were $2.75 ($2.74 on a diluted basis).
Earnings per share in 1999 and 1998 were $3.14 ($3.13 on a diluted basis) and
$3.04, respectively. Excluding a $130 million charge relating to the Indian
Point nuclear plant (see Note G to the financial statements) and a $32.1 million
charge for merger-related expenses (see Note P to the financial statements),
earnings per share in 2000 would have been $3.24 ($3.23 on a diluted basis).
Earnings for the years ended December 31, 2000, 1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------
Con Edison of New York $570.1 $698.3 $728.1
O&R 39.1 22.2* --
Unregulated subsidiaries 7.7 (10.9) (18.4)
Other** (34.1) (9.0) 3.0
- -------------------------------------------------------------------------------
Con Edison $582.8 $700.6 $712.7
- -------------------------------------------------------------------------------
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* O&R earnings are for the period subsequent to its acquisition in July 1999.
**Includes parent company expenses, goodwill amortization and inter-company
eliminations.
Con Edison's earnings for 2000 decreased $117.8 million compared to 1999,
reflecting the effects of cooler than normal summer weather in 2000 as compared
with warmer than normal summer weather in 1999, electric rate reductions of
$139.3 million, a $130 million charge relating to the Indian Point nuclear plant
(see Note G to the financial statements), $41.3 million of higher transmission
and distribution expenses, $48.3 million of increased interest charges and $32.1
million of merger-related expenses (see Note P to the financial statements),
offset in part by increased revenues resulting from the favorable economy,
$157.1 million of increased pension credits, $12.3 million of net increased
unregulated earnings and parent company expenses (other than merger-related
expenses), and $16.9 million of increased O&R earnings.
Con Edison's earnings for 1999, compared to 1998, decreased $12.1 million. The
principal components of the decrease (net of tax) were: $42.3 million of
electric rate reductions; $41.9 million of lost equity return on generating
assets that were divested; and $8.5 million of higher distribution expenses
relating to Hurricane Floyd and a July 1999 heat wave, offset by $22.2 million
of O&R earnings reflecting the acquisition of O&R in July 1999 and approximately
$65.7 million of lower nuclear and pension expenses.
Earnings also reflect the levels of electric, gas and steam sales discussed
below.
Con Edison estimates that the earnings per share impact in the 2000 period of
the June and August 1999 divestiture of most of Con Edison of New York's
electric generating capacity was substantially offset by reductions in property
taxes, depreciation and other operating and maintenance costs, its July 1999
acquisition of O&R and its repurchase of approximately $1 billion of common
stock.
Con Edison's operating revenues in 2000, compared to 1999, increased by $1.9
billion, and its operating income decreased by $3.7 million. Operating revenues
in 1999, compared to 1998, increased by $398.3 million, and operating income
increased by $33.5 million.
A discussion of Con Edison's operating revenues and operating income by business
segment follows. Con Edison's principal business segments are its electric, gas
and steam utility businesses. For additional information about Con Edison's
business segments, see Note N to the financial statements.
Electric
Con Edison's electric operating revenues in 2000 increased $1.1 billion from
1999 and in 1999 increased $118.2 million from 1998. The increases reflect
increased purchased power costs (see "Recoverable Energy Costs" in Note A to the
financial statements) and sales volumes, offset by electric rate reductions of
approximately $139.3 million in 2000 and $65 million in 1999. The 2000 increase
also reflects $513.0 million of O&R's electric operating revenues for the 12
months ended December 31, 2000, compared to $235.5 million of O&R's electric
operating revenues recognized in the 1999 period following Con Edison's July
1999 acquisition of O&R.
Electricity sales volume in Con Edison of New York's service territory increased
1.7 percent in 2000 and 3.9 percent in 1999.
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The increase in sales volume in 2000 reflects the continued strength of the New
York City economy, offset in part by the cooler than normal summer weather. Con
Edison's electric sales vary seasonally in response to weather, and peak in the
summer.
After adjusting for variations, principally weather and billing days, in each
period, electricity sales volume in Con Edison of New York's service territory
increased 3.6 percent in 2000 and 2.7 percent in 1999. Weather-adjusted sales
represent an estimate of the sales that would have been made if historical
average weather conditions had prevailed.
Con Edison's electric operating income decreased $57.6 million in 2000 compared
to 1999, reflecting a decrease in Con Edison of New York's electric operating
income of $76.7 million. The decrease in Con Edison of New York's electric
operating income was comprised of a reduction in net revenues (operating
revenues less fuel and purchased power) of $325.3 million (reflecting cooler
than normal summer weather, $139.3 million of electric rate reductions and a
$130 million charge relating to Indian Point 2), offset by increased
pension credits ($124.5 million) and decreased property taxes ($18.1 million),
dividend and subsidiary capital taxes ($13.8 million) and income tax ($100.6
million). Electric operating income also reflects an increase in O&R's electric
operating income of $19.2 million. O&R's electric operating income in 2000 was
$47.5 million compared to $28.4 million recognized in the 1999 period following
Con Edison's July 1999 acquisition of O&R.
Con Edison's electric operating income decreased $47.3 million in 1999 compared
to 1998. The principal components of the decrease (net of tax) were: $41.9
million of lost equity return on generating assets that were divested,
approximately $8.5 million of increased distribution expenses relating to
Hurricane Floyd and a July 1999 heat wave, and $42.3 million of electric rate
reductions; offset, in part, by approximately $65.3 million of reduced expenses
at Indian Point 2 (which had an extended maintenance outage in 1998), and
decreased pension costs, and $28.4 million of electric operating income
attributable to O&R.
Gas
Con Edison's gas operating revenues and gas operating income increased $261.9
million and $32.3 million, respectively, in 2000 and increased $40.5 million and
$10.5 million, respectively, in 1999. These changes reflect changes in gas sales
and transportation volumes. The changes in gas operating revenues also reflect
increases in the cost of gas (see "Recoverable Energy Costs" in Note A to the
financial statements). In addition, the changes reflect O&R's gas operating
revenues of approximately $183.4 million and O&R's gas operating income of
approximately $11.1 million for 2000, compared to gas operating revenues of
$56.4 million and $0.5 million of gas operating income recognized in the 1999
period following Con Edison's July 1999 acquisition of O&R.
Gas sales and transportation volume to firm customers of Con Edison of New York
increased 7.8 percent in 2000 compared to 1999 and increased 5.8 percent in 1999
compared to 1998.
Con Edison's gas sales and transportation vary seasonally in response to
weather, and peak in the winter. The increase in volumes from 1999 reflects the
colder 2000 winter compared to 1999. The increase in 1999 compared to 1998
reflects the colder 1999 winter compared to 1998.
After adjusting for variations, principally weather and billing days, in each
period, gas sales and transportation volume to firm customers increased 2.0
percent in 2000 and 1.3 percent in 1999.
A weather-normalization provision that applies to the gas businesses of Con
Edison's utility subsidiaries operating in New York moderates, but does not
eliminate, the effect of weather-related changes on gas operating income.
Steam
Con Edison's steam operating revenues increased $112.1 million in 2000 compared
to 1999, reflecting primarily increased purchased steam and
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fuel costs (see "Recoverable Energy Costs" in Note A to the financial
statements). Steam operating income increased $5.6 million in 2000 compared to
1999, reflecting an October 2000 rate increase. Steam operating revenues and
operating income increased $18.1 million and $0.1 million, respectively, in 1999
compared to 1998, primarily because of changes in steam sales volume.
Steam sales volume increased 0.8 percent in 2000 and increased 6.1 percent in
1999. The increase in 1999 reflects the colder winter compared to 1998.
After adjusting for variations, principally weather and billing days, in each
period, steam sales volume decreased 0.7 percent in 2000 and decreased 1.4
percent in 1999.
Taxes, Other Than Income Tax
At $1.1 billion, taxes other than income tax remain one of Con Edison's utility
subsidiaries' largest operating expenses.
The principal components of and variations in operating taxes were:
Increase / (Decrease)
- -------------------------------------------------------------------------------
2000 1999
(Millions of 2000 over over
Dollars) Amount 1999 1998
- -------------------------------------------------------------------------------
Property taxes $ 616.2 $ 10.1 $ (12.2)
State and local
taxes on revenues 421.6 (72.2) 4.9
Payroll taxes 60.8 1.1 2.9
Other taxes 23.2 3.0 (23.9)
- -------------------------------------------------------------------------------
Total $1,121.8* $ (58.0) $ (28.3)
- -------------------------------------------------------------------------------
*Including sales taxes on customers' bills, total taxes, other than income
taxes, billed to customers in 2000 were $1,480.1 million.
Other Income
Other income decreased $44.2 million in 2000 compared with 1999, due principally
to the recognition in 2000 of $32.1 million of merger-related expenses (see Note
P to the financial statements) and the recognition in 1999 of $29 million of
deferred federal income tax credits relating to generation divestiture (see Note
I to the financial statements). Other income increased $29.7 million in 1999
compared with 1998, due principally to the recognition in 1999 of the deferred
federal income tax credits.
Net Interest Charges
Net interest charges increased $69.9 million in 2000 compared to 1999,
reflecting increased interest expense for Con Edison of New York related to
short-term borrowings ($11.3 million) and long-term borrowings ($26.2 million),
and $10.6 million of interest accrued on the gain on generation divestiture
prior to its disposition in 2000 pursuant to the Agreement. The increase also
reflects $9.6 million of interest expense related to long-term borrowing for the
Lakewood Project (which was purchased in June 2000 by an unregulated subsidiary
of Con Edison). The increase also reflects $25.4 million of O&R`s interest
expense for 2000 compared to $15.4 million of O&R's interest recognized in the
1999 period following Con Edison's July 1999 acquisition of O&R.
Net interest charges increased $11.7 million in 1999 compared to 1998,
reflecting the addition of O&R's debt expense and increased interest on
short-term borrowing, offset in part by refunding of long-term debt and
favorable tax audit adjustments.
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Income Tax
Federal income tax decreased $89.3 million in 2000 and decreased $32.6 million
in 1999, reflecting the changes each year in income before tax, deductions
related to removal costs and tax credits. State income tax for 2000 was $23.6
million. In 2000 certain New York State revenue-based taxes applicable to
utilities were replaced by a net income-based tax. See Notes A and L to the
financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion and analysis relates to the accompanying consolidated financial
statements of Consolidated Edison Company of New York, Inc. (Con Edison of New
York) and should be read in conjunction with the financial statements and the
notes thereto.
CON EDISON OF NEW YORK'S BUSINESS
Con Edison of New York is a regulated utility that provides electric service to
over three million customers and gas service to over one million customers in
New York City and Westchester County. It also provides steam service in parts of
Manhattan. All of the common stock of Con Edison of New York is owned by
Consolidated Edison, Inc. (Con Edison).
SIGNIFICANT DEVELOPMENTS
Con Edison of New York's results of operations for 2000 were materially affected
by electric rate reductions of (on an annual basis) $103 million, effective
April 2000, and $170 million, effective October 2000, (see "State Regulatory
Matters - Electric," below) and a $130 million charge relating to the Indian
Point 2 nuclear plant (see Note G to the financial statements). Indian Point 2
returned to service in January 2001 following installation of new steam
generators.
Other significant developments in 2000 included agreements to sell, subject to
approval of the New York State Public Service Commission (PSC) and other
conditions, Indian Point 2 and related assets (including fuel) for approximately
$602 million, subject to certain adjustments, and a nine-acre development site
in midtown Manhattan along the East River (the First Avenue Properties) for an
expected price of $576 million to $680 million, depending on zoning and other
adjustments.
Results of operations for 2000 also reflect Con Edison of New York's sales (in
June and August 1999) of most of its electric generating capacity. See Note I to
the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Short-Term Borrowing
Cash and temporary cash investments decreased $278.8 million at December 31,
2000 compared to December 31, 1999, reflecting repayment of notes payable
(primarily commercial paper), including short-term borrowing done in December
1999 in anticipation of January 2000 cash requirements, and the changes in cash
flows from operating, investing and financing activities discussed below.
Con Edison of New York's average daily commercial paper outstanding in 2000 was
$264 million compared to $100 million in 1999. The weighted average interest
rate was approximately 6.4 percent in 2000 compared to approximately 5.0 percent
in 1999. For additional information about Con Edison of New York's commercial
paper program, see Note C to the financial statements.
Cash Flows From Operating Activities
Net cash flows from operating activities in 2000 decreased $412.0 million
compared to 1999, due principally to lower net income (which included increased
pension credits) and increased purchased power and gas costs. Net cash flows
from operating activities in 1999 decreased $130.0 million compared to 1998, due
principally to higher charges for purchased electric generating capacity and
other cash flow effects of the generation divestiture.
Cumulative credits to pension expense amounted to $366.7 million at December 31,
2000, compared with $116.0 million at December 31, 1999. Pension credits, which
result from favorable performance by the company's pension plans in past years,
increase net income but do not provide cash for the company's operations. See
Note D to the financial statements.
Con Edison of New York's accounts receivable - customer, less allowance for
uncollectible accounts increased $201.9 million at December 31, 2000 compared
with year-end 1999, due primarily to
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increased customer billings, reflecting higher purchased power and gas costs.
Con Edison of New York's equivalent number of days of revenue outstanding
(ENDRO) of customer accounts receivable was 29.7 days at December 31, 2000,
compared with 28.8 days at December 31, 1999.
Recoverable energy costs increased $195.6 million at December 31, 2000 compared
with year-end 1999, reflecting increased purchased power and gas costs, offset
in part by the ongoing recovery of previously deferred amounts. See "Recoverable
Energy Costs" in Note A to the financial statements.
Deferred charges for divestiture - capacity replacement reconciliation increased
$49.5 million at December 31, 2000 compared with year-end 1999, reflecting
incremental electric capacity costs under contracts with the buyers of the
generating assets sold by Con Edison of New York. See Note I to the financial
statements.
Unfunded other post-employment benefit (OPEB) obligations (shown as pension and
benefits reserve on the balance sheet) were $105.1 million at December 31, 2000,
compared to $76.8 million at December 31, 1999. Con Edison of New York's policy
is to fund its OPEB costs to the extent deductible under current tax
limitations. The reserve also includes a minimum liability for Con Edison of New
York's supplemental executive retirement program. A portion of this minimum
liability has been included in other comprehensive income. See Note E to the
financial statements.
The accumulated provision for injuries and damages was $148.0 million at
December 31, 2000, compared to $110.1 million at December 31, 1999. The increase
resulted primarily from increased workers' compensation claims relating to
alleged asbestos exposure.
Accounts payable increased $374.2 million at December 31, 2000 compared with
year-end 1999, due primarily to the higher costs of electric power and gas
purchases.
Accrued taxes increased $26.2 million at December 31, 2000 compared to year-end
1999, due principally to timing differences.
The New York State tax laws applicable to utility companies were changed,
effective January 1, 2000. Certain revenue-based taxes were repealed or reduced
and replaced by a net income-based tax. In addition, a compensating use tax was
imposed on gas and electricity purchased outside New York State for use within
the state. In December 2000 the PSC issued its requirements relating to the tax
law changes. The amounts applicable to the provisions of the previous tax laws
will continue to be collected through base rates and tariff surcharges, until
the PSC directs otherwise, with the differences between those collections and
the tax expense under the new law to be deferred, pending future disposition by
the PSC. At December 31, 2000 Con Edison of New York had accrued a liability of
$59.5 million reflecting these differences.
Under Con Edison of New York's 1997 Restructuring Agreement (see "State
Regulatory Matters - Electric," below), $50 million of the net after-tax gain on
divestiture of most of Con Edison of New York's electric generating assets has
been retained for shareholders (and is to be recognized in income during the 12
months ending March 2002), and the remaining net gain was deferred for future
customer benefit. Under the electric agreement approved by the PSC in November
2000 (see "State Regulatory Matters- Electric," below), $188.2 million was
credited against electric distribution plant balances, $107.3 million was used
to offset a like amount of existing regulatory assets (including deferred power
contract termination costs) and $12 million has been set aside as a partial
funding source for low-income customer programs.
Other regulatory liabilities increased $30.9 million at December 31, 2000
compared with year-end 1999, reflecting primarily the deferral under Con Edison
of New York's current gas rate agreement of $12.1 million of earnings above a 13
percent threshold that are to be shared with customers (see "State Regulatory
Matters - Gas," below) and deferral of a portion of the divestiture gain to
partially fund retail access incentives and a low income program of $19.8
million and $12.0 million, respectively (see Note I to the financial
statements), offset by the recognition of $22.3 million of previously deferred
revenues relating to Indian
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Point refueling and maintenance work. See Note G to the financial statements.
Cash Flows Used in Investing Activities
Cash flows used in investing activities, including construction, in 2000
increased $1.5 billion compared to 1999, primarily because 1999 cash flows
included proceeds from generation divestiture. In addition, in 2000 there were
higher construction expenditures.
Construction expenditures during 2000 increased $252.2 million compared to 1999,
principally as a result of expenditures related to meeting load growth on Con
Edison of New York's electric distribution system and replacement of the steam
generators at its nuclear generating unit.
Deferred real estate sale costs were $103 million at year-end 2000, reflecting
costs related to the demolition and remediation of the First Avenue Properties,
which Con Edison of New York has agreed to sell, subject to PSC approval and
other conditions, for an expected price of $576 million to $680 million,
depending on zoning and other adjustments. See "Capital Requirements," below.
The buyer paid Con Edison of New York $50 million as a down payment, which the
company used to fund a portion of the demolition and remediation expenses. The
down payment has been recorded as a regulatory liability.
Cash Flows Used in Financing Activities
Cash flows used in financing activities in 2000 decreased $1.3 billion compared
to 1999, because of increased debt issuances and decreased repurchases of common
stock.
During 2000, Con Edison of New York repaid at maturity $275 million of
debentures, with a weighted average annual interest rate of approximately 7.48
percent, and issued $975 million of 5-year and 10-year debentures, with a
weighted average annual interest rate of approximately 7.39 percent.
During 1999, Con Edison of New York repaid at maturity $150 million of floating
rate taxable debentures and $75 million of 6.5 percent debentures, and issued
$475 million of 40-year and 10-year debentures, with a weighted average annual
interest rate of approximately 7.27 percent. In addition, it issued $292.7
million of 35-year adjustable rate tax-exempt debt in July 1999, the proceeds of
which, along with other funds, were used in August 1999 to redeem $150 million
of 7 1/4 percent Series 1989 C tax-exempt debt and $150 million of 7 1/2 percent
Series 1990 A tax-exempt debt.
Common stock dividends in 1999 included the dividend to Con Edison of generation
divestiture proceeds of $850 million.
Capital Resources
Con Edison of New York expects to finance its operations, capital requirements
and the payment of dividends to its shareholders from internally-generated funds
and external borrowings, including commercial paper. For information about
restrictions on the payment of dividends by Con Edison of New York, see Note B
to the financial statements.
Con Edison of New York's ratio of earnings to fixed charges for 2000, 1999 and
1998 and common equity ratio at December 31, 2000, 1999 and 1998 were:
2000 1999 1998
--------------------------
Earnings to fixed
charges (SEC basis) 3.23 4.17 4.36
Common equity 46.4 49.4 57.6
The changes in interest coverage in these years reflect changes in pre-tax
income and changes in interest charges due to debt issuances and refundings.
Excluding the $130 million charge for replacement power costs incurred in
connection with an outage at the Indian Point nuclear plant (see Note G to the
financial statements), Con Edison of New York's ratio of earnings to fixed
charges for 2000 would have been 3.56. The changes in the
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equity ratio reflect the issuance of debt and the repurchase of approximately
$962 million of Con Edison common stock.
The commercial paper of Con Edison of New York is rated P-1 and A-1,
respectively, by Moody's Investors Service, Inc. (Moody's) and Standard & Poor's
Rating Services (S&P). The senior unsecured debt of Con Edison of New York is
rated A1 and A+, respectively, by Moody's and S&P.
Capital Requirements
The following table compares Con Edison of New York's capital requirements for
the years 1998 through 2000 and estimated amounts for 2001 and 2002:
(Millions of Dollars) 1998 1999 2000 2001* 2002*
- --------------------------------------------------------------------------------
Utility construction
expenditures $619 $655 $ 908 $ 934 $ 884
Nuclear
decommissioning trust 21 21 21 21 21
Nuclear fuel 7 17 27 3 47
Retirement of
long-term securities
at maturity 200 225 275 300 337
- --------------------------------------------------------------------------------
Total $847 $918 $1,231 $1,258 $1,289
* Does not reflect the pending sale of Indian Point 2, which is expected to be
completed in 2001.
The increased utility construction expenditures in 2001 and 2002 reflect
expenditures to repower Con Edison of New York's East River steam-electric
generating plant and expenditures related to meeting load growth on its electric
distribution system. The repowering will provide additional, cost efficient
steam generating capacity and approximately 360 MW of electric capacity. The
increased generating capacity will more than offset the 160 MW of electric
capacity that will be lost upon the closing of the company's Waterside
generating station, which is located on the First Avenue Properties.
ELECTRIC POWER PURCHASES
In December 1999, following approval by the Federal Energy Regulatory
Commission, the New York State Independent System Operator (ISO) commenced
operations. The ISO controls and operates most electric transmission facilities
in New York State as an integrated system and administers a wholesale
electricity market in the state. Con Edison of New York continues to own and
maintain, but not operate, its transmission facilities and receives fees for use
of the facilities by other parties.
In 2000 Con Edison of New York purchased substantially all of the energy it sold
to customers pursuant to firm contracts with non-utility generators and others
or through the ISO's wholesale electricity market.
Electric energy prices in Con Edison of New York's service area during summer
2000 increased significantly compared with summer 1999. The higher energy prices
increased the company's working capital requirements. Accounts receivable (and
uncollectible bills) and recoverable energy costs increased in 2000 compared to
1999. See "Cash Flows From Operating Activities," above.
Con Edison of New York recovers prudently incurred purchased power costs
pursuant to rate provisions approved by the PSC. See "Financial Market Risks,"
below and "Recoverable Energy Costs" in Note A to the financial statements. From
time to time certain parties have petitioned the PSC to review these provisions.
In the event that the provisions are changed or eliminated, there could be a
material adverse effect on the company's financial position, results of
operations or liquidity.
The PSC has established a proceeding to consider rate measures that could reduce
the volatility of electric energy costs experienced during the months of peak
usage. The Agreement (see "State Regulatory Matters - Electric," below) provides
that such measures may neither be materially inconsistent with the Agreement nor
adversely impact Con Edison of New York's financial integrity.
To reduce the volatility of electric energy costs, Con Edison of New York has
firm contracts to purchase electric energy and has entered into derivative
transactions to hedge expected purchases for a substantial portion of the
electric energy
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expected to be sold to its customers in summer 2001 (see Note M to the financial
statements). In addition, Con Edison of New York's Indian Point generating
plant, which was out of service during summer 2000, is in service and expected
to be available in summer 2001. Following completion of Indian Point's pending
sale, Con Edison of New York, pursuant to a power purchase agreement with the
buyer, will be allowed to purchase its output at an annual average price of 3.9
cents per kilowatthour, through the end of 2004.
To further mitigate price volatility, the company is seeking changes in the way
the ISO administers its wholesale energy market. Those changes include a new
"circuit breaker" mechanism to prevent unreasonable price volatility when the
wholesale electric market is not competitive, which could occur when usage is
high and power supplies are extremely tight, and making customers eligible for
retroactive refunds if a power generator abuses the system and charges more than
a competitive price.
Con Edison of New York does not expect to add long-term electric generation
resources other than in connection with the repowering of its East River
generating plant, which will add incremental electric capacity of approximately
200 MW. In a July 1998 order, the PSC indicated that it "agree(s) generally that
Con Edison of New York need not plan on constructing new generation as the
competitive market develops," but considers "overly broad" and did not adopt its
request for a declaration that, solely with respect to providing generating
capacity, it will no longer be required to engage in long-range planning to meet
potential demand and, in particular, that it will no longer have the obligation
to construct new generating facilities, regardless of the market price of
capacity.
STATE REGULATORY MATTERS
Electric
In 1996 the PSC, in its Competitive Opportunities proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry.
In September 1997 the PSC approved a restructuring agreement among Con Edison of
New York, the PSC staff and certain other parties (the 1997 Restructuring
Agreement). Pursuant to the 1997 Restructuring Agreement, Con Edison of New York
reduced electric rates by approximately $129 million in 1998, $80 million in
1999 and $103 million in 2000, made available "retail choice" to all of its
electric customers and divested most of its electric generation capacity. For
additional information about the 1997 Restructuring Agreement, see Note A to the
financial statements.
In November 2000 the PSC approved an October 2000 agreement (the Agreement)
that, among other things, revises and extends the electric rate plan provisions
of the 1997 Restructuring Agreement and addresses certain generation
divestiture-related issues.
The electric rate plan provisions of the Agreement cover the five-year period
ending March 2005. Pursuant to the Agreement Con Edison of New York reduced the
distribution component of its electric rates by $170 million on an annual basis,
effective October 2000, and, in accordance with the 1997 Restructuring
Agreement, will reduce the generation-related component of its electric rates by
$208.7 million on an annual basis, effective April 2001.
The Agreement continues the rate provisions pursuant to which Con Edison of New
York recovers prudently incurred purchased power and fuel costs from customers.
See "Recoverable Energy Costs" in Note A to the financial statements.
For additional information about the Agreement, see Note A to the financial
statements.
Gas
In November 2000 the PSC approved an agreement among Con Edison of New York, the
PSC staff and certain other parties that extended the 1996 gas rate settlement
agreement through September 2001. The 1996 agreement, with limited exceptions,
continued base rates at September 1996 levels through September 2000.
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For additional information about the agreement, see Note A to the financial
statements.
Steam
In November 2000 the PSC approved an agreement between Con Edison of New York,
the PSC staff and certain other parties with respect to the steam rate plan
filed by the company in November 1999. The agreement provides for a $16.6
million steam rate increase, which took effect October 2000 and, with limited
exceptions, no further changes in steam rates prior to October 2004.
For additional information about the agreement, see Note A to the financial
statements.
NUCLEAR GENERATION
In January 2001 Con Edison of New York's Indian Point 2 nuclear generating
station returned to service following an outage that commenced in February 2000.
During the outage Indian Point's four steam generators were replaced and
refueling and maintenance work was performed. For information about the recovery
of replacement power costs incurred during the outage, the pending sale of
Indian Point 2 and additional information about nuclear generation, see Note G
to the financial statements.
FINANCIAL MARKET RISKS
Con Edison of New York's primary market risks associated with activities in
derivative financial instruments, other financial instruments and derivative
commodity instruments, are interest rate risk and commodity price risk.
The interest rate risk relates primarily to new debt financing needed to fund
capital requirements, including utility construction expenditures, maturing debt
securities and to variable rate debt. See "Capital Requirements," above.
In general, the rates Con Edison of New York charges customers for electric, gas
and steam service are not subject to change for fluctuations in the cost of
capital during the respective terms of the current rate agreements. The company
manages interest rate risk through the issuance of mostly fixed-rate debt with
varying maturities and through opportunistic refundings of debt through optional
redemptions and tender offers. In addition, Con Edison of New York, from time to
time, has entered into derivative financial instruments to hedge interest rate
risk.
In general, the rates Con Edison of New York charges customers for electric, gas
and steam service are subject to change for fluctuations in the cost of
purchased power or gas during the respective terms of the current rate
agreements. See "Electric Power Purchases," above and "Recoverable Energy Costs"
in Note A to the financial statements. Con Edison of New York has, from time to
time, used derivative instruments to hedge purchases of electricity and gas and
gas in storage.
At December 31, 2000 neither the fair value of the hedged positions outstanding
nor potential, near-term derivative losses from reasonably possible near-term
changes in market prices were material to the financial position, results of
operations or liquidity of Con Edison of New York. See Note M to the financial
statements.
ENVIRONMENTAL MATTERS
For information concerning potential liabilities arising from laws and
regulations protecting the environment, including the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (Superfund), and
from claims relating to alleged exposure to asbestos, see Note F to the
financial statements.
IMPACT OF INFLATION
Con Edison of New York is affected by the decline in the purchasing power of the
dollar caused by inflation. Regulation permits Con Edison of New York to recover
through depreciation only the historical cost of its plant assets even though in
an inflationary economy the cost to replace the assets upon their retirement
will substantially exceed
-53-
historical costs. The impact is, however, partially offset by the repayment of
the company's long-term debt in dollars of lesser value than the dollars
originally borrowed.
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, developments in the
wholesale energy markets, technological developments, changes in economic
conditions, changes in historical weather patterns, changes in laws, regulations
or regulatory policies, developments in legal or public policy doctrines, and
other presently unknown or unforeseen factors.
RESULTS OF OPERATIONS
Con Edison of New York's earnings for 2000 were $570.1 million. Earnings for
1999 and 1998 were $698.3 million and $728.1 million, respectively. Excluding a
$130 million charge relating to the Indian Point 2 nuclear plant (see
Note G to the financial statements), earnings in 2000 would have been $654.6
million.
Con Edison of New York's earnings for 2000 decreased $128.1 million compared to
1999, reflecting the effects of cooler than normal summer weather in 2000 as
compared with warmer than normal summer weather in 1999, electric rate
reductions of $139.3 million, a $130 million charge relating to the Indian Point
2 nuclear plant, $41.3 million of higher transmission and distribution expenses
and $48.3 million of increased interest charges, offset in part by increased
revenues resulting from the favorable economy and $157.1 million of increased
pension credits.
Con Edison of New York's earnings for 1999, compared to 1998, decreased $29.9
million. The principal components of the decrease (net of tax) were: $42.3
million of electric rate reductions; $41.9 million of lost equity return on
generating assets that were divested; and $8.5 million of higher distribution
expenses relating to Hurricane Floyd and a July 1999 heat wave, offset by $71.0
million of lower nuclear and pension expenses.
Earnings also reflect the levels of electric, gas and steam sales discussed
below.
Con Edison of New York's operating revenues in 2000, compared to 1999, increased
by approximately $1.0 billion, and its operating income decreased by $49.4
million. Operating revenues in 1999, compared to 1998, decreased by $42.6
million, and operating income decreased by $65.6 million.
A discussion of Con Edison of New York's operating revenues and operating income
by business segment follows. Con Edison of New York's principal business
segments are its electric, gas and steam businesses. For additional information
about Con Edison of New York's business segments, see Note L to the financial
statements.
Electric
Con Edison of New York's electric operating revenues in 2000 increased $794.7
million from 1999 and in 1999 decreased $44.8 million from 1998. The increase in
2000 reflects increased purchased power costs (see "Recoverable Energy Costs" in
Note A to the financial statements), offset by the effects of the cooler than
normal summer weather compared to warmer than normal weather for the 1999 period
and electric rate reductions of approximately $139.3 million in 2000. The
decrease in 1999 reflects primarily the effects of retail access and rate
reductions of $65 million, offset in part by increased sales resulting from the
warmer summer weather.
-54-
Electricity sales volume in Con Edison of New York's service territory increased
1.7 percent in 2000 and 3.9 percent in 1999.
The increase in sales volume reflects the continued strength of the New York
City economy, offset in part by the cooler than normal summer weather. Con
Edison of New York's electric sales vary seasonally in response to weather, and
peak in the summer.
After adjusting for variations, principally weather and billing days, in each
period, electricity sales volume in Con Edison of New York's service territory
increased 3.6 percent in 2000 and 2.7 percent in 1999. Weather-adjusted sales
represent an estimate of the sales that would have been made if historical
average weather conditions had prevailed.
Con Edison of New York's electric operating income decreased $76.7 million in
2000 compared to 1999. The decrease in electric operating income was comprised
of a reduction in net revenues (operating revenues less fuel and purchased
power) of $325.3 million (reflecting cooler than normal summer weather, $139.3
million of electric rate reductions and a $130 million charge relating to the
Indian Point nuclear plant), offset by $97.1 million of decreased other
operations and maintenance expenses (discussed in the following paragraph),
property taxes ($18.1 million), dividend and subsidiary capital taxes ($13.8
million) and Federal income tax ($100.6 million).
The $97.1 million decrease in other operations and maintenance expenses reflects
decreased expenses related to Con Edison of New York's non-nuclear generating
assets (most of which were sold in 1999) of $88.0 million and increased pension
credits of $124.5 million, offset in part by increased transmission and
distribution expenses of $32.9 million and $94.8 million of expenses related to
the Indian Point nuclear plant (including expenditures attributable to refueling
and maintenance work).
Indian Point refueling and maintenance expenses of $56.4 million, offset by
$51.1 million of revenues, were recognized in income for 2000. See Note G to the
financial statements. Approximately $7.2 million of Indian Point refueling and
maintenance charges have been deferred and will be matched against revenues of
an equal amount which will be realized in the first quarter of 2001.
Con Edison of New York's electric operating income decreased $75.6 million in
1999 compared to 1998. The principal components of the decrease (net of tax)
were: $42.3 million of electric rate reductions, $41.9 million of lost equity
return on generating assets that were divested, $32.2 million of unavoided costs
related to divestiture (administrative support costs previously incurred by
generation not eliminated with divestiture, but expected to decrease over time)
and $8.5 million of increased distribution expenses relating to Hurricane Floyd
and a July 1999 heat wave; offset in part by approximately $65.3 million of
reduced expenses at Indian Point 2 (which had an extended maintenance outage in
1998) and decreased pension costs.
Gas
Con Edison of New York's gas operating revenues and gas operating income
increased $137.9 million and $21.7 million, respectively, in 2000. In 1999 gas
operating revenues decreased $16.0 million and gas operating income increased
$10.1 million from 1998. These changes reflect changes in gas sales and
transportation volumes. The changes in gas operating revenues also reflect
changes in the cost of gas (see "Recoverable Energy Costs" in Note A to the
financial statements).
Gas sales and transportation volume to firm customers of Con Edison of New York
increased 7.8 percent in 2000 compared to 1999 and increased 5.8 percent in 1999
compared to 1998.
Con Edison of New York's gas sales and transportation vary seasonally in
response to weather, and peak in the winter. The increase in volumes from 1999
reflects the colder 2000 winter compared to 1999. The increase in 1999 compared
to 1998 reflects the colder 1999 winter compared to 1998.
-55-
After adjusting for variations, principally weather and billing days, in each
period, gas sales and transportation volume to firm customers increased 2.0
percent in 2000 and 1.3 percent in 1999.
A weather-normalization provision that applies to Con Edison of New York's gas
business moderates, but does not eliminate, the effect of weather-related
changes on gas operating income.
Steam
Con Edison of New York's steam operating revenues increased $112.1 million in
2000 compared to 1999, reflecting primarily increased purchased steam and fuel
costs (see "Recoverable Energy Costs" in Note A to the financial statements).
Steam operating income increased $5.6 million in 2000 compared to 1999,
reflecting an October 2000 rate increase. Steam operating revenues and operating
income increased $18.1 million and $0.1 million, respectively, in 1999 compared
to 1998, primarily because of changes in steam sales volume.
Steam sales volume increased 0.8 percent in 2000 and increased 6.1 percent in
1999. The increase in 1999 reflects the colder winter compared to 1998.
After adjusting for variations, principally weather and billing days, in each
period, steam sales volume decreased 0.7 percent in 2000 and decreased 1.4
percent in 1999.
Taxes, Other Than Income Tax
At $1.0 billion, taxes other than income tax remain one of Con Edison of New
York's largest operating expenses.
The principal components of and variations in operating taxes were:
Increase / (Decrease)
- --------------------------------------------------------------------------------
2000 2000 1999
(Millions of Dollars) Amount over 1999 over 1998
- --------------------------------------------------------------------------------
Property taxes $ 586.8 $ (7.1) $(24.5)
State and local taxes on
revenues 383.7 (79.5) (20.6)
Payroll taxes 55.1 (1.9) (2.1)
Other taxes 22.9 2.9 (21.3)
- --------------------------------------------------------------------------------
Total $1,048.5* $(85.6) $(68.5)
- --------------------------------------------------------------------------------
* Including sales taxes on customers' bills, total taxes, other than income
taxes, billed to customers in 2000 were $1,388.7 million.
Other Income
Other income decreased $30.4 million in 2000 compared with 1999, and increased
$27.3 million in 1999 compared to 1998, due principally to deferred federal
income tax credits realized in 1999 as a result of the generation divestiture.
See Note I to the financial statements.
Net Interest Charges
Net interest charges increased $48.3 million in 2000 compared to 1999,
reflecting $11.3 million of increased interest expense for Con Edison of New
York related to short-term borrowings and $26.2 million related to long-term
borrowings and $10.6 million of interest accrued on the gain on generation
divestiture prior to its disposition in 2000 pursuant to the Agreement.
Net interest charges decreased $5.0 million in 1999 compared to 1998, reflecting
the refunding of long-term debt and favorable tax audit adjustments.
Income Tax
Federal income tax decreased $97.5 million in 2000 and decreased $48.2 million
in 1999, reflecting the changes each year in income before tax, deductions
related to removal costs and tax credits. State income tax for 2000 was $21.4
million. In 2000 certain New York State revenue-based taxes applicable to
utilities were replaced by a net income-based tax. See Notes A and J to the
financial statements.
- 56 -
O&R MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Orange and Rockland Utilities, Inc. (O&R), a wholly-owned subsidiary of
Consolidated Edison, Inc. (Con Edison), meets the conditions specified in
General Instruction I of Form 10-K and is permitted to use the reduced
disclosure format for wholly-owned subsidiaries of companies, like Con Edison,
that are reporting companies under the Securities Exchange Act of 1934.
This narrative analysis should be read in conjunction with the consolidated
financial statements of O&R and its subsidiaries and the notes thereto.
O&R's BUSINESS
O&R is a regulated utility, that, along with its regulated utility subsidiaries,
provides electric service to over 278,000 customers and gas service to over
118,000 customers in southeastern New York and in adjacent sections of New
Jersey and northeastern Pennsylvania.
SIGNIFICANT DEVELOPMENTS
In June 1999, O&R sold all of its generating assets to Southern Energy for
$349.3 million. During July 1999, Con Edison completed its acquisition of O&R
for $791.5 million.
In June 2000, O&R issued $55 million of 7.5 percent Series A Debentures due
2010, see Note B to the financial statements. During the year ended December 31,
2000, O&R paid $37 million in dividends to Con Edison. In November 2000, the New
York State Public Service Commission (NYPSC) approved a three- year rate plan
and restructuring order for O&R's gas service, see Note A to the financial
statements.
RESULTS OF OPERATIONS
Net income for the years ended December 31, 2000, 1999 and 1998 was $39.1
million, $14.7 million and $45.0 million, respectively.
O&R's net income in 2000 increased $24.4 million compared to 1999. The 1999
period included $23.4 million of non-recurring charges relating to the Con
Edison acquisition and electric generating capacity divestiture. Excluding the
impact of these charges, net income increased $1.0 million in 2000 compared to
1999. The increase was primarily the result of a gain from the sale of land by a
non-utility subsidiary, offset in part by higher operating cost.
The sale of O&R's generating assets in 1999 resulted in reduced operation and
maintenance expenses, property taxes, depreciation expense and interest charges.
These reductions have been incorporated into the base rates the company charges
its customers.
O&R's net income in 1999, compared to 1998, decreased $30.3 million. The
principal components of the decrease were: $23.4 million of non-recurring merger
related costs, $5.9 million of lost equity return on generating assets that were
sold, and $0.8 million of higher distribution expenses relating to Hurricane
Floyd.
A discussion of O&R's operating revenues and operating income by business
segment follows. O&R's principal business segments are its electric and gas
utility operations. For additional information about O&R's business segments,
see Note M to the financial statements.
Electric
Electric operating revenues increased $53.2 million in 2000 compared to 1999. In
1999, O&R reduced revenues by $24.9 million to reflect a liability to refund to
customers proceeds from the June 1999 divestiture of the company's electric
generating assets. Excluding the impact of this non-recurring accrual, electric
operating revenues increased $28.3 million in 2000, due primarily to an increase
in sales and higher purchased power costs (which O&R bills to its New York
customers under rate provisions approved by NYPSC), offset in part by rate
reductions implemented in August 1999.
Electric sales and deliveries to firm customers increased 1.1 percent in 2000
and 3.6 percent in 1999. O&R's electric sales vary seasonally in response to
weather, and peak in the summer.
- 57 -
After adjusting for variations, principally weather and billing days, in each
period, O&R's electricity sales volume increased 0.3 percent in 2000 and 0.5
percent in 1999. Weather-adjusted sales represent an estimate of the sales that
would have been made if historical average weather conditions had prevailed.
O&R's purchased power cost increased $135.9 million and fuel cost decreased
$44.4 million in 2000. These variations are attributable primarily to the June
1999 divestiture of the company's electric generating assets, higher customer
sales, and increases in the cost of purchased energy.
O&R's purchased power and fuel costs are recoverable from O&R's New York
customers under rate provisions approved by the PSC. For the Rockland Electric
Company, an O&R utility subsidiary subject to regulation by the New Jersey Board
of Public Utilities, current recovery of these costs is subject to certain
limitations and costs that are not currently recoverable are deferred for future
recovery. At December 31, 2000, net recoverable purchased power costs of
approximately $31.6 million were deferred for future recovery by Rockland
Electric Company. For the Pike County Power & Light Company, an O&R utility
subsidiary subject to regulation by the Pennsylvania Board of Public Utilities,
current recovery of these costs is limited to a predetermined fixed price. As a
result $1.4 million of energy cost were not recovered in 2000.
Income from electric operations increased $28.8 million in 2000. The 1999 period
included $44.5 million of non-recurring merger and electric generating plant
divestiture charges. Excluding the impact of these charges, income from electric
operations would have decreased $15.7 million. This decrease was due primarily
to the lost return on generating assets of $5.9 million and to higher O&M and
depreciation charges after adjusting for the impact of the divestiture.
O&R's 1999 electric operating income decreased $48.7 million when compared to
1998. This decrease is principally the result of the $44.5 million of
non-recurring merger and divestiture related charges reflected in the 1999
results.
Gas
O&R's gas operating revenues increased $26.4 million in 2000 and $21.4 million
in 1999, due primarily to recovery from customers of higher gas costs and
increases in gas sales and transportation volumes in 2000.
Gas sales and transportation to firm customers increased 15.2 percent in 2000
and 12.4 percent in 1999. The increases in sales volume reflect both the
continued strength of the economy in O&R's service territory and colder than
normal weather. The level of revenues from gas sales in New York is subject to a
weather normalization clause.
After adjusting for variations, principally weather and billing days, in each
period, gas sales and transportation volume to firm customers increased 3.7
percent in 2000 and 5.9 percent in 1999.
Non-utility
Non-utility operating revenues increased $3.8 million in 2000 primarily as the
result of a $2.4 million after-tax gain on the sale of land by a non-utility
real estate subsidiary of O&R that is winding down its business.
O&R's 1999 non-utility income increased $0.1 million when compared to 1998.
Gas purchased for resale
O&R's cost of gas purchased for resale increased $29.2 million in 2000 and $16.3
million in 1999. The increases for both years are due primarily to higher gas
costs and increases in firm sales.
Other operations and maintenance
O&R's other operation and maintenance expenses decreased $59.7 million in 2000,
due primarily to the June 1999 divestiture of the company's electric generating
assets and operating efficiencies resulting from Con Edison's July 1999
acquisition of the company.
In 1999 other operation and maintenance expenses increased $19.4 million, due
primarily to additional pension and severance costs incurred as a result of the
June 1999 divestiture of the company's electric generating assets.
- 58 -
Taxes, Other Than Income Tax
At $55.6 million, taxes other than income tax remain one of O&R's utility
subsidiaries' largest operating expenses.
The principal components of and variations in operating taxes were:
Increase/ (Decrease)
- --------------------------------------------------------------------------------
(Millions of 2000 2000 1999
Dollars) Amount over 1999 over 1998
- --------------------------------------------------------------------------------
Property taxes ..................... $ 28.7 $ (9.8) $ (7.3)
State and local taxes
on revenues ....................... 21.4 (13.6) (1.8)
Payroll taxes ...................... 5.0 (0.9) .4
Other taxes ........................ .5 .3 .2
- --------------------------------------------------------------------------------
Total .............................. $ 55.6* $ (24.0) $ (8.5)
- --------------------------------------------------------------------------------
*Including sales taxes on customers' bills, total taxes, other than income
taxes, billed to customers in 2000 were $73.7 million.
Property taxes decreased primarily due to the sale of O&R's generating assets in
June 1999. State taxes on revenues decreased due to tax law changes enacted on
May 15, 2000, which repealed the gross earnings tax levied under Section 186 and
reduced the Gross income tax levied under Section 186A of the New York State Tax
Code retroactive to January 1, 2000.
Other Income
Other income decreased $18.1 million in 2000. The 1999 period included a $14.7
million gain relating to the company's June 1999 divestiture of its electric
generating assets and a $7 million tax benefit recorded in 1999 related to the
generating assets sold. Excluding the impact of these one-time gains in 1999,
other income increased $3.6 million, primarily related to earnings from
temporary cash investments.
Other income increased $19.5 million in 1999, due principally to generation
divestiture proceeds and related deferred federal income tax credits realized
(see Note H).
Net Interest Charges
O&R's interest charges decreased $7.3 million in 2000, due primarily to lower
debt outstanding as a result of repayment of indebtedness with a portion of the
proceeds from the June 1999 divestiture of the company's electric generating
assets.
Net interest charges decreased $1.0 million in 1999.
Income Tax
Federal income tax decreased $15.5 million in 2000 and increased $15.5 million
in 1999, reflecting the change in income before tax and in tax credits that
resulted from the merger and divestiture. New York State income tax was $4.0
million in 2000. In 2000 certain New York State revenue-based taxes applicable
to utilities were replaced by a net income-based tax. See Notes A and L to the
financial statements.
Preferred Stock Requirements
O&R redeemed all outstanding shares of its preferred stock in April 1999 and
therefore had no preferred stock dividend requirements in 2000.
- 59 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CON EDISON
For information about Con Edison's primary market risks associated with
activities in derivative financial instruments, other financial instruments and
derivative commodity instruments, see "Financial Market Risks" in Con Edison's
MD&A in Item 7 (which information is incorporated herein by reference).
CON EDISON OF NEW YORK
For information about Con Edison of New York's primary market risks associated
with activities in derivative financial instruments, other financial instruments
and derivative commodity instruments, see "Financial Market Risks" in Con Edison
of New York's MD&A in Item 7 (which information is incorporated herein by
reference).
O&R
O&R's primary market risks associated with activities in derivative financial
instruments, other financial instruments and derivative commodity instruments
are interest rate risk and commodity price risk.
The interest rate risk relates primarily to new debt financing needed to fund
capital requirements, including utility construction expenditures and maturing
debt securities, and to variable rate debt. In general, the rates O&R and its
subsidiaries charge their customers for service are not subject to change for
fluctuations in the cost of capital during the respective terms of the current
rate agreements. O&R and its subsidiaries manage interest rate risk through the
issuance of mostly fixed-rate debt with varying maturities and through
opportunistic refundings. In addition, O&R, has from time to time, entered into
derivative financial instruments to hedge interest rate risk. At December 31,
2000, neither O&R nor any of its subsidiaries had derivative or other financial
instruments outstanding for purposes of hedging its interest rate risk other
than the interest rate swap agreement described in Note N to the O&R financial
statements in Item 8..
The commodity price risk relates primarily to purchases of electricity and gas
to supply customers. In general, the rates O&R and RECO, but not Pike, charge
their supply customers are subject to change for fluctuations in the cost of
electricity and gas purchases during the respective terms of the current rate
agreements (see "Results of Operations - Electric" in O&R Management's Narrative
Analysis of Results of Operations in Item 7 and Note A to the O&R financial
statements included in Item 8). At December 31, 2000, neither O&R, RECO nor Pike
had derivative or other financial instruments outstanding for purposes of
hedging commodity price risk. From time to time, however, O&R, RECO and Pike may
enter into such instruments for such purpose.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A. Financial Statements
Page
CON EDISON
Report of Independent Accountants 62
Consolidated Balance Sheet at December 31, 2000 and 1999 63
Consolidated Income Statement for the years ended
December 31, 2000, 1999 and 1998 65
Consolidated Statement of Retained Earnings for the years ended
December 31, 2000, 1999 and 1998 65
Consolidated Statement of Comprehensive Income for the years ended
December 31, 2000, 1999 and 1998 65
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 67
Consolidated Statement of Capitalization at December 31, 2000 and 1999 68
Notes to Consolidated Financial Statements 69
- 60 -
Page
CON EDISON OF NEW YORK
Report of Independent Accountants 88
Consolidated Balance Sheet at December 31, 2000 and 1999 89
Consolidated Income Statement for the years ended
December 31, 2000, 1999 and 1998 91
Consolidated Statement of Retained Earnings for the years ended
December 31, 2000, 1999 and 1998 91
Consolidated Statement of Comprehensive Income for the years ended
December 31, 2000, 1999 and 1998 91
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 92
Consolidated Statement of Capitalization at December 31, 2000 and 1999 93
Notes to Consolidated Financial Statements 94
O&R
Report of 2000 and 1999 Independent Accountants 110
Report of 1998 Independent Accountants 111
Consolidated Balance Sheet at December 31, 2000 and 1999 112
Consolidated Income Statement for the years ended
December 31, 2000, 1999 and 1998 114
Consolidated Statement of Retained Earnings for the years ended
December 31, 2000, 1999 and 1998 114
Consolidated Statement of Comprehensive Income for the years ended
December 31, 2000, 1999 and 1998 114
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 115
Consolidated Statement of Capitalization at December 31, 2000 and 1999 116
Notes to Consolidated Financial Statements 117
Financial Statement Schedules
CON EDISON
Schedule I - Condensed financial information 129
Schedule II - Valuation and qualifying accounts 131
CON EDISON OF NEW YORK
Schedule II - Valuation and qualifying accounts 131
O&R
Schedule II - Valuation and qualifying accounts 131
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
- 61 -
B. Supplementary Financial Information
Selected Quarterly Financial Data for the years ended December 31, 2000
and 1999 (Unaudited)
Con Edison
First Second Third Fourth
2000 (Millions of Dollars) Quarter Quarter Quarter Quarter
Operating revenues $ 2,318.6 $ 2,041.9 $ 2,820.8 $ 2,250.1
Operating income 282.7 171.3 384.9 177.2
Net income for common stock 188.1 68.7 279.9 46.1
Basic earnings per common share $ 0.88 $ 0.33 $ 1.32 $ 0.22
Diluted earnings per common share $ 0.88 $ 0.33 $ 1.32 $ 0.21
1999 (Millions of Dollars)
Operating revenues $ 1,776.6 $ 1,479.1 $ 2,346.2 $ 1,889.4
Operating income 258.5 149.7 423.3 188.3
Net income for common stock 176.6 66.4 336.0 121.6
Basic earnings per common share $ 0.76 $ 0.30 $ 1.50 $ 0.58
Diluted earnings per common share $ 0.76 $ 0.30 $ 1.50 $ 0.57
In the opinion of Con Edison, these quarterly amounts include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation.
Con Edison of New York
First Second Third Fourth
2000 (Millions of Dollars) Quarter Quarter Quarter Quarter
Operating revenues $1,987.1 $1,721.5 $2,398.6 $1,893.5
Operating income 268.5 166.0 359.8 157.8
Net income for common stock 178.3 71.1 266.3 54.4
1999 (Millions of Dollars)
Operating revenues $1,732.3 $1,442.7 $2,109.0 $1,672.0
Operating income 265.3 152.4 399.5 184.3
Net income for common stock 182.0 69.2 319.6 127.5
In the opinion of Con Edison of New York, these quarterly amounts include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation.
O&R
First Second Third Fourth
2000 (Millions of Dollars) Quarter Quarter Quarter Quarter
Operating revenues $182.2 $143.6 $196.6 $178.6
Operating income 15.8 10.1 21.9 12.6
Net income for common stock 10.7 5.3 16.3 6.8
1999 (Millions of Dollars)
Operating revenues $183.1 $142.4 $170.3 $121.7
Operating income 20.6 (9.1) 25.1 (11.3)
Net income for common stock 11.5 (19.9) 18.9 3.3
In the opinion of O&R, these quarterly amounts include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation.
- 62 -
Report of Independent Accountants
To the Stockholders and Board of Directors
of Consolidated Edison, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Consolidated Edison, Inc. and its subsidiaries (the "Company") at December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the
accompanying index present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
February 15, 2001, except for Note P, as to which the date is March 19, 2001
-63-
Consolidated Balance Sheet Consolidated Edison, Inc.
Assets
At December 31 (Thousands of Dollars) 2000 1999
- ----------------------------------------------------------------------------------------------------
Utility plant, at original cost (Note A)
Electric $ 11,808,102 $ 11,323,826
Gas 2,300,055 2,197,735
Steam 740,189 722,265
General 1,388,602 1,328,544
Unregulated generating assets 279,060 48,583
- ----------------------------------------------------------------------------------------------------
Total 16,516,008 15,620,953
Less: Accumulated depreciation 5,234,701 4,733,613
- ----------------------------------------------------------------------------------------------------
Net 11,281,307 10,887,340
Construction work in progress 504,471 381,804
Nuclear fuel assemblies and components, less accumulated amortization 107,641 84,701
- ----------------------------------------------------------------------------------------------------
Net utility plant 11,893,419 11,353,845
- ----------------------------------------------------------------------------------------------------
Current assets
Cash and temporary cash investments (Note A) 94,828 485,050
Accounts receivable - customer, less allowance for uncollectible
accounts of $33,714 and $34,821 in 2000 and 1999, respectively 910,344 647,545
Other receivables 168,415 98,454
Fuel, at average cost 29,148 24,271
Gas in storage, at average cost 82,419 55,387
Materials and supplies, at average cost 131,362 142,905
Prepayments 524,377 197,671
Other current assets 75,094 61,395
- ----------------------------------------------------------------------------------------------------
Total current assets 2,015,987 1,712,678
- ----------------------------------------------------------------------------------------------------
Investments
Nuclear decommissioning trust funds 328,969 305,717
Other 238,871 182,201
- ----------------------------------------------------------------------------------------------------
Total investments (Note A) 567,840 487,918
- ----------------------------------------------------------------------------------------------------
Deferred charges, regulatory assets and noncurrent assets
Goodwill 488,702 427,496
Regulatory assets
Future federal income tax (Note A) 676,527 785,014
Recoverable energy costs (Note A) 340,495 95,162
Real estate sale costs - First Avenue properties 103,009 1,074
Deferred special retirement program costs (Note D) 88,633 57,630
Divestiture - capacity replacement reconciliation (Note I) 73,850 24,373
Accrued unbilled revenue (Note A) 72,619 67,775
Deferred environmental remediation costs (Note F) 49,056 13,330
Deferred revenue taxes 43,879 60,712
Power contract termination costs - 71,861
Other 159,701 201,181
- ----------------------------------------------------------------------------------------------------
Total regulatory assets 1,607,769 1,378,112
- ----------------------------------------------------------------------------------------------------
Other deferred charges and noncurrent assets 193,528 171,427
- ----------------------------------------------------------------------------------------------------
Total deferred charges, regulatory assets and noncurrent assets 2,289,999 1,977,035
- ----------------------------------------------------------------------------------------------------
Total $ 16,767,245 $ 15,531,476
- ----------------------------------------------------------------------------------------------------
-64-
Capitalization and Liabilities
At December 31 (Thousands of Dollars) 2000 1999
- ------------------------------------------------------------------------------------------------------------
Capitalization (see Statement of Capitalization)
Common shareholders' equity $ 5,472,389 $ 5,412,007
Preferred stock subject to mandatory redemption (Note B) 37,050 37,050
Other preferred stock (Note B) 212,563 212,563
Long-term debt 5,415,409 4,524,604
- ------------------------------------------------------------------------------------------------------------
Total capitalization 11,137,411 10,186,224
- ------------------------------------------------------------------------------------------------------------
Noncurrent liabilities
Obligations under capital leases 31,504 34,544
Accumulated provision for injuries and damages 160,671 119,010
Pension and benefits reserve 181,346 143,757
Other noncurrent liabilities 40,456 42,865
- ------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 413,977 340,176
- ------------------------------------------------------------------------------------------------------------
Current liabilities
Long-term debt due within one year 309,590 395,000
Notes payable 255,042 495,371
Accounts payable 1,020,401 615,983
Customer deposits 202,888 204,421
Accrued taxes 64,345 18,389
Accrued interest 85,276 60,061
Accrued wages 70,951 79,408
Other current liabilities 328,686 232,706
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 2,337,179 2,101,339
- ------------------------------------------------------------------------------------------------------------
Deferred credits and regulatory liabilities
Accumulated deferred income tax (Note L) 2,302,764 2,267,548
Accumulated deferred investment tax credits (Note A) 131,429 139,838
Regulatory liabilities
NYS tax law revisions 59,523 -
Gain on divestiture (Note I) 50,000 306,867
Deposit from sale of First Avenue properties 50,000 -
Accrued electric rate reduction (Note A) 38,018 -
NYPA revenue increase 35,021 25,630
Other 211,706 163,687
- ------------------------------------------------------------------------------------------------------------
Total regulatory liabilities 444,268 496,184
- ------------------------------------------------------------------------------------------------------------
Other deferred credits 217 167
- ------------------------------------------------------------------------------------------------------------
Total deferred credits and regulatory liabilities 2,878,678 2,903,737
- ------------------------------------------------------------------------------------------------------------
Contingencies (Note F)
- ------------------------------------------------------------------------------------------------------------
Total $ 16,767,245 $ 15,531,476
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-65-
Consolidated Income Statement Consolidated Edison, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Operating revenues (Note A)
Electric $ 6,938,128 $ 5,792,673 $ 5,674,446
Gas 1,261,970 1,000,083 959,609
Steam 452,135 340,026 321,932
Non-utility 779,158 358,541 137,061
- ------------------------------------------------------------------------------------------------------------
Total operating revenues 9,431,391 7,491,323 7,093,048
- ------------------------------------------------------------------------------------------------------------
Operating expenses
Purchased power 3,642,850 1,824,023 1,253,783
Fuel 350,816 430,050 579,006
Gas purchased for resale 790,905 485,155 437,308
Other operations 1,146,598 1,188,623 1,157,958
Maintenance 458,046 437,979 477,413
Depreciation and amortization (Note A) 586,407 526,182 518,514
Taxes, other than income taxes 1,121,843 1,179,796 1,208,102
Income taxes (Notes A and L) 317,790 399,716 407,639
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 8,415,255 6,471,524 6,039,723
- ------------------------------------------------------------------------------------------------------------
Operating income 1,016,136 1,019,799 1,053,325
- ------------------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A) 8,476 14,842 11,801
Allowance for equity funds used during construction (Note A) 1,299 3,810 2,431
Other income less miscellaneous deductions (32,660) (13,571) (14,212)
Income taxes (Notes A and L) 10,622 26,891 2,229
- ------------------------------------------------------------------------------------------------------------
Total other income (12,263) 31,972 2,249
- ------------------------------------------------------------------------------------------------------------
Income before interest charges 1,003,873 1,051,771 1,055,574
- ------------------------------------------------------------------------------------------------------------
Interest on long-term debt 363,994 319,393 308,671
Other interest 49,527 20,065 18,400
Allowance for borrowed funds used during construction (Note A) (6,076) (1,895) (1,246)
- ------------------------------------------------------------------------------------------------------------
Net interest charges 407,445 337,563 325,825
- ------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements 13,593 13,593 17,007
- ------------------------------------------------------------------------------------------------------------
Net income for common stock $ 582,835 $ 700,615 $ 712,742
- ------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 2.75 $ 3.14 $ 3.04
Diluted earnings per common share $ 2.74 $ 3.13 $ 3.04
Average number of shares outstanding 212,186,412 223,442,315 234,307,767
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Retained Earnings Consolidated Edison, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 4,921,089 $ 4,700,500 $ 4,484,703
Less: Stock options exercised 1,026 1,922 -
Orange & Rockland purchase accounting adjustment (46) 51 -
Net income for common stock for the year 582,835 700,615 712,742
- ------------------------------------------------------------------------------------------------------------------------------------
Total 5,502,852 5,399,244 5,197,445
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared on common, $2.18, $2.14 and $2.12 per share, respectively 461,921 478,155 496,945
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 $ 5,040,931 $ 4,921,089 $ 4,700,500
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Comprehensive Income Consolidated Edison, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 582,835 $ 700,615 $ 712,742
Other Comprehensive Income/(loss), net of taxes
Investment in marketable equity securities - net of $454 taxes (843) - -
Minimum pension liability adjustments - net of $703 taxes (1,304) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income/(loss), net of taxes (2,147) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 580,688 $ 700,615 $ 712,742
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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Consolidated Statement of Cash Flows Consolidated Edison, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Operating activities
Net income for common stock $ 582,835 $ 700,615 $ 712,742
Principal non-cash charges (credits) to income
Depreciation and amortization 586,407 526,182 518,514
Federal income tax deferred (excluding taxes resulting from divestiture of plant) 177,736 41,784 86,430
Common equity component of allowance for funds used during construction (1,299) (3,810) (2,431)
Prepayments -- accrued pension costs (250,743) (54,000) (49,800)
Other non-cash charges 18,448 42,050 11,297
Changes in assets and liabilities net of effects from purchase of the Lakewood
Project and Orange and Rockland in 2000 and 1999, respectively
Accounts receivable -- customer, less allowance for uncollectibles (262,799) (66,371) 59,515
Materials and supplies, including fuel and gas in storage (19,980) 56,554 14,804
Prepayments (other than pensions), other receivables and other current assets (131,203) (37,588) (889)
Deferred recoverable energy costs (221,804) (57,692) 76,711
Cost of removal less salvage (130,590) (71,451) (72,033)
Accounts payable 402,861 167,598 (68,840)
Other -- net 210,292 (38,581) 103,742
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 960,161 1,205,290 1,389,762
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities including construction
Utility construction expenditures (958,927) (678,157) (618,844)
Nuclear fuel expenditures (27,357) (16,537) (7,056)
Contributions to nuclear decommissioning trust (21,301) (21,301) (21,301)
Common equity component of allowance for funds used during construction 1,299 3,810 2,431
Payment for purchase of Orange and Rockland, net of cash and cash equivalents - (509,083) -
Payment for purchase of the Lakewood Project, net of cash and cash equivalents (98,090) - -
Divestiture of utility plant (net of federal income tax) - 1,138,750 -
Investments by unregulated subsidiaries (19,309) (101,953) (24,072)
Demolition and remediation costs for First Avenue properties (101,935) - -
Deposit received from sale of First Avenue properties 50,000 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities including construction (1,175,620) (184,471) (668,842)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Repurchase of common stock (68,531) (817,399) (115,247)
Net proceeds from short-term debt (265,031) 430,196 -
Issuance of long-term debt 1,030,000 767,689 460,000
Retirement of long-term debt (403,230) (225,000) (200,000)
Advance refunding of preferred stock and long-term debt - (300,000) (773,645)
Issuance and refunding costs (5,468) (16,440) (8,864)
Funds held for refunding of debt - - 328,874
Common stock dividends (462,503) (477,110) (493,201)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities including dividends (174,763) (638,064) (802,083)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (390,222) 382,755 (81,163)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at January 1 485,050 102,295 183,458
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31 $ 94,828 $ 485,050 $ 102,295
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest $ 351,165 $ 321,785 $ 285,956
Income taxes 136,573 846,559 355,707
Business Acquisitions
Assets $ 225,462 $ 1,009,049 -
Purchase price in excess of net assets acquired 66,336 436,725 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 291,798 1,445,774 -
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt, minority interest and liability assumed 193,708 936,691 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used to acquire $ 98,090 $ 509,083 -
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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Consolidated Statement of Capitalization Consolidated Edison, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999
- --------------------------------------------------------------------------------------------------------
Shares outstanding
------------------------------------
December 31, 2000 December 31, 1999
------------------------------------
Common shareholders' equity (Note B)
Common stock 212,027,131 213,810,634 $ 1,482,341 $ 1,482,341
Retained earnings 5,040,931 4,921,089
Treasury stock, at cost; 23,210,700 shares
and 21,358,500 shares at December 31, 2000
and 1999, respectively (1,012,919) (955,311)
Capital stock expense (35,817) (36,112)
Accumulated other comprehensive income (2,147) -
- --------------------------------------------------------------------------------------------------------
Total common shareholders' equity 5,472,389 5,412,007
- --------------------------------------------------------------------------------------------------------
Preferred stock (Note B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
6-1/8% Series J 370,500 370,500 37,050 37,050
- --------------------------------------------------------------------------------------------------------
Total subject to mandatory redemption 37,050 37,050
- --------------------------------------------------------------------------------------------------------
Other preferred stock
$5 Cumulative Preferred, without par value,
authorized 1,915,319 shares 1,915,319 1,915,319 175,000 175,000
Cumulative Preferred, $100 par value,
authorized 6,000,000 shares*
4.65% Series C 153,296 153,296 15,330 15,330
4.65% Series D 222,330 222,330 22,233 22,233
- --------------------------------------------------------------------------------------------------------
Total other preferred stock 212,563 212,563
- --------------------------------------------------------------------------------------------------------
Total preferred stock $ 249,613 $ 249,613
- --------------------------------------------------------------------------------------------------------
* Represents total authorized shares of cumulative preferred stock, $100 par
value, including preferred stock subject to mandatory redemption.
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At December 31 (Thousands of Dollars) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity Interest Rate Series
- -------------------------------------------------------------------------------------------------------------------------
Debentures:
2000 9-3/8 1990A $ - $ 80,000
2000 7-3/8 1992A - 150,000
2000 7.60 1992C - 125,000
2000 6.14 1993C - 20,000
2000 6.00 1993I - 20,000
2001 6-1/2 1993B 150,000 150,000
2001 6.68* 1996B 150,000 150,000
2002 6-5/8 1993C 150,000 150,000
2002 6.64* 1997A 150,000 150,000
2003 6-3/8 1993D 150,000 150,000
2003 6.56 1993D 35,000 35,000
2004 7-5/8 1992B 150,000 150,000
2005 6-5/8 1995A 100,000 100,000
2005 6-5/8 2000C 350,000 -
2007 6.45 1997B 330,000 330,000
2007 7-1/8 1997J 20,000 20,000
2008 6-1/4 1998A 180,000 180,000
2008 6.15 1998C 100,000 100,000
2009 7.15 1999B 200,000 200,000
2010 7-1/2 2000A 55,000 -
2010 8-1/8 2000A 325,000 -
2010 7-1/2 2000B 300,000 -
2023 7-1/2 1993G 380,000 380,000
2026 7-3/4 1996A 100,000 100,000
2027 6-1/2 1997F 80,000 80,000
2028 7.10 1998B 105,000 105,000
2028 6.90 1998D 75,000 75,000
2029 7-1/8 1994A 150,000 150,000
2029 7.00 1999G 45,000 45,000
2039 7.35 1999A 275,000 275,000
- ------------------------------------------------------------------------------------------------------------------------
Total debentures 4,105,000 3,470,000
- ------------------------------------------------------------------------------------------------------------------------
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for Facilities Revenue Bonds:
2014 6.09 1994** 55,000 55,000
2015 4.21* 1995** 44,000 44,000
2020 5-1/4 1993B 127,715 127,715
2020 6.10 1995A 128,285 128,285
2022 5-3/8 1993C 19,760 19,760
2026 7-1/2 1991A 128,150 128,150
2027 6-3/4 1992A 100,000 100,000
2027 6-3/8 1992B 100,000 100,000
2028 6.00 1993A 101,000 101,000
2029 7-1/8 1994A 100,000 100,000
2034 4.12* 1999A 292,700 292,700
- ------------------------------------------------------------------------------------------------------------------------
Total tax-exempt debt 1,196,610 1,196,610
- ------------------------------------------------------------------------------------------------------------------------
Subordinated deferrable interest debentures:
2031 7-3/4 1996A 275,000 275,000
- ------------------------------------------------------------------------------------------------------------------------
Other long-term debt 177,440 3,236
Unamortized debt discount (29,051) (25,242)
- ------------------------------------------------------------------------------------------------------------------------
Total 5,724,999 4,919,604
Less: long-term debt due within one year 309,590 395,000
- ------------------------------------------------------------------------------------------------------------------------
Total long-term debt 5,415,409 4,524,604
- ------------------------------------------------------------------------------------------------------------------------
Total capitalization $ 11,137,411 $ 10,186,224
- ------------------------------------------------------------------------------------------------------------------------
* Rates reset weekly or quarterly; December 31, 2000 rates shown.
** Issued for O&R pollution control financing.
The accompanying notes are an integral part of these financial statements.
-69-
Notes to Consolidated Financial Statements
These notes form an integral part of the accompanying consolidated financial
statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries.
Con Edison
Con Edison is a holding company that provides a wide range of energy-related
services to its customers through its regulated and unregulated subsidiaries.
Con Edison's core business is energy distribution and it is also pursuing
related growth opportunities in competitive businesses. Con Edison's principal
subsidiary is Consolidated Edison Company of New York, Inc. (Con Edison of New
York), a regulated utility that provides electric service to over three million
customers and gas service to over one million customers in New York City and
Westchester County. It also provides steam service in parts of Manhattan.
Orange and Rockland Utilities, Inc. (O&R), a regulated utility that Con Edison
acquired in July 1999 (see Note K), provides electric service to over 278,000
customers and gas service to over 118,000 customers in southeastern New York and
in adjacent sections of New Jersey and northeastern Pennsylvania.
Con Edison's unregulated subsidiaries provide competitive gas and electric
supply and energy-related products and services (Con Edison Solutions); invest
in and manage energy infrastructure projects (Con Edison Development); market
specialized energy supply services to wholesale customers (Con Edison Energy);
and invest in telecommunications infrastructure (Con Edison Communications).
These subsidiaries operate primarily in the Mid-Atlantic and New England states.
Note A Summary of Significant Accounting Policies
Principles of Consolidation Con Edison's consolidated financial statements
include the accounts of Con Edison and its consolidated subsidiaries, including
the regulated utilities, Con Edison of New York and O&R. Intercompany
transactions have been eliminated.
Accounting Policies The accounting policies of Con Edison and its subsidiaries
conform to accounting principles generally accepted in the United States. For
regulated public utilities, like Con Edison of New York and O&R, accounting
principles generally accepted in the United States include Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation," and, in accordance with SFAS No. 71, the
accounting requirements and rate-making practices of the Federal Energy
Regulatory Commission (FERC) and the New York State Public Service Commission
(PSC).
The standards in SFAS No. 101, "Regulated Enterprises - Accounting for the
Discontinuation of Application of the Financial Accounting Standards Board
(FASB) Statement No. 71," have been applied to the non-nuclear electric supply
portion of Con Edison's business that was deregulated (the Deregulated Business)
as a result of the Restructuring Agreement (defined below). The Deregulated
Business includes all of Con Edison's fossil electric generating assets and its
non-utility generators (NUG) contracts and related regulatory assets and
liabilities. The application of SFAS No. 101 to the Deregulated Business had no
material effect on the financial position or results of operations of Con
Edison.
No impairment of Con Edison of New York's fossil generating assets has been
recognized under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," because most of these
assets have been sold at a gain (see Note I) and the estimated cash flows from
the operation and/or sale of the remaining generating assets, together with the
cash flows from the strandable cost recovery provisions of the Restructuring
Agreement (see "Rate and Restructuring Agreements" in this Note A), will not be
less than the net carrying amount of the fossil generating assets.
Similarly, there has been no charge against Con Edison of New York's earnings
for the deferred charges (regulatory assets - principally relating to future
federal income taxes) and deferred credits (regulatory liabilities) relating to
the Deregulated Business because recovery of regulatory assets net of regulatory
liabilities is probable under the Restructuring Agreement. At December 31, 2000,
net regulatory assets amounted to approximately $1.2 billion.
No loss has been accrued for Con Edison of New York's NUG contracts under SFAS
No. 5, "Accounting for Contingencies," because it is
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not probable that the charges by NUGs under the contracts will exceed the cash
flows from the sale by Con Edison of New York of the electricity provided by the
NUGs, together with the cash flows provided pursuant to the Restructuring
Agreement. See Note H.
Con Edison of New York recently entered into an agreement to sell its nuclear
generating assets, which include Indian Point 2, the retired Indian Point 1 and
certain related assets. The anticipated sales proceeds are expected to be less
than the net carrying amount of the nuclear generating assets at the time of
closing. No impairment of the assets has been recognized under SFAS No. 121,
because recovery is probable under the Restructuring Agreement. The company
expects to establish a regulatory asset at the time the sale is completed. See
Note G.
Rate and Restructuring Agreements In September 1997 the PSC approved a
restructuring agreement between Con Edison of New York, the PSC staff and
certain other parties (the Restructuring Agreement). The Restructuring Agreement
provided for a transition to a competitive electric market through the
development of a "retail access" plan, a rate plan for the period ending March
31, 2002, a reasonable opportunity for recovery of "strandable costs" and the
divestiture of electric generation capacity by Con Edison of New York.
At December 31, 2000, approximately 91,000 Con Edison of New York customers
representing approximately 20 percent of aggregate customer load were purchasing
electricity from other suppliers under the electric Retail Choice program (which
is available to all of Con Edison of New York's electric customers). Con Edison
of New York delivers electricity to customers in this program through its
regulated transmission and distribution systems. In general, the company's
delivery rates for Retail Choice customers are equal to the rates applicable to
other comparable Con Edison of New York customers, less an amount representing
the cost of the energy and capacity it avoids by not supplying these customers.
Pursuant to the Restructuring Agreement, Con Edison of New York reduced electric
rates, on an annual basis, by $129 million in 1998, $80 million in April 1999
and $103 million in April 2000 and is required to further reduce rates in April
2001 by $209 million. The April 2001 decrease will be partially offset by
recognition in income of $36 million relating to rates for distributing
electricity to customers of the New York Power Authority and $50 million of
deferred generation divestiture gain. See Note I.
Pursuant to the Restructuring Agreement, as amended by a July 1998 PSC order,
Con Edison of New York has sold approximately 6,800 MW of the approximately
8,300 MW of generating capacity that it owned (including 480 MW sold in January
2001). See Note I. In addition, Con Edison has agreed to sell its Indian Point 2
nuclear generating unit. See Note G.
In 1997 the PSC approved a four-year O&R restructuring plan, pursuant to which
O&R sold all of its generating assets, made retail access available to all of
its electric customers effective May 1, 1999 and reduced its electric rates by
approximately $32.4 million through rate reductions implemented in December 1997
and 1998. In 1998 and 1999 similar plans for O&R's utility subsidiaries in
Pennsylvania and New Jersey were approved by state regulators. The Pennsylvania
plan provides for retail access for all customers effective May 1999. The New
Jersey plan provides for rate reductions of $6.8 million effective August 1999,
an additional reduction of $2.7 million effective January 2001 and a final
reduction of $6.3 million effective August 2002.
In accordance with the April 1999 PSC order approving Con Edison's acquisition
of O&R, Con Edison of New York has reduced its annual electric and gas rates by
approximately $12 million and $2 million, respectively, and O&R has reduced its
electric rates by $6.1 million and its gas rates by approximately $1.1 million.
In November 2000 the PSC approved an agreement (the Agreement) that revises and
extends the rate plan provisions of the Restructuring Agreement. Pursuant to the
Agreement, Con Edison of New York reduced the distribution component of its
electric rates by $170 million on an annual basis, effective October 2000, and
will further reduce electric rates, effective April 1, 2001, in accordance with
the Restructuring Agreement (as discussed above).
In general, under the Agreement, Con Edison of New York's base electric
transmission and distribution rates will not otherwise be changed during the
five-year period ending March 2005
-71-
except (i) with respect to certain changes in costs above anticipated annual
levels resulting from legal or regulatory requirements, inflation in excess of a
4 percent annual rate, property tax changes and environmental cost increases or
(ii) if the PSC determines that circumstances have occurred that either threaten
the company's economic viability or ability to provide, or render the company's
rate of return unreasonable for the provision of, safe and adequate service.
Under the Agreement as approved by the PSC, 35 percent (50 percent if certain
energy price volatility mitigation objectives are achieved) of any earnings in
each of the rate years ending March 2002 through 2005 in excess of a specified
rate of return on electric common equity (12.9 percent for the rate year ending
March 2002 and 11.75 percent thereafter; or 12 percent if certain customer
service and reliability objectives are achieved) will be retained for
shareholders and the balance will be applied for customer benefit through rate
reductions or as otherwise determined by the PSC. There is no sharing of
earnings for the rate year ending March 2001. Con Edison of New York could be
required to pay up to $40 million annually in penalties if certain threshold
service and reliability objectives are not achieved.
Con Edison of New York's potential electric strandable costs are those prior
utility investments and commitments that may not be recoverable in a competitive
electric supply market. Con Edison of New York is recovering these costs in the
rates it charges all of its electric customers. The Agreement continues the
stranded cost recovery provisions of the Restructuring Agreement, stating that
Con Edison of New York "will be given a reasonable opportunity to recover
stranded and strandable costs remaining at March 31, 2005, including a
reasonable return on investments, under the parameters and during the time
periods set forth therein."
The Agreement also continues the rate provisions pursuant to which Con Edison of
New York recovers prudently incurred purchased power and fuel costs from
customers. See "Recoverable Energy Costs" in this Note A.
In November 2000 the PSC approved an agreement among Con Edison of New York, the
PSC staff and certain other parties that revised and extended the 1996 gas rate
settlement agreement through September 2001. The 1996 agreement, with limited
exceptions, continued base rates at September 1996 levels through September
2000.
Under the new agreement, the level above which the company will share with
customers 50 percent of earnings is increased from a 13 percent to a 14 percent
rate of return on gas common equity. In addition, customer bills are to be
reduced by $20 million during the January through March 2001 period;
approximately $22.6 million that normally would be credited to customers over
various annual periods is to be credited during the four-month period ending
March 2001; and $19 million of charges to customers resulting from the
reconciliation of actual gas costs to amounts included in rates that were
scheduled to be billed to customers beginning December 2000 instead are to be
billed to customers beginning April 2001.
Under the new agreement, Con Edison of New York will also reduce firm
transportation customer bills by a retail choice credit and will implement other
programs designed to increase customer and marketer participation in the
company's gas Retail Choice program, the net costs of which are to be recovered
by reducing credits otherwise due customers or deferred for future recovery from
customers.
In November 2000 the PSC also approved a gas rate settlement agreement among
O&R, the PSC staff, and certain other parties covering the three-year period
November 2000 through October 2003. With limited exceptions, the agreement
provides for no changes to base rates. O&R will be permitted to retain $18.1
million of deferred credits that otherwise would have been credited to
customers. The term of the agreement could be reduced to 18 months depending on
the outcome of the PSC's ongoing proceeding to examine programs and rate design
changes to facilitate customer choice of gas suppliers.
In November 2000 the PSC approved an agreement between Con Edison of New York,
the PSC staff and certain other parties with respect to the steam rate plan
filed by the company in November 1999.
The agreement provides for a $16.6 million steam rate increase which took
effect October 2000 and, with limited exceptions, no further changes in steam
rates prior to October 2004. Con Edison of New York is required to share with
customers 50 percent of any earnings for
-72-
any rate year covered by the agreement in excess of a specified rate of return
on steam common equity (11.0 percent for the first rate year, the 12-month
period ending September 2001; 10.5 percent thereafter if the repowering of the
company's East River steam-electric generating plant is not completed). A rate
moderation mechanism will permit the company to defer a portion of the revenues
collected in the first two rate years attributable to the rate increase and
recognize such deferrals in income during the last two rate years.
Under the agreement, upon completion of the East River repowering project, the
net benefits of the project (including the net after-tax gain from the sale of a
nine-acre development site in mid-town Manhattan along the East River) allocable
to steam operations will be used to offset any deficiency in the accumulated
reserve for depreciation of steam plant or otherwise inure to the benefit of
steam customers.
The agreement continues the rate provisions pursuant to which the company
recovers prudently incurred purchased steam and fuel costs and requires the
company to develop a strategy for hedging price variations for a portion of the
steam produced each year.
Utility Plant and Depreciation Utility plant is stated at original cost. The
capitalized cost of additions to utility plant includes indirect costs such as
engineering, supervision, payroll taxes, pensions, other benefits and an
allowance for funds used during construction (AFDC). The original cost of
property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is
charged to expense, and the cost of betterments is capitalized.
Rates used for AFDC include the cost of borrowed funds and a reasonable rate on
Con Edison of New York's own funds when so used, determined in accordance with
PSC and FERC regulations. The AFDC rate was 7.2 percent in 2000 and 9.1 percent
in 1999 and 1998. The rate was compounded semiannually, and the amounts
applicable to borrowed funds were treated as a reduction of interest charges.
Con Edison's utility subsidiaries generally compute annual charges for
depreciation using the straight-line method for financial statement purposes,
with rates based on average lives and net salvage factors. Con Edison's
regulated utility depreciation rates averaged approximately 3.6 percent in 2000,
and 3.4 percent in 1999 and 1998.
Con Edison Development currently depreciates its generating assets over the
estimated useful lives using the straight-line method. The composite
depreciation rate for its generating assets averages approximately 4.1 percent.
Nuclear Generation For information about the accounting policies followed for
Con Edison of New York's nuclear generation, see Note G.
Revenues Con Edison's utility subsidiaries recognize revenues for electric, gas
and steam service on a monthly billing cycle basis. O&R accrues revenues at the
end of each month for estimated energy usage not yet billed to customers, while
Con Edison of New York does not accrue such revenues. Con Edison of New York
defers for refund to firm gas sales and transportation customers over a 12-month
period all net interruptible gas revenues not authorized by the PSC to be
retained by the company.
Recoverable Energy Costs Con Edison's utility subsidiaries generally recover all
of their prudently incurred fuel, purchased power and gas costs in accordance
with rate provisions approved by their state public utility commissions (which
provisions, for Con Edison of New York, also include a $35 million annual
incentive or penalty relating to electricity costs). If the actual energy costs
for a given month are more or less than amounts billed to customers for that
month, the difference is recoverable from or refundable to customers.
Differences between actual and billed energy costs are generally deferred for
charge or refund to customers during the next billing cycle (normally within one
or two months). For Con Edison's New Jersey utility subsidiary, Rockland
Electric Company, differences between actual and billed electricity costs (which
amounted to actual in excess of billed costs of $31.6 million at December 31,
2000) are deferred for charge or refund to customers in the manner and at such
time as is to be determined by the New Jersey Board of Public Utilities.
Temporary Cash Investments Temporary cash investments are short-term, highly
liquid investments that generally have maturities of three months or less. They
are stated at cost which approximates market. Con Edison
-73-
considers temporary cash investments to be cash equivalents.
Investments For 2000 and 1999, investments consisted primarily of the external
nuclear decommissioning trust fund and investments of Con Edison's unregulated
subsidiaries. The nuclear decommissioning trust fund is stated at market, net of
income taxes. Earnings on the nuclear decommissioning trust fund are not
recognized in income but are included in the accumulated depreciation reserve.
See "Decommissioning" in Note G. Investments of Con Edison's unregulated
subsidiaries are recorded either at cost or using the equity method.
Guarantees of Subsidiary Obligations Con Edison has guaranteed certain
obligations of its subsidiaries. These guarantees, which total $683 million at
December 31, 2000, relate primarily to obligations of up to $263 million under
power purchase and sales agreements entered into by Con Edison Solutions and Con
Edison Energy and certain obligations of Con Edison Development. See Note J. Con
Edison does not expect to incur losses as a result of these guarantees.
New Financial Accounting Standards As of January 2001, Con Edison adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities an amendment of FASB Statement No. 133." The
application of SFAS No. 133 and No. 138 is not expected to have a material
effect on the financial position or results of operations of Con Edison or
materially change its current disclosure practices. See Note O.
In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement
of FASB Statement No. 125." SFAS No. 140 revises the accounting for
securitizations, other financial asset transfers and collateral and introduces
new disclosures. The application of SFAS No. 140 is not expected to have a
material impact on Con Edison's consolidated financial statements.
Federal Income Tax In accordance with SFAS No. 109, "Accounting for Income
Taxes," Con Edison's utility subsidiaries have recorded an accumulated deferred
federal income tax liability for substantially all temporary differences between
the book and tax bases of assets and liabilities at current tax rates. In
accordance with rate agreements, the utility subsidiaries have recovered amounts
from customers for a portion of the tax expense they will pay in the future as a
result of the reversal or "turn-around" of these temporary differences. As to
the remaining temporary differences, in accordance with SFAS No. 71, the utility
subsidiaries have established regulatory assets for the net revenue requirements
to be recovered from customers for the related future tax expense. See Note L.
In 1993 the PSC issued an Interim Policy Statement proposing accounting
procedures consistent with SFAS No. 109 and providing assurances that these
future increases in taxes will be recoverable in rates. The final policy
statement is not expected to differ materially from the Interim Policy
Statement.
Accumulated deferred investment tax credits are amortized ratably over the lives
of the related properties and applied as a reduction in future federal income
tax expense.
Con Edison and its subsidiaries file a consolidated federal income tax return.
Income taxes are allocated to each company based on its taxable income.
State Income Tax The New York State tax laws applicable to utility companies
were changed, effective January 1, 2000. Certain revenue-based taxes were
repealed or reduced and replaced by a net income-based tax. In addition, a
compensating use tax was imposed on gas and electricity purchased outside New
York State for use within the state. In December 2000 the PSC issued its
requirements relating to the tax law changes. The amounts applicable to the
provisions of the previous tax laws will continue to be collected through base
rates and tariff surcharges, until the PSC directs otherwise, with the
differences between those collections and the tax expense under the new law to
be deferred, pending future disposition by the PSC.
Research and Development Costs Research and development costs relating to
specific construction projects are capitalized. All other such costs are charged
to operating expenses as incurred. Research and development costs in 2000, 1999
and 1998 amounting to $14.1 million, $12.4 million and $20.3 million,
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respectively, were charged to operating expenses. No research and development
costs were capitalized in these years.
Reclassification Certain prior year amounts have been reclassified to conform
with the current year presentation.
Earnings Per Common Share Basic earnings per share has been computed in
accordance with SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, basic
earnings per common share is computed based on income applicable to common stock
divided by the weighted average number of common shares outstanding for the
period. Dilutive earnings per share reflects the potential dilution that could
occur if securities or other agreements to issue common stock, such as stock
options, were exercised or converted into common stock. At December 31, 2000,
1999, and 1998, the weighted average number of shares used to calculate the
diluted earnings per common share included dilutive common stock equivalents of
212,417,885, 223,890,546, and 234,907,897 shares, respectively. The numerator
for the calculation of basic and dilutive earnings per share is net income for
common stock.
Goodwill Goodwill, which represents the excess of cost over the fair value of
assets of businesses acquired, is amortized on a straight-line basis over 40
years. Goodwill expense was $10.9 million and $5.5 million for the years ended
December 31, 2000 and 1999 respectively.
In September 2000 the Financial Accounting Standards Board (FASB) issued an
exposure draft of a proposed statement on accounting for Business Combinations
and Intangible Assets. The Exposure Draft provides that all business
combinations be accounted for using the purchase method, and that goodwill,
including amounts previously recorded under the purchase method, instead of
being amortized, be reviewed for impairment when an event or series of events
occurs indicating that the fair value of the goodwill is less than its carrying
amount.
Estimates The accompanying consolidated financial statements reflect judgments
and estimates made in the application of the above accounting policies.
Note B Capitalization
Capitalization of Con Edison Con Edison's outstanding capitalization, on a
consolidated basis, consists of its common shareholders' equity and the
outstanding preferred stock and long-term debt of its subsidiaries. Con Edison's
authorized capitalization also includes six million authorized, but unissued,
Preferred Shares, $1.00 par value.
Preferred Stock Not Subject To Mandatory Redemption Con Edison of New York has
the option to redeem its $5 cumulative preferred stock at $105 and its
cumulative preferred stock, Series C and Series D, at a price of $101 per share
(in each case, plus accrued and unpaid dividends).
Preferred Stock Subject To Mandatory Redemption Con Edison of New York is
required to redeem its cumulative preferred stock, Series J shares on August 1,
2002. The redemption price is $100 per share (plus accrued and unpaid
dividends). Series J shares may not be called for redemption while dividends are
in arrears on outstanding shares of $5 cumulative preferred stock or other
cumulative preferred stock.
Common Stock During the period 1998-2000, Con Edison repurchased $1 billion of
its shares as follows:
(Millions) Shares Cost
- --------------------------------------------------------------------------------
1998 2.6 $120.8
1999 18.7 819.7
2000 1.9 60.7
- --------------------------------------------------------------------------------
Dividends Dividends on Con Edison's common shares depend primarily on the
dividends and other distributions that Con Edison of New York and Con Edison's
other subsidiaries pay to Con Edison, and the capital requirements of Con Edison
and its subsidiaries. Under Con Edison of New York's Restructuring Agreement,
the dividends that it may pay are limited to not more than 100 percent of its
income available for dividends, calculated on a two-year rolling average basis.
Excluded from the calculation of "income available for dividends" are non-cash
charges to income resulting from accounting changes or charges to income
resulting from significant unanticipated events. The restriction also does not
apply to dividends paid in order to transfer to Con Edison proceeds from major
transactions, such as asset sales, or to dividends reducing Con Edison of
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New York's equity ratio to a level appropriate to its business risk.
Payment of Con Edison of New York's common stock dividends to Con Edison is
subject to certain additional restrictions. No dividends may be paid, or funds
set apart for payment, on Con Edison of New York's common stock until all
dividends accrued on the $5 cumulative preferred stock and other cumulative
preferred stock have been paid, or declared and set apart for payment, and
unless Con Edison of New York is not in arrears on its mandatory redemption
obligation for the Series J cumulative preferred stock. No dividends may be paid
on any of Con Edison of New York's capital stock during any period in which Con
Edison of New York has deferred payment of interest on its subordinated
deferrable interest debentures.
Long-Term Debt Long-term debt maturing in the period 2001-2005 is as follows:
(Millions of Dollars)
- --------------------------------------------------------------------------------
2001 $310
2002 300
2003 185
2004 150
2005 450
- --------------------------------------------------------------------------------
Long-term debt of Con Edison's utility subsidiaries is stated at cost which, as
of December 31, 2000, approximates fair value (estimated based on current rates
for debt of the same remaining maturities).
Note C Short Term Borrowing
At December 31, 2000, Con Edison and its utility subsidiaries had commercial
paper programs, under which short-term borrowings are made at prevailing market
rates, totaling $950 million. These programs are supported by revolving credit
agreements with banks. At December 31, 2000, $49.5 million, at a weighted
average interest rate of 6.71 percent, was outstanding under Con Edison's $350
million program; $140.0 million, at a weighted average interest rate of 6.66
percent per annum, was outstanding under Con Edison of New York's $500 million
program; and $40.8 million, at a weighted average interest rate of 6.67 percent,
was outstanding under O&R's $100 million program. Con Edison of New York changes
the amount of its program from time to time, subject to an $800 million
FERC-authorized limit.
Bank commitments under the revolving credit agreements may terminate upon a
change of control of Con Edison, and borrowings under the agreements are subject
to certain conditions, including that the ratio (calculated in accordance with
the agreements) of debt to total capital of the borrower not at any time exceed
0.65 to 1. At December 31, 2000, this ratio was 0.51 to 1 for Con Edison, 0.53
to 1 for Con Edison of New York and 0.53 to 1 for O&R.
Note D Pension Benefits
Con Edison of New York and O&R have non-contributory pension plans that cover
substantially all of their employees and certain employees of other Con Edison
subsidiaries. The plans are designed to comply with the Employee Retirement
Income Security Act of 1974 (ERISA).
Investment gains and losses are recognized over five years (three years for
O&R's plan) and unrecognized actuarial gains and losses are amortized over 10
years.
Con Edison of New York offered a special retirement program in 1999 providing
enhanced pension benefits for those employees who met specified eligibility
requirements and retired within specific time limits. These incentives fall
within the category of special termination benefits and curtailments as
described in SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits." The
increase in pension obligations as a result of these programs amounted to $49.7
million. For Con Edison of New York, the Agreement provided that $15 million of
this amount would be expensed in 2000 and the remaining $30 million would be
recorded as a regulatory asset and amortized over a 15-year period beginning in
October 2000. For O&R, pension costs for 1999 reflect the impact of the sale of
its generating assets. Due to the relatively high number of
employees for whom benefits ceased to be accrued as a result of this event, a
curtailment charge of $4.7 million was recognized. A portion of this curtailment
charge was recorded as a regulatory asset in accordance with SFAS No. 71 and a
portion was expensed.
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The acquisition of O&R by Con Edison in July 1999 triggered purchase accounting
requirements that are reflected in the net periodic pension cost. Under such
accounting O&R's accrued pension liability was adjusted to recognize all
previously unrecognized gains and losses arising from past experience different
from that assumed, all unrecognized prior service costs, and the remainder of
any unrecognized obligation or asset existing at the date of the initial
application of SFAS No. 87, "Employers' Accounting for Pensions." A portion of
these adjustments was recorded as a regulatory liability in accordance with SFAS
No. 71 and a portion was expensed.
O&R is currently allowed to recover in rates pension costs recognized under SFAS
No. 87. In accordance with the provisions of SFAS No. 71, the company defers for
future recovery any difference between expenses recognized under SFAS No. 87 and
the current rate allowance authorized by each regulatory jurisdiction in which
it operates.
The components of Con Edison of New York and O&R's net periodic pension costs
for 2000, 1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------
Service cost - including
administrative expenses $ 90.0 $110.9 $111.6
Interest cost on projected
benefit obligation 408.7 378.4 366.0
Expected return on plan
assets (565.7) (505.6) (462.6)
Amortization of net
actuarial (gain) (186.1) (92.8) (78.0)
Amortization of prior
service cost 10.5 12.6 14.5
Amortization of transition
obligation 3.0 2.5 2.0
Recognition of curtailment
and termination benefits -- 11.9 --
Recognition of purchase
accounting -- (29.6) --
- -------------------------------------------------------------------------------
Net periodic pension cost (239.6) (111.7) (46.5)
- -------------------------------------------------------------------------------
Amortization of regulatory
asset* 17.7 2.2 2.2
- -------------------------------------------------------------------------------
Total pension cost $(221.9) $(109.5) $(44.3)
- -------------------------------------------------------------------------------
Cost capitalized (41.4) (47.5) (9.3)
Cost charged to operating
expenses (180.5) (62.0) (35.0)
- -------------------------------------------------------------------------------
* Relates to $33.3 million increase in Con Edison of New York's pension
obligations from a 1993 special retirement program and a $45 million
increase from a 1999 special retirement program.
The funded status of the plans at December 31, 2000, 1999 and 1998 was as
follows:
2000 1999 1998
(Millions of Dollars)
- -------------------------------------------------------------
Change in benefit
obligation
Benefit obligation at
beginning of year $5,241.6 $5,673.9 $5,200.9
Service cost - excluding
administrative expenses 88.7 109.6 110.3
Interest cost on projected
benefit obligation 408.7 378.4 366.0
Plan amendments 37.7 0.8 2.1
Actuarial (gain) loss 128.5 (705.4) 211.0
Termination benefits and
curtailments -- 49.7 --
Benefits paid (274.8) (265.4) (216.4)
- -------------------------------------------------------------
Benefit obligation at
end of year $5,630.4 $5,241.6 $5,673.9
- -------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year $7,720.1 $6,945.7 $6,236.2
Actual return on plan
assets (84.7) 1,047.0 937.9
Employer contributions 4.7 13.0 2.3
Benefits paid (274.8) (265.4) (216.4)
Administrative expenses (17.8) (20.2) (14.3)
- -------------------------------------------------------------
Fair value of plan assets
at end of year $7,347.5 $7,720.1 $6,945.7
- -------------------------------------------------------------
Funded status $1,717.1 $2,478.5 $1,271.8
Unrecognized net (gain) (1,496.8) (2,478.2) (1,396.8)
Unrecognized prior
service costs 99.8 72.5 118.0
Unrecognized net
transition liability at
January 1, 1987* 2.4 5.3 5.3
- -------------------------------------------------------------
Net Prepaid (accrued)
benefit cost $322.5 $78.1 $(1.7)
- -------------------------------------------------------------
* Being amortized over approximately 15 years.
The amounts recognized in the Consolidated Balance Sheet at December 31, 2000,
1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- -------------------------------------------------------------
Prepaid benefit cost $350.6 $113.0 $32.6
Accrued benefit liability (37.1) (34.9) (34.3)
Intangible asset 7.1 -- --
Accumulated other
comprehensive income 1.9 -- --
- -------------------------------------------------------------
Net Amount Recognized $322.5 $78.1 $(1.7)
- -------------------------------------------------------------
In 2000 Con Edison adopted SFAS No. 130, "Reporting Comprehensive Income," which
requires reporting of comprehensive income in any complete presentation of
general-purpose financial statements. For Con Edison, comprehensive income
consists of additional minimum pension liability adjustments for the Con Edison
of New York and O&R plans and unrealized gains and losses on available-for-sale
marketable securities associated with the O&R supplemental retirement plan (see
Consolidated Statement of Comprehensive Income).
The actuarial assumptions for the plans of Con Edison of New York at December
31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
- ----------------------------------------------------------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets 8.50% 8.50% 8.50%
Rate of compensation
increase 4.55% 4.80% 4.80%
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The actuarial assumptions for the plan of O&R at December 31, 2000, 1999 and
1998 were as follows:
2000 1999 1998
- ----------------------------------------------------------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets 8.50% 8.50% 8.00%
Rate of compensation
increase
Hourly 4.40% 3.00% 3.00%
Management 4.40% 1.00% 1.00%
Note E Postretirement Benefits Other than Pensions (OPEB)
Con Edison of New York and O&R have contributory comprehensive hospital, medical
and prescription drug programs for all retirees, their dependents and surviving
spouses.
Con Edison of New York also has a contributory life insurance program for
bargaining unit employees and provides basic life insurance benefits up to a
specified maximum at no cost to retired management employees. O&R has a
non-contributory life insurance program for retirees.
Certain employees of other Con Edison subsidiaries are eligible to receive
benefits under these programs. The company has reserved the right to amend or
terminate these programs.
Investment gains and losses are recognized over five years for Con Edison of New
York's plan and are recognized immediately for O&R's plan. For both plans
unrecognized actuarial gains and losses are amortized over 10 years.
During 1999, O&R sold its electric generating assets. Because of the relatively
high number of O&R employees for whom benefits in the plan ceased to be accrued
as a result of this event, a curtailment charge was recorded in accordance with
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions."
The acquisition of O&R by Con Edison in July 1999 triggered purchase accounting
requirements that are reflected in the net periodic benefit cost. Under such
accounting O&R's accrued postretirement liability was adjusted to recognize all
previously unrecognized actuarial gains or losses, all unrecognized prior
service costs, and the remainder of any unrecognized obligation or asset
existing at the date of the initial application of SFAS No. 106. The total of
these adjustments along with the curtailment charge discussed above were
recorded as a regulatory asset in accordance with SFAS No. 71.
O&R is currently allowed to recover in rates OPEB costs recognized under SFAS
No. 106. In accordance with the provisions of SFAS No. 71, the company defers
for future recovery any difference between expenses recognized under SFAS No.
106 and the current rate allowance authorized by each regulatory jurisdiction in
which it operates.
The components of Con Edison of New York and O&R's postretirement benefit
(health and life insurance) costs for 2000, 1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- ---------------------------------------------------------
Service cost $10.7 $15.4 $16.4
Interest cost on
accumulated
postretirement benefit
obligation 78.8 77.8 76.1
Expected return on plan
assets (62.3) (43.7) (39.9)
Amortization of net
actuarial loss 1.2 27.2 20.9
Amortization of prior
service cost 1.4 1.4 0.1
Amortization of transition
obligation 17.4 18.6 23.9
Recognition of curtailment
and termination benefits -- (5.1) --
Recognition of purchase
accounting valuation -- 39.2 --
- ---------------------------------------------------------
Net periodic
postretirement benefit
cost $47.2 $130.8 $97.5
- ---------------------------------------------------------
Cost capitalized/
deferred 10.3 53.0 13.5
Cost charged to operating
expenses 36.9 77.8 84.0
- ---------------------------------------------------------
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The funded status of the programs at December 31, 2000, 1999 and 1998 was as
follows:
(Millions of Dollars) 2000 1999 1998
- -----------------------------------------------------------
Change in benefit
obligation
Benefit obligation at
beginning of year $1,012.5 $1,177.5 $1,044.7
Service cost 10.7 15.4 16.4
Interest cost on
accumulated
postretirement benefit
obligation 78.8 77.8 76.1
Plan amendments (0.4) -- (44.7)
Actuarial (gain) loss 127.6 (205.5) 131.9
Benefits paid and
administrative expenses (71.4) (63.5) (57.0)
Participant contributions 12.0 10.8 10.1
- -----------------------------------------------------------
Benefit obligation at
end of year $1,169.8 $1,012.5 $1,177.5
- -----------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year $872.3 $697.0 $596.3
Actual return on plan
assets 4.4 104.0 121.4
Employer contributions 23.5 121.0 26.2
Participant contributions 11.8 10.7 10.1
Reimbursements for
benefits owed to
company (0.8) -- --
Benefits paid and
administrative expenses (67.9) (60.4) (57.0)
- -----------------------------------------------------------
Fair value of plan assets
at end of year $843.3 $872.3 $697.0
- -----------------------------------------------------------
Funded status $(326.5) $(140.2) $(480.5)
Unrecognized net
(gain) loss (31.3) (215.6) 78.0
Unrecognized prior
service costs 9.4 11.2 12.7
Unrecognized transition
obligation at January 1,
1993* 208.8 226.2 278.2
- -----------------------------------------------------------
Accrued postretirement
benefit cost $(139.6) $(118.4) $(111.6)
- -----------------------------------------------------------
* Being amortized over a period of 20 years.
The actuarial assumptions at December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
- ------------------------------------------------------------
Discount rate
Con Edison of New York 7.75% 8.00% 6.75%
O&R 7.75% 8.00% 6.75%
Expected return on plan assets
Tax-exempt assets
Con Edison of New York 8.50% 8.50% 8.50%
O&R 8.50% 8.50% 6.25%
Taxable assets
Con Edison of New York 7.50% 7.50% 7.50%
O&R 8.00% 7.50% 6.25%
The health care cost trend rate assumed for 2001 was 8.0 percent. The rate was
assumed to decrease gradually to 5.0 percent for 2006 and remain at that level
thereafter.
A one-percentage point change in the assumed health care cost trend rate would
have the following effects:
1-Percentage- 1-Percentage-
(Millions of Dollars) Point Increase Point Decrease
- ----------------------------------------------------------
Effect on accumulated
postretirement benefit
obligation $142.9 $125.0
Effect on service cost and
interest cost components $12.6 $10.7
Note F Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and
coal tar, have been used or generated in the course of operations of Con
Edison's utility subsidiaries and may be present in their facilities and
equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (Superfund) and similar state statutes impose joint and several strict
liability, regardless of fault, upon generators of hazardous substances for
resulting removal and remedial costs and environmental damages. Liabilities
under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may
have been lawful at the time they occurred.
At December 31, 2000, Con Edison had accrued $117.9 million as its best estimate
of the utility subsidiaries' liability for sites as to which they have received
process or notice alleging that hazardous substances generated by them (and, in
most instances, other potentially responsible parties) were deposited. There
will be additional liability at these sites and other sites, the amount of which
is not presently determinable but may be material to Con Edison's financial
position, results of operations or liquidity.
Con Edison's utility subsidiaries are permitted under current rate agreements to
defer for subsequent recovery through rates certain site investigation and
remediation costs with respect to hazardous waste. At December 31, 2000, $49
million of such costs had been deferred as regulatory assets.
Suits have been brought in New York State and federal courts against Con
Edison's utility subsidiaries and many other defendants, wherein a large number
of plaintiffs sought large amounts of compensatory and punitive damages for
deaths and injuries allegedly caused by exposure to asbestos at various premises
of the utility subsidiaries. Many of these suits have been
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disposed of without any payment by the utility subsidiaries, or for immaterial
amounts. The amounts specified in all the remaining suits total billions of
dollars but Con Edison believes that these amounts are greatly exaggerated, as
were the claims already disposed of. Based on the information and relevant
circumstances known to Con Edison at this time, it does not believe that these
suits will have a material adverse effect on its financial position, results of
operations or liquidity.
Note G Nuclear Generation
Con Edison of New York owns the Indian Point 2 nuclear generating unit, which
has a capacity of approximately 1,000 MW, and the retired Indian Point 1 nuclear
generating unit.
The book value of Indian Point 2, net of accumulated depreciation, was $504
million and $382 million at December 31, 2000 and 1999, respectively.
Pending Sale In November 2000 Con Edison of New York entered into an agreement
with Entergy Nuclear Indian Point 2 LLC (Entergy) for the sale of Indian Point
2, the retired Indian Point 1 and certain related assets (including fuel) for
approximately $602 million, subject to certain adjustments. The estimated net
after-tax loss on the sale of $170 million will be deferred as a regulatory
asset at the time the sale is completed. No impairment of the assets has been
recognized under SFAS No. 121 because recovery is probable under the Agreement
(see "Rate and Restructuring Agreements" in Note A).
Under the agreement, Con Edison of New York will transfer $430 million of
decommissioning trust funds at closing and Entergy will assume full
responsibility for the decommissioning of Indian Point 1 and 2. In addition, Con
Edison of New York has entered into a power purchase agreement with Entergy
through the end of 2004 for the output of the Indian Point 2 unit at an annual
average price of 3.9 cents per kilowatthour. The sale is subject to PSC and
other regulatory approvals and other conditions.
Rate Recovery Con Edison of New York is recovering its investment in Indian
Point 2 and funds to decommission Indian Point 1 and 2 in the rates it charges
all its electric customers. Under the Agreement, following March 31, 2005, the
company will be given a reasonable opportunity to recover its remaining
investment in Indian Point 2, including funds needed to decommission Indian
Point 1 and 2, through a non-bypassable charge to customers over a period that
will extend no longer than the end of Indian Point 2's operating license in
2013. Reconciliation of estimated and actual decommissioning costs may be
reflected in rates after 2013.
Outage Proceedings In February 2000 Con Edison of New York shut down Indian
Point 2 following a leak in one of its four steam generators. The plant returned
to service in January 2001. During the outage, the steam generators were
replaced and refueling and maintenance work was performed.
The staff of the Nuclear Regulatory Commission (NRC) has advised Con Edison of
New York that it will monitor Indian Point 2 with heightened oversight.
The PSC is investigating the Indian Point 2 outage and its causes and the
prudence of Con Edison of New York's actions regarding the operation and
maintenance of Indian Point 2. The PSC has indicated that the examination should
include, among other things, Con Edison of New York's inspection practices, the
circumstances surrounding Indian Point 2's October 1997 to September 1998
outage, the basis for postponement of the steam generator replacement and
whether, and to what extent, increased replacement power costs and repair and
replacement costs should be borne by Con Edison's shareholders.
In August 2000 the New York State legislature enacted the "Indian Point 2 Law,"
which directed the PSC to prohibit the company from recovering Indian Point 2
replacement power costs from customers. In October 2000 the United States
District Court for the Northern District of New York, in an action entitled
Consolidated Edison Company of New York, Inc. v. Pataki, et al., determined that
the Indian Point 2 Law was unconstitutional and granted the company's motion for
a permanent injunction to prevent its implementation. Appeals of the court's
decision have been filed in the United States Court of Appeals for the Second
Circuit.
Con Edison of New York has billed to customers the Indian Point 2 replacement
power costs
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incurred prior to August 2000 and after October 2000, but not approximately $90
million of replacement power costs incurred in August through October 2000.
Con Edison believes that its operation, maintenance and inspection practices
related to Indian Point 2 have been prudent. At December 31, 2000, the company
accrued a $40 million liability for the possible disallowance of Indian Point 2
replacement costs that it recovered from customers. The company is unable to
predict whether or not any Indian Point 2-related proceedings, lawsuits,
legislation or other actions will have a material adverse effect on its
financial position, results of operations or liquidity.
Outage Accounting Scheduled refueling and maintenance outages are generally
required after a cycle of approximately 22 months. Con Edison of New York's
electric rates reflect a charge for the cost of scheduled refueling and
maintenance outages. Under the company's current and previous electric rate
agreements, these charges have been deferred for recognition in income during
the period in which expenses are incurred for the outage. The costs of
unscheduled outages are expensed as incurred and are not reflected in rates.
Decommissioning Since 1975, Con Edison of New York has been collecting costs of
decommissioning from customers and accruing such amounts within its internal
accumulated depreciation reserve. Amounts collected to fund decommissioning of
the nuclear portions of the units have been deposited in external trust funds
and earnings on such funds have been accrued as additional accumulated
depreciation. The trust funds amounted to $329.0 million and $305.7 million,
respectively, at December 31, 2000 and 1999. See "Investments" in Note A.
Accumulated decommissioning provisions at December 31, 2000 and 1999 were as
follows:
Amounts Included in
Accumulated Depreciation
- -----------------------------------------------------------
(Millions of Dollars) 2000 1999
- -----------------------------------------------------------
Nuclear $329.0 $305.7
Non-nuclear 55.1 55.4
- -----------------------------------------------------------
Total $384.1 $361.1
- -----------------------------------------------------------
Con Edison of New York's electric rates reflect annual expense allowances of
$21.3 million and $1.8 million, respectively, to fund the estimated costs of
decommissioning the nuclear and non-nuclear portions of the Indian Point 1 and 2
units. These amounts were established pursuant to a 1995 electric rate agreement
based upon a 1994 site-specific study. The study estimated the decommissioning
costs to be approximately $657 million in 1993 dollars (assuming 2016 as the
midpoint for decommissioning expenditures), including $252 million for extended
storage of spent nuclear fuel. The minimum decommissioning fund estimate
calculated in accordance with NRC regulations was between $572 million and $981
million as of December 31, 2000.
Nuclear Fuel Nuclear fuel assemblies and components are amortized to operating
expense based on the quantity of heat produced in the generation of electricity.
Nuclear fuel costs are recovered in revenues through base rates or through the
fuel adjustment clause.
Nuclear fuel costs include provisions for payments to the U.S. Department of
Energy (DOE) for future off-site storage of the spent fuel and for a portion of
the costs to decontaminate and decommission the DOE facilities used to enrich
uranium purchased by Con Edison of New York. Such payments amounted to $3.9
million in 2000.
The DOE has defaulted on its obligation to Con Edison of New York and all other
utilities that have nuclear reactors to begin to take title to the spent nuclear
fuel generated at Indian Point 2. The company and a number of other utilities
are pursuing their legal remedies against the DOE. The company estimates that it
has adequate on-site capacity for interim storage of its spent fuel until 2005
after which, absent regulatory or technological developments, additional on-site
or other spent fuel storage facilities would be required. The operation of
Indian Point 2 could be curtailed if appropriate arrangements for the storage of
its spent fuel were not made.
Nuclear Insurance The insurance policies covering Con Edison of New York's
nuclear facilities for property damage, excess property damage, and outage costs
permit assessments under certain conditions to cover insurers' losses. As of
December 31, 2000, the highest amount that could be assessed for losses during
the current policy year under all of the policies was $14.7 million. While
assessments may also be made for losses in certain prior years, the
-81-
company is not 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, the company could be assessed up to $88.1
million per incident, of which not more than $10 million may be assessed in any
one year.
Note H Non-Utility Generators (NUGs)
Con Edison of New York has contracts with NUGs for approximately 2,100 MW of
electric generating capacity. Assuming performance by the NUGs, the company is
obligated over the terms of the contracts (which extend for various periods, up
to 2036) to make capacity and other fixed payments.
For the years 2001-2005, the capacity and other fixed payments under the
contracts are estimated to be $466 million, $476 million, $487 million, $498
million and $508 million. Such payments gradually increase to approximately $600
million in 2013, and thereafter decline significantly. For energy delivered
under these contracts, the company is obligated to pay variable prices that are
estimated to be lower than expected market levels.
Under the terms of its electric rate agreements, Con Edison of New York is
recovering in rates the charges it incurs under contracts with NUGs. The
Agreement provides that, following March 31, 2005, the company will be given a
reasonable opportunity to recover, through a non-bypassable charge to customers,
the amount, if any, by which the actual costs of its purchases under the
contracts exceed market value.
The Restructuring Agreement provided for a potential NUG contract disallowance
of the lower of (i) 10 percent of the above-market costs or (ii) $300 million
(in 2002 dollars). The Restructuring Agreement provided that Con Edison of New
York could offset the potential disallowance by NUG contract mitigation and by
10 percent of the gross proceeds of any generating unit sales to third parties.
The company has offset the entire $300 million maximum possible disallowance
through NUG contract mitigation and generating plant divestiture proceeds.
Note I Generation Divestiture
In 1999 Con Edison of New York completed the sales of almost 6,300 MW of its
approximately 8,300 MW of electric generating assets for an aggregate price of
$1.8 billion. The net book value of the assets sold was approximately $1
billion.
In 1999, pursuant to the Restructuring Agreement, $50 million of the net
after-tax gain was applied as an increase to the accumulated depreciation
reserve for Indian Point 2 and $29 million of accumulated deferred taxes and
investment tax credits relating to the assets sold were recognized in income. In
2000, pursuant to the Agreement, the balance of the net after-tax gain
(including interest accrued thereon) was applied as follows: $188.2 million was
credited against electric distribution plant balances, $107.3 million was used
to offset a like amount of regulatory assets (including deferred power contract
termination costs), $50 million was deferred for recognition in income during
the 12 months ending March 31, 2002, and $12 million was deferred to be used for
low-income customer programs. Pursuant to the Agreement, $30 million of
voluntary employee retirement incentive expenses related to the generation
divestiture were deferred for amortization over 15 years and $15 million of such
expenses were charged to income in 2000.
The Agreement provides for recovery of an approximately $74 million regulatory
asset representing incremental electric capacity costs incurred prior to May
2000 to purchase capacity from the buyers of the generating assets the company
sold. The Agreement provides for the company to recover these deferred costs
from the shareholders' portion of any earnings above the Earnings Sharing Levels
and by March 2005 to charge to expense any remaining asset balance.
At December 31, 2000, Con Edison of New York owned approximately 2,000 MW of
electric generating assets, including its approximately 1,000 MW Indian Point 2
plant (the sale of which is pending, see Note G) and a 480 MW interest in the
jointly-owned Roseton generating station, the sale of which was completed in
January 2001. The net book value of the company's interest in Roseton was
approximately $55.5 million, and the net after-tax gain from the sale was $37.3
million.
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O&R completed the sale of all of its generating assets prior to the completion
of Con Edison's purchase of O&R in July 1999.
Note J Lease Guarantee
A subsidiary of Con Edison Development has an operating lease covering a
gas-fired generation facility now under construction and underlying land located
in Newington, NH. The initial lease term is approximately eight years, beginning
at the date of construction completion, which is expected to be May 2002. There
is no rental expense under this arrangement for the period 1998-2000. At the end
of the lease term, the subsidiary has the option to renew the lease or purchase
the project for the then outstanding amounts expended by the lessor for the
project. If the subsidiary chooses not to renew the lease or acquire the
project, then Con Edison will guarantee a residual value of the project for an
amount not to exceed $239.7 million.
Payments and performance obligations are fully and unconditionally guaranteed by
Con Edison. Future minimum rental payments required under the non-cancelable
operating lease as of December 31, 2000 are as follows:
(Thousands of Dollars)
- ----------------------------------------------------
2001 $ --
2002 16,854
2003 33,704
2004 33,700
2005 33,696
2006 and thereafter 151,775
- ----------------------------------------------------
Total $269,729
Note K Acquisition of Orange and Rockland Utilities (O&R)
In July 1999 Con Edison completed its acquisition of O&R for $791.5 million in
cash. Con Edison has accounted for the acquisition under the purchase method of
accounting in accordance with generally accepted accounting principles. The
results of operations of O&R for 2000 and the six months ended December 31, 1999
have been included in the consolidated income statement of Con Edison for the
years ended December 31, 2000 and 1999. Con Edison has recorded in its
consolidated financial statements all of the assets and liabilities of O&R. The
fair value of O&R's regulatory assets approximates book value. All other assets
and liabilities of O&R were adjusted to their estimated fair values. The $437
million excess of the purchase price paid by Con Edison over the estimated fair
value of net assets acquired and liabilities assumed was recorded as goodwill
(O&R Goodwill) and is being amortized over 40 years. In accordance with
regulatory agreements, costs to achieve the merger have been deferred as
regulatory assets and are being amortized over a five-year period ending May
2004.
The unaudited pro forma consolidated Con Edison financial information shown
below has been prepared based upon the historical consolidated income statements
of Con Edison and O&R, giving effect to Con Edison's acquisition of O&R as if it
had occurred at the beginning of 1999. The historical information has been
adjusted to reflect the amortization of O&R Goodwill for the entire period and
the after-tax cost Con Edison would have incurred for financing the acquisition
of O&R by issuing debt at the beginning of the period at an assumed 8.0 percent
per annum interest rate. The pro forma information is not necessarily indicative
of the results that Con Edison would have had if its acquisition of O&R had been
completed prior to July 1999, or the results that Con Edison will have in the
future.
(Thousands of Dollars) 1999
- ---------------------------------------------------
Revenues $7,816,815
Operating income 984,613
Net income 645,549
Average shares
outstanding (000) 223,442
- ---------------------------------------------------
Earnings per share $ 2.89
- ---------------------------------------------------
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Note L Income Tax Consolidated Edison, Inc.
The components of income taxes are as follows:
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Charged to operations:
State $ 28,941 $ -- $ --
Federal Current 103,670 836,783 322,259
Deferred - net 193,257 (428,859) 94,090
Amortization of investment tax credit (8,078) (8,208) (8,710)
- --------------------------------------------------------------------------------------------------------------------------------
Total charged to operations 317,790 399,716 407,639
- --------------------------------------------------------------------------------------------------------------------------------
Charged to other income:
State (5,304) -- --
Federal Current (1,095) 1,430 (3,279)
Deferred - net (7,037) 851 1,050
Amortization of investment tax credit (331) (164) --
Amortization of taxes associated with divestiture assets 3,145 (29,008) --
- --------------------------------------------------------------------------------------------------------------------------------
Total charged to other income (10,622) (26,891) (2,229)
- --------------------------------------------------------------------------------------------------------------------------------
Total $307,168 $372,825 $405,410
- --------------------------------------------------------------------------------------------------------------------------------
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities is as follows:
As of December 31 (Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Depreciation $1,441.1 $1,367.1 $1,307.6
Excess deferred federal income tax on depreciation 156.2 165.3 186.7
Advance refunding of long-term debt 31.9 32.5 35.5
Other 209.8 140.1 86.9
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,839.0 1,705.0 1,616.7
- --------------------------------------------------------------------------------------------------------------------------------
Assets:
Unbilled revenues (81.7) (86.1) (87.2)
Federal income tax audit adjustments -- 1992-1994 (29.7) (30.5) --
Other (101.3) (105.9) (87.7)
- --------------------------------------------------------------------------------------------------------------------------------
Total assets (212.7) (222.5) (174.9)
- --------------------------------------------------------------------------------------------------------------------------------
Regulatory liability - future federal income taxes 676.5 785.0 951.0
- --------------------------------------------------------------------------------------------------------------------------------
Net Liability $2,302.8 $2,267.5 $2,392.8
- --------------------------------------------------------------------------------------------------------------------------------
Reconciliation of the difference between income tax expenses and the amount
computed by applying the prevailing statutory income tax rate to income before
income taxes is as follows:
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
(% of Pre-tax income)
Statutory tax rate
Federal 35% 35% 35%
Changes in computed taxes resulting from:
State income tax 2% -- --
Depreciation related differences 4% 5% 4%
Cost of removal (6)% (3)% (2)%
Amortization of taxes associated with divestiture assets -- (3)% --
Other (1)% -- (1)%
- --------------------------------------------------------------------------------------------------------------------------------
Effective Tax Rate 34% 34% 36%
- --------------------------------------------------------------------------------------------------------------------------------
-84-
Note M Stock-Based Compensation
Under Con Edison's Stock Option Plan (the Plan), options may be granted to
officers and key employees for up to 10 million shares of Con Edison's common
stock. Generally, options become exercisable three years after the grant date
and remain exercisable until 10 years from the grant date.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," Con
Edison has elected to follow Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of Con Edison's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Disclosure of pro-forma information regarding net income and earnings per share
is required by SFAS No. 123. The information presented below relates to the
income and earnings per share of Con Edison. This information has been
determined as if Con Edison had accounted for its employee stock options under
the fair value method of that statement. The fair values of 2000, 1999 and 1998
options are $4.42, $7.90 and $6.23 per share, respectively. They were estimated
at the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.25% 5.24% 5.61%
Expected lives - in years 8 8 8
Expected stock volatility 20.51% 18.76% 12.68%
Dividend yield 6.60% 4.46% 4.98%
The following table reflects pro forma net income and earnings per share had the
company elected to adopt the fair value approach of SFAS No. 123 (income in
millions):
2000 1999 1998
---- ---- ----
Net Income:
As reported $583 $701 $713
Pro forma 578 697 711
Diluted earnings per share:
As reported $2.74 $3.13 $3.04
Pro forma 2.72 3.11 3.03
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. For 2000,
the number of total shares of common stock after giving effect to the dilutive
common stock equivalents and used in the reported diluted earnings per share
calculation is 212,417,885.
A summary of the status of Con Edison's Stock Option Plan as of December 31,
2000, 1999 and 1998 and changes during those years is as follows:
Weighted
Average
Shares Price
------ -----
Outstanding at 12/31/97 1,517,200 $ 29.852
Granted 901,650 42.605
Exercised -- --
Forfeited (22,900) 36.326
- --------------------------------------------------------
Outstanding at 12/31/98 2,395,950 34.589
Granted 1,293,950 47.880
Exercised (113,440) 27.875
Forfeited (20,250) 40.246
- --------------------------------------------------------
Outstanding at 12/31/99 3,556,210 39.607
Granted 1,349,500 32.499
Exercised (68,697) 29.732
Forfeited (48,100) 39.231
- --------------------------------------------------------
Outstanding at 12/31/00 4,788,913 37.749
The following summarizes the Plan's stock options outstanding at December 31,
2000:
Weighted
Average Shares
Plan Exercise Outstanding Remaining
Year Price At 12/31/00 Contractual Life
- ---- ----- ----------- ----------------
2000 $32.499 1,339,500 9 years
1999 47.879 1,274,700 8 years
1998 42.607 869,850 7 years
1997 31.500 766,913 6 years
1996 27.875 537,950 5 years
Pursuant to employment agreements, effective September 2000, Con Edison granted
certain officers of Con Edison and Con Edison of New York an aggregate of
350,000 restricted stock units. The units, each of which represents the right to
receive one share of Con Edison common stock and related dividends, vest over a
five-year period and upon the occurrence of certain events. Pursuant to SFAS
No.123, Con Edison is recognizing compensation expense and accruing a liability
for the units over the vesting period.
-85-
Note N Financial Information by Business Segment (a) Consolidated Edison, Inc.
Electric Steam
- -------------------------------------------------------------------------- ---------------------------------------
(Thousands of Dollars) 2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 6,938,128 $ 5,792,673 $ 5,674,446 $ 452,135 $ 340,026 $ 321,932
Intersegment revenues 53,514 150,488 53,464 2,023 1,667 1,655
Depreciation and amortization 477,085 433,203 439,869 18,173 17,996 17,361
Income tax expense 247,683 339,630 351,088 2,867 2,910 5,057
Operating income 801,113 858,681 905,976 25,097 19,450 19,416
Total assets 10,908,432 10,670,017 10,919,857 596,510 565,945 575,018
Construction expenditures 786,211 530,068 465,258 32,014 28,488 30,512
Gas Unregulated and Other
- -------------------------------------------------------------------------- ---------------------------------------
2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 1,261,970 $ 1,000,083 $ 959,609 $ 779,158 $ 358,541 $ 137,061
Intersegment revenues 6,113 2,812 2,460 14,582 -- 290
Depreciation and amortization 66,780 66,262 60,596 24,369 8,721 688
Income tax expense 56,635 60,598 58,665 10,605 (3,422) (7,171)
Operating income 184,478 152,212 141,680 5,448 (10,544) (13,747)
Total assets 2,327,119 2,097,200 1,795,567 2,935,184 2,198,314 1,090,961
Construction expenditures 140,702 119,601 123,074 -- -- --
Total
- --------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------
Operating revenues $ 9,431,391 $ 7,491,323 $ 7,093,048
Intersegment revenues 76,232 154,967 57,869
Depreciation and amortization 586,407 526,182 518,514
Income tax expense 317,790 399,716 407,639
Operating income 1,016,136 1,019,799 1,053,325
Total assets 16,767,245 15,531,476 14,381,403
Construction expenditures 958,927 678,157 618,844
(a) For a description of Con Edison, see "Con Edison" appearing before Note A.
-86-
Note O Derivative Instruments and Hedging Activities
Neither Con Edison nor any of its subsidiaries, other than Con Edison Energy,
enters into derivative transactions that do not qualify for deferred accounting
treatment. At December 31, 2000, deferred gains or losses were not material. Con
Edison Energy, as discussed below, is an "energy trading organization."
Energy Trading Con Edison's subsidiaries use derivative instruments to hedge
purchases or sales of electricity and gas against adverse market price
fluctuations.
Con Edison's utility subsidiaries, pursuant to SFAS No. 71, defer recognition in
income of hedging gains and losses until the electricity or gas is purchased or
sold. Pursuant to rate provisions that permit the recovery of the cost of
purchased power and gas, Con Edison's utility subsidiaries credit or charge to
their customers hedging gains or losses and related transaction costs. See "
Recoverable Energy Costs" in Note A. SFAS No. 133 will not change how Con
Edison's utility subsidiaries account for these hedging transactions. Where SFAS
No. 71 does not allow deferred recognition in income, Con Edison's utility
subsidiaries are expected to elect special hedge accounting pursuant to SFAS No.
133 to defer recognition of unrealized hedging gains and losses.
Con Edison Solutions defers recognition in income of hedging gains and losses
until the related electricity or gas is purchased or sold. Pursuant to SFAS No.
133, Con Edison Solutions will elect cash flow hedging for most such
transactions and defer any changes in fair value of the transactions in other
comprehensive income until the hedging transactions are terminated. Any hedge
ineffectiveness will be recognized as income in the period in which it occurs.
Con Edison Energy enters into over-the-counter and exchange traded contracts for
the purchase and sale of electricity or gas (which may provide for either
physical or financial settlement) and is considered an "energy trading
organization" required to account for such trading activities in accordance with
FASB Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities" (98-10). As a result
of the implementation of 98-10, Con Edison Energy recognized in income a pre-tax
gain of $1.6 million in 2000, reflecting mark to market gains relating to its
outstanding contracts at December 31, 2000. SFAS No. 133 will not change how Con
Edison Energy accounts for its trading activities.
Interest Rate Hedging In 2000 Con Edison purchased for $8.9 million options to
hedge interest rate risk with respect to its agreement to acquire Northeast
Utilities. The options expired unexercised. The cost of the options was
recognized in income in 2000. See Note P.
In connection with its $55 million promissory note issued to the New York State
Energy Research and Development Authority for the net proceeds of the
Authority's variable rate Pollution Control Refunding Revenue Bonds (O&R
Projects), 1994 Series A (the 1994 Bonds), O&R has a swap agreement pursuant to
which it pays interest at a fixed rate of 6.09 percent and is paid interest at
the same variable rate as is paid on the 1994 Bonds. If the swap agreement had
been terminated on December 31, 2000, O&R would have been required to pay
approximately $13.9 million. In connection with $95 million of variable rate
loans undertaken relating to the Lakewood electric generating plant, Con Edison
Development has swap agreements pursuant to which it pays interest at a fixed
rate of 6.68 percent and is paid interest at a variable rate equal to the
three-month London Interbank Offered Rate. If these swap agreements had been
terminated on December 31, 2000, Con Edison Development would have been required
to pay approximately $2.6 million. Pursuant to SFAS No. 133, the O&R and Con
Edison Development swap agreements will be accounted for as cash flow hedges and
changes in their fair value will be recorded in other comprehensive income. The
fair value of these swap agreements, which have no established market price, is
the amount that would be required to be paid upon early termination.
Note P Northeast Utilities
On March 6, 2001, Con Edison commenced an action in the United States District
Court for the Southern District of New York, entitled Consolidated Edison, Inc.
v. Northeast Utilities, seeking a declaratory judgment that Northeast Utilities
has failed to meet certain conditions precedent to Con Edison's obligation to
complete its acquisition of Northeast Utilities pursuant to their agreement and
plan of merger, dated as of October 13, 1999, as amended and restated as of
January 11, 2000 (the merger agreement). The action also seeks the court's
declaration that under the merger agreement Con Edison has no further or
continuing obligations to Northeast Utilities, and
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that Northeast Utilities has no further or continuing rights as against Con
Edison.
On March 12, 2001, Northeast Utilities commenced an action in the same court
claiming that Con Edison materially breached the merger agreement by repudiating
its obligations under the merger agreement and refusing to proceed with the
transaction on the terms set forth in the merger agreement. The action also
claims that, as a result of Con Edison's breach of the merger agreement,
Northeast Utilities and its shareholders have suffered substantial damages,
including the difference between the consideration to be paid to Northeast
Utilities shareholders pursuant to the merger agreement and the current market
value of Northeast Utilities' common stock, expenditures in connection with
regulatory approvals and lost business opportunities. Pursuant to the merger
agreement, Con Edison agreed to acquire Northeast Utilities for $26.00 per share
(an estimated aggregate of not more than $3.9 billion) plus $0.0034 per share
for each day after August 5, 2000 through the day prior to the completion of the
transaction, payable 50 percent in cash and 50 percent in stock.
Con Edison believes that it is not obligated to acquire Northeast Utilities
because Northeast Utilities does not meet the merger agreement's conditions that
Northeast Utilities perform all of its obligations under the merger agreement,
including the obligation that it carry on its businesses in the ordinary course
consistent with past practice; that the representations and warranties made by
it in the merger agreement were true and correct when made and remain true and
correct; and that there be no material adverse change with respect to Northeast
Utilities. Con Edison believes that it has not materially breached the merger
agreement. Con Edison is unable to predict whether or not any Northeast
Utilities-related lawsuits or other actions will have a material adverse effect
on Con Edison's financial position, results of operations or liquidity.
On March 19, 2001, Con Edison announced that $32.1 million of expenses relating
to the transaction, including $8.9 million paid for options to hedge interest
rate risk relating to the transaction (see Note O) had been recognized in income
for 2000. Recognition of these expenses was being deferred pending completion of
the transaction.
- 88 -
Report of Independent Accountants
To the Stockholders and Board of Trustees
of Consolidated Edison Company of New York, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Consolidated Edison Company of New York, Inc. and its subsidiaries (the
"Company") at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
February 15, 2001
-89-
Consolidated Balance Sheet Consolidated Edison Company of New York, Inc.
Assets
At December 31 (Thousands of Dollars) 2000 1999
- -----------------------------------------------------------------------------------------------------
Utility plant, at original cost (Note A)
Electric $11,135,764 $10,670,257
Gas 2,020,395 1,934,090
Steam 740,189 722,265
General 1,282,254 1,220,948
- -----------------------------------------------------------------------------------------------------
Total 15,178,602 14,547,560
Less: Accumulated depreciation 4,819,626 4,384,783
- -----------------------------------------------------------------------------------------------------
Net 10,358,976 10,162,777
Construction work in progress 476,379 359,431
Nuclear fuel assemblies and components, less accumulated amortization 107,641 84,701
- -----------------------------------------------------------------------------------------------------
Net utility plant 10,942,996 10,606,909
- -----------------------------------------------------------------------------------------------------
Current assets
Cash and temporary cash investments (Note A) 70,273 349,033
Accounts receivable - customer, less allowance for uncollectible
accounts of $25,800 and $22,600 in 2000 and 1999, respectively 743,883 541,978
Other receivables 155,656 71,746
Fuel, at average cost 28,455 23,641
Gas in storage, at average cost 64,144 40,280
Materials and supplies, at average cost 118,344 138,300
Prepayments 497,884 178,693
Other current assets 50,977 32,513
- -----------------------------------------------------------------------------------------------------
Total current assets 1,729,616 1,376,184
- -----------------------------------------------------------------------------------------------------
Investments
Nuclear decommissioning trust funds 328,969 305,717
Other 19,155 18,491
- -----------------------------------------------------------------------------------------------------
Total investments (Note A) 348,124 324,208
- -----------------------------------------------------------------------------------------------------
Deferred charges, regulatory assets and noncurrent assets
Future federal income tax (Note A) 642,868 751,899
Recoverable energy costs (Note A) 274,288 78,650
Real estate sale costs - First Avenue properties 103,009 1,074
Divestiture - capacity replacement reconciliation (Note I) 73,850 24,373
Deferred special retirement costs (Note D) 46,743 20,282
Accrued unbilled revenue (Note A) 43,594 43,594
Deferred revenue taxes 36,542 60,712
Power contract termination costs -- 71,861
Other 147,940 166,766
- -----------------------------------------------------------------------------------------------------
Total regulatory assets 1,368,834 1,219,211
- -----------------------------------------------------------------------------------------------------
Other deferred charges and noncurrent assets 158,371 155,640
- -----------------------------------------------------------------------------------------------------
Total deferred charges, regulatory assets and noncurrent assets 1,527,205 1,374,851
- -----------------------------------------------------------------------------------------------------
Total $14,547,941 $13,682,152
- -----------------------------------------------------------------------------------------------------
-90-
Capitalization and Liabilities
At December 31 (Thousands of Dollars) 2000 1999
- ------------------------------------------------------------------------------------
Capitalization (see Statement of Capitalization)
Common shareholder's equity $ 4,479,584 $ 4,393,771
Preferred stock subject to mandatory redemption (Note B) 37,050 37,050
Other preferred stock (Note B) 212,563 212,563
Long-term debt 4,915,108 4,243,080
- ------------------------------------------------------------------------------------
Total capitalization 9,644,305 8,886,464
- ------------------------------------------------------------------------------------
Noncurrent liabilities
Obligations under capital leases 31,432 34,406
Accumulated provision for injuries and damages 148,047 110,131
Pension and benefits reserve 105,124 76,807
Other noncurrent liabilities 14,822 17,210
- ------------------------------------------------------------------------------------
Total noncurrent liabilities 299,425 238,554
- ------------------------------------------------------------------------------------
Current liabilities
Long-term debt due within one year (Note B) 300,000 275,000
Notes payable 139,969 495,371
Accounts payable 879,602 505,357
Customer deposits 195,762 208,865
Accrued taxes 49,509 23,272
Accrued interest 78,230 51,581
Accrued wages 70,951 79,408
Other current liabilities 237,634 202,657
- ------------------------------------------------------------------------------------
Total current liabilities 1,951,657 1,841,511
- ------------------------------------------------------------------------------------
Deferred credits and regulatory liabilities
Accumulated deferred federal income tax (Note J) 2,134,973 2,121,054
Accumulated deferred investment tax credits (Note A) 124,532 132,487
Regulatory liabilities
NY state tax law revisions 59,523 --
Deposit from sale of First Avenue properties 50,000 --
Gain on divestiture (Note I) 50,000 306,867
Accrued electric rate reduction (Note A) 38,018 --
NYPA revenue increase 35,021 25,630
Other 160,487 129,585
- ------------------------------------------------------------------------------------
Total regulatory liabilities 393,049 462,082
- ------------------------------------------------------------------------------------
Total deferred credits and regulatory liabilities 2,652,554 2,715,623
- ------------------------------------------------------------------------------------
Contingencies (Note F)
- ------------------------------------------------------------------------------------
Total $14,547,941 $13,682,152
- ------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-91-
Consolidated Income Statement Consolidated Edison Company of New York, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Operating revenues (Note A)
Electric $ 6,467,074 $ 5,672,348 $ 5,717,119
Gas 1,081,534 943,641 959,609
Steam 452,135 340,026 321,932
- ----------------------------------------------------------------------------------------------------------
Total operating revenues 8,000,743 6,956,015 6,998,660
- ----------------------------------------------------------------------------------------------------------
Operating expenses
Purchased power 2,988,096 1,669,227 1,252,035
Fuel 322,064 430,174 579,006
Gas purchased for resale 490,565 351,785 370,103
Other operations 947,545 1,047,748 1,117,785
Maintenance 430,870 423,322 477,413
Depreciation and amortization (Note A) 535,179 504,018 517,826
Taxes, other than income taxes 1,048,509 1,134,079 1,202,610
Income taxes (Notes A and J) 285,847 394,147 414,810
- ----------------------------------------------------------------------------------------------------------
Total operating expenses 7,048,675 5,954,500 5,931,588
- ----------------------------------------------------------------------------------------------------------
Operating income 952,068 1,001,515 1,067,072
- ----------------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A) 2,294 8,647 6,162
Allowance for equity funds used during construction (Note A) 1,086 3,805 2,431
Other income less miscellaneous deductions 1,446 (9,344) (5,275)
Income taxes (Notes A and J) (4,079) 28,066 575
- ----------------------------------------------------------------------------------------------------------
Total other income 747 31,174 3,893
- ----------------------------------------------------------------------------------------------------------
Income before interest charges 952,815 1,032,689 1,070,965
- ----------------------------------------------------------------------------------------------------------
Interest on long-term debt 331,426 305,261 308,671
Other interest 43,224 17,363 18,400
Allowance for borrowed funds used during construction (Note A) (5,550) (1,778) (1,246)
- ----------------------------------------------------------------------------------------------------------
Net interest charges 369,100 320,846 325,825
- ----------------------------------------------------------------------------------------------------------
Net income 583,715 711,843 745,140
- ----------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements 13,593 13,593 17,007
- ----------------------------------------------------------------------------------------------------------
Net income for common stock $ 570,122 $ 698,250 $ 728,133
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Retained Earnings Consolidated Edison Company of New
York, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------
Balance, January 1 $3,887,993 $4,517,529 $ 4,484,703
Corporate restructuring to establish holding company -- -- (198,362)
Net income for the year 583,715 711,843 745,140
- --------------------------------------------------------------------------------------------
Total 4,471,708 5,229,372 5,031,481
- --------------------------------------------------------------------------------------------
Dividends declared on capital stock
Cumulative Preferred, at required annual rates 13,593 13,593 17,007
Common 462,290 1,327,786 496,945
- --------------------------------------------------------------------------------------------
Total dividends declared 475,883 1,341,379 513,952
- --------------------------------------------------------------------------------------------
Balance, December 31 $3,995,825 $3,887,993 $ 4,517,529
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Comprehensive Income Consolidated Edison Company of
New York, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
Net Income $ 570,122 $698,250 $728,133
Other Comprehensive Income/(loss), net of taxes
Minimum pension liability adjustments, net of $363 taxes (673) -- --
- --------------------------------------------------------------------------------------------------
Total Other Comprehensive Income/(loss), net of taxes (673) -- --
- --------------------------------------------------------------------------------------------------
Comprehensive Income $ 569,449 $698,250 $728,133
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-92-
Consolidated Statement of Cash Flows Consolidated Edison Company of New York,
Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Operating activities
Net income $ 583,715 $ 711,843 $ 745,140
Principal non-cash charges (credits) to income
Depreciation and amortization 535,179 504,018 517,826
Federal income tax deferred (excluding taxes resulting from divestiture of plant) 158,743 15,434 86,430
Common equity component of allowance for funds used during construction (1,086) (3,805) (2,431)
Prepayments -- accrued pension credits (250,743) (54,000) (49,800)
Other non-cash charges 13,603 38,464 11,297
Changes in assets and liabilities
Accounts receivable -- customer, less allowance for uncollectibles (201,905) (50,485) 66,746
Materials and supplies, including fuel and gas in storage (8,722) 62,785 17,659
Prepayments (other than pensions), other receivables and other current assets (170,822) (33,795) (2,503)
Deferred recoverable energy costs (195,638) (56,637) 76,288
Cost of removal less salvage (130,590) (71,451) (72,033)
Accounts payable 374,245 148,042 (58,149)
Other -- net 188,836 96,427 100,237
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 894,815 1,306,840 1,436,707
- -----------------------------------------------------------------------------------------------------------------------------
Investing activities including construction
Construction expenditures (907,648) (655,403) (618,844)
Nuclear fuel expenditures (27,357) (16,537) (7,056)
Contributions to nuclear decommissioning trust (21,301) (21,301) (21,301)
Common equity component of allowance for funds used during construction 1,086 3,805 2,431
Divestiture of utility plant (net of federal income tax) -- 1,138,750 --
Demolition and remediation costs for First Avenue properties (101,935) -- --
Deposit received from sale of First Avenue properties 50,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows (used in) from investing activities including construction (1,007,155) 449,314 (644,770)
- -----------------------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Repurchase of common stock (29,454) (817,399) (115,247)
Net proceeds from short-term debt (355,402) 495,371 --
Issuance of long-term debt 975,000 767,700 460,000
Retirement of long-term debt (275,000) (225,000) (200,000)
Advance refunding of preferred stock and long-term debt -- (300,000) (773,645)
Issuance and refunding costs (5,468) (16,440) (8,864)
Funds held for refunding of debt -- -- 328,874
Common stock dividends (462,503) (1,327,786) (496,945)
Preferred stock dividends (13,593) (13,593) (18,138)
Corporate restructuring to establish holding company -- -- (121,404)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities including dividends (166,420) (1,437,147) (945,369)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (278,760) 319,007 (153,432)
- -----------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at January 1 349,033 30,026 183,458
- -----------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31 $ 70,273 $ 349,033 $ 30,026
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 313,056 $ 307,155 $ 285,956
Income taxes 141,823 863,204 375,125
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-93-
Consolidated Statement of Capitalization
Consolidated Edison Company of New York, Inc.
Year Ended December 31 (Thousands of Dollars) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Shares outstanding
-------------------------------------
December 31, 2000 December 31, 1999
-------------------------------------
Common shareholder's equity (Note B)
Common stock 235,488,094 235,488,094 $ 1,482,341 $ 1,482,341
Retained earnings 3,995,825 3,887,993
Accumulated other comprehensive income (673) --
Repurchased Consolidated Edison, Inc.
common stock (962,092) (940,477)
Capital stock expense (35,817) (36,086)
- ----------------------------------------------------------------------------------------------------------
Total common shareholder's equity 4,479,584 4,393,771
- ----------------------------------------------------------------------------------------------------------
Preferred stock (Note B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
6-1/8% Series J 370,500 370,500 37,050 37,050
- ----------------------------------------------------------------------------------------------------------
Total subject to mandatory redemption 37,050 37,050
- ----------------------------------------------------------------------------------------------------------
Other preferred stock
$5 Cumulative Preferred, without par value,
authorized 1,915,319 shares 1,915,319 1,915,319 175,000 175,000
Cumulative Preferred, $100 par value,
authorized 6,000,000 shares*
4.65% Series C 153,296 153,296 15,330 15,330
4.65% Series D 222,330 222,330 22,233 22,233
- ----------------------------------------------------------------------------------------------------------
Total other preferred stock 212,563 212,563
- ----------------------------------------------------------------------------------------------------------
Total preferred stock $ 249,613 $ 249,613
- ----------------------------------------------------------------------------------------------------------
* Represents total authorized shares of cumulative preferred stock, $100 par
value, including preferred stock subject to mandatory redemption.
-94-
At December 31 (Thousands of Dollars) 2000 1999
- --------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity Interest Rate Series
- --------------------------------------------------------------------------------------------------
Debentures:
2000 7-3/8 1992A $ -- $ 150,000
2000 7.60 1992C -- 125,000
2001 6-1/2 1993B 150,000 150,000
2001 6.68* 1996B 150,000 150,000
2002 6-5/8 1993C 150,000 150,000
2002 6.64* 1997A 150,000 150,000
2003 6-3/8 1993D 150,000 150,000
2004 7-5/8 1992B 150,000 150,000
2005 6-5/8 1995A 100,000 100,000
2005 6-5/8 2000C 350,000 --
2007 6.45 1997B 330,000 330,000
2008 6-1/4 1998A 180,000 180,000
2008 6.15 1998C 100,000 100,000
2009 7.15 1999B 200,000 200,000
2010 8-1/8 2000A 325,000 --
2010 7-1/2 2000B 300,000 --
2023 7-1/2 1993G 380,000 380,000
2026 7-3/4 1996A 100,000 100,000
2028 7.10 1998B 105,000 105,000
2028 6.90 1998D 75,000 75,000
2029 7-1/8 1994A 150,000 150,000
2039 7.35 1999A 275,000 275,000
- --------------------------------------------------------------------------------------------------
Total debentures 3,870,000 3,170,000
- --------------------------------------------------------------------------------------------------
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for
Facilities Revenue Bonds:
2020 5-1/4 1993B 127,715 127,715
2020 6.10 1995A 128,285 128,285
2022 5-3/8 1993C 19,760 19,760
2026 7-1/2 1991A 128,150 128,150
2027 6-3/4 1992A 100,000 100,000
2027 6-3/8 1992B 100,000 100,000
2028 6.00 1993A 101,000 101,000
2029 7-1/8 1994A 100,000 100,000
2034 4.12* 1999A 292,700 292,700
- --------------------------------------------------------------------------------------------------
Total tax-exempt debt 1,097,610 1,097,610
- --------------------------------------------------------------------------------------------------
Subordinated deferrable interest debentures:
2031 7-3/4 1996A 275,000 275,000
- --------------------------------------------------------------------------------------------------
Unamortized debt discount (27,502) (24,530)
- --------------------------------------------------------------------------------------------------
Total 5,215,108 4,518,080
Less: long-term debt due within one year 300,000 275,000
- --------------------------------------------------------------------------------------------------
Total long-term debt 4,915,108 4,243,080
- --------------------------------------------------------------------------------------------------
Total capitalization $ 9,644,305 $ 8,886,464
- --------------------------------------------------------------------------------------------------
* Rates reset weekly or quarterly; December 31, 2000 rates shown. The
accompanying notes are an integral part of these financial statements.
-95-
Notes to Consolidated Financial Statements
These notes form an integral part of the accompanying consolidated financial
statements of Consolidated Edison Company of New York, Inc. (Con Edison of New
York) and its subsidiaries.
Con Edison
On January 1, 1998, Consolidated Edison, Inc. (Con Edison) was established as
the parent holding company for Con Edison of New York pursuant to an agreement
and plan of exchange which provided for the exchange of the outstanding shares
of common stock, $2.50 par value, of Con Edison of New York for an equal number
of shares of common stock, $.10 par value, of Con Edison.
Con Edison of New York, a regulated utility, provides electric service to over
three million customers and gas service to over one million customers in New
York City and Westchester County. It also provides steam service in parts of
Manhattan.
Note A Summary of Significant Accounting Policies
Principles of Consolidation Con Edison of New York's consolidated financial
statements include the accounts of Con Edison of New York and its consolidated
subsidiaries.
Accounting Policies The accounting policies of Con Edison of New York conform to
accounting principles generally accepted in the United States. For regulated
public utilities, like Con Edison of New York, accounting principles generally
accepted in the United States include Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and, in accordance with SFAS No. 71, the accounting requirements
and rate-making practices of the Federal Energy Regulatory Commission (FERC) and
the New York Public Service Commission (PSC).
The standards in SFAS No. 101, "Regulated Enterprises - Accounting for the
Discontinuation of Application of the Financial Accounting Standards Board
(FASB) Statement No. 71," have been applied to the non-nuclear electric supply
portion of Con Edison of New York's business that was deregulated (the
Deregulated Business) as a result of the Restructuring Agreement (defined
below). The Deregulated Business includes all of Con Edison of New York's fossil
electric generating assets and its non-utility generators (NUG) contracts and
related regulatory assets and liabilities. The application of SFAS No. 101 to
the Deregulated Business had no material effect on the financial position or
results of operations of Con Edison of New York.
No impairment of Con Edison of New York's fossil generating assets has been
recognized under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," because most of these
assets have been sold at a gain (see Note I) and the estimated cash flows from
the operation and/or sale of the remaining generating assets, together with the
cash flows from the strandable cost recovery provisions of the Restructuring
Agreement (see "Rate and Restructuring Agreements" in this Note A), will not be
less than the net carrying amount of the fossil generating assets.
Similarly, there has been no charge against Con Edison of New York's earnings
for the deferred charges (regulatory assets - principally relating to future
federal income taxes) and deferred credits (regulatory liabilities) relating to
the Deregulated Business because recovery of regulatory assets net of regulatory
liabilities is probable under the Restructuring Agreement. At December 31, 2000,
net regulatory assets amounted to approximately $975 million.
No loss has been accrued for Con Edison of New York's NUG contracts under SFAS
No. 5, "Accounting for Contingencies," because it is not probable that the
charges by NUGs under the contracts will exceed the cash flows from the sale by
Con Edison of New York of the electricity provided by the NUGs, together with
the cash flows provided pursuant to the Restructuring Agreement. See Note H.
Con Edison of New York recently entered into an agreement to sell its nuclear
generating assets, which include Indian Point 2, the retired Indian Point 1 and
certain related assets. The anticipated sales proceeds are expected to be less
than the net carrying amount of the nuclear generating assets at the time of
closing. No impairment of the assets has been recognized under SFAS No. 121,
because recovery is probable under the Restructuring Agreement. The company
expects to establish a regulatory
-96-
asset at the time the sale is completed. See Note G.
Rate and Restructuring Agreements In September 1997 the PSC approved a
restructuring agreement between Con Edison of New York, the PSC staff and
certain other parties (the Restructuring Agreement). The Restructuring Agreement
provided for a transition to a competitive electric market through the
development of a "retail access" plan, a rate plan for the period ending March
31, 2002, a reasonable opportunity for recovery of "strandable costs" and the
divestiture of electric generation capacity by Con Edison of New York.
At December 31, 2000, approximately 91,000 Con Edison of New York customers
representing approximately 20 percent of aggregate customer load were purchasing
electricity from other suppliers under the electric Retail Choice program (which
is available to all of Con Edison of New York's electric customers). Con Edison
of New York delivers electricity to customers in this program through its
regulated transmission and distribution systems. In general, the company's
delivery rates for Retail Choice customers are equal to the rates applicable to
other comparable Con Edison of New York customers, less an amount representing
the cost of the energy and capacity it avoids by not supplying these customers.
Pursuant to the Restructuring Agreement, Con Edison of New York reduced electric
rates, on an annual basis, by $129 million in 1998, $80 million in April 1999
and $103 million in April 2000 and is required to further reduce rates in April
2001 by $209 million. The April 2001 decrease will be partially offset by
recognition in income of $36 million relating to rates for distributing
electricity to customers of the New York Power Authority and $50 million of
deferred generation divestiture gain. See Note I.
Pursuant to the Restructuring Agreement, as amended by a July 1998 PSC order,
Con Edison of New York has sold approximately 6,800 MW of the approximately
8,300 MW of generating capacity that it owned (including 480 MW sold in January
2001). See Note I. In addition, Con Edison has agreed to sell its Indian Point 2
nuclear generating unit. See Note G.
In accordance with the April 1999 PSC order approving Con Edison's acquisition
of O&R, Con Edison of New York has reduced its annual electric and gas rates by
approximately $12 million and $2 million, respectively.
In November 2000 the PSC approved an agreement (the Agreement) that revises and
extends the rate plan provisions of the Restructuring Agreement. Pursuant to
the Agreement, Con Edison of New York reduced the distribution component of its
electric rates by $170 million on an annual basis, effective October 2000, and
will further electric rates, effective April 1, 2001, in accordance with the
Restructuring Agreement (as discussed above).
In general, under the Agreement, Con Edison of New York's base electric
transmission and distribution rates will not otherwise be changed during the
five-year period ending March 2005 except (i) with respect to certain changes in
costs above anticipated annual levels resulting from legal or regulatory
requirements, inflation in excess of a 4 percent annual rate, property tax
changes and environmental cost increases or (ii) if the PSC determines that
circumstances have occurred that either threaten the company's economic
viability or ability to provide, or render the company's rate of return
unreasonable for the provision of, safe and adequate service.
Under the Agreement, as approved by the PSC, 35 percent (50 percent if certain
energy price volatility mitigation objectives are achieved) of any earnings in
each of the rate years ending March 2002 through 2005 in excess of a specified
rate of return on electric common equity (12.9 percent for the rate year ending
March 2002 and 11.75 percent thereafter; or 12 percent if certain customer
service and reliability objectives are achieved) will be retained for
shareholders and the balance will be applied for customer benefit through rate
reductions or as otherwise determined by the PSC. There is no sharing of
earnings for the rate year ending March 2001. Con Edison of New York could be
required to pay up to $40 million annually in penalties if certain threshold
service and reliability objectives are not achieved.
Con Edison of New York's potential electric strandable costs are those prior
utility investments and commitments that may not be recoverable in a competitive
electric supply market. Con Edison of New York is recovering these costs in the
rates it charges all of its electric customers. The Agreement continues the
stranded cost recovery provisions of the
-97-
Restructuring Agreement, stating that Con Edison of New York "will be given a
reasonable opportunity to recover stranded and strandable costs remaining at
March 31, 2005, including a reasonable return on investments, under the
parameters and during the time periods set forth therein."
The Agreement also continues the rate provisions pursuant to which Con Edison of
New York recovers prudently incurred purchased power and fuel costs from
customers. See "Recoverable Energy Costs" in this Note A.
In November 2000 the PSC approved an agreement among Con Edison of New York, the
PSC staff and certain other parties that revised and extended the 1996 gas rate
settlement agreement through September 2001. The 1996 agreement, with limited
exceptions, continued base rates at September 1996 levels through September
2000.
Under the new agreement, the level above which the company will share with
customers 50 percent of earnings is increased from a 13 percent to a 14 percent
rate of return on gas common equity. In addition, customer bills are to be
reduced by $20 million during the January through March 2001 period;
approximately $22.6 million that normally would be credited to customers over
various annual periods is to be credited during the four-month period ending
March 2001; and $19 million of charges to customers resulting from the
reconciliation of actual gas costs to amounts included in rates that were
scheduled to be billed to customers beginning December 2000 instead are to be
billed to customers beginning April 2001.
Under the new agreement, Con Edison of New York will also reduce firm
transportation customer bills by a retail choice credit and will implement other
programs designed to increase customer and marketer participation in the
company's gas Retail Choice program, the net costs of which are to be recovered
by reducing credits otherwise due customers or deferred for future recovery from
customers.
In November 2000 the PSC approved an agreement between Con Edison of New York,
the PSC staff and certain other parties with respect to the steam rate plan
filed by the company in November 1999.
The agreement provides for a $16.6 million steam rate increase which took
effect October 2000 and, with limited exceptions, no further changes in steam
rates prior to October 2004. Con Edison of New York is required to share with
customers 50 percent of any earnings for any rate year covered by the agreement
in excess of a specified rate of return on steam common equity (11.0 percent for
the first rate year, the 12-month period ending September 2001; 10.5 percent
thereafter if the repowering of the company's East River steam-electric
generating plant is not completed). A rate moderation mechanism will permit the
company to defer a portion of the revenues collected in the first two rate years
attributable to the rate increase and recognize such deferrals in income during
the last two rate years.
Under the agreement, upon completion of the East River repowering project, the
net benefits of the project (including the net after-tax gain from the sale of a
nine-acre development site in mid-town Manhattan along the East River) allocable
to steam operations will be used to offset any deficiency in the accumulated
reserve for depreciation of steam plant or otherwise inure to the benefit of
steam customers.
The agreement continues the rate provisions pursuant to which the company
recovers prudently incurred purchased steam and fuel costs and requires the
company to develop a strategy for hedging price variations for a portion of the
steam produced each year.
Utility Plant and Depreciation Utility plant is stated at original cost. The
capitalized cost of additions to utility plant includes indirect costs such as
engineering, supervision, payroll taxes, pensions, other benefits and an
allowance for funds used during construction (AFDC). The original cost of
property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is
charged to expense, and the cost of betterments is capitalized.
Rates used for AFDC include the cost of borrowed funds and a reasonable rate on
Con Edison of New York's own funds when so used, determined in accordance with
PSC and FERC regulations. The AFDC rate was 7.2 percent in 2000 and 9.1 percent
in 1999 and 1998. The rate was compounded semiannually, and the amounts
applicable to borrowed funds were treated as a reduction of interest charges.
-98-
Con Edison of New York generally computes annual charges for depreciation using
the straight-line method for financial statement purposes, with rates based on
average lives and net salvage factors. The company's depreciation rates averaged
approximately 3.7 percent in 2000, 3.3 percent in 1999 and 3.4 percent in 1998.
Nuclear Generation For information about the accounting policies followed for
Con Edison of New York's nuclear generation, see Note G.
Revenues Con Edison of New York recognizes revenues for electric, gas and steam
service on a monthly billing cycle basis. The company defers for refund to firm
gas sales and transportation customers over a 12-month period all net
interruptible gas revenues not authorized by the PSC to be retained by the
company.
Recoverable Energy Costs Con Edison of New York recovers all of its prudently
incurred fuel, purchased power and gas costs in accordance with PSC-approved
rate provisions (which also include a $35 million annual incentive or penalty
relating to electricity costs). If the actual energy costs for a given month are
more or less than amounts billed to customers for that month, the difference is
recoverable from or refundable to customers. Differences between actual and
billed energy costs are generally deferred for charge or refund to customers
during the next billing cycle (normally within one or two months).
Temporary Cash Investments Temporary cash investments are short-term, highly
liquid investments that generally have maturities of three months or less. They
are stated at cost which approximates market. Con Edison of New York considers
temporary cash investments to be cash equivalents.
Investments For 2000 and 1999, investments consisted primarily of the external
nuclear decommissioning trust fund. The nuclear decommissioning trust fund is
stated at market, net of income taxes. Earnings on the nuclear decommissioning
trust fund are not recognized in income but are included in the accumulated
depreciation reserve. See "Decommissioning" in Note G.
New Financial Accounting Standards As of January 2001, Con Edison of New York
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities an amendment of FASB Statement No.
133." The application of SFAS No. 133 and No. 138 is not expected to have a
material effect on the financial position or results of operations of Con Edison
of New York or materially change its current disclosure practices. See Note M.
In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement
of FASB Statement No. 125." SFAS No. 140 revises the accounting for
securitizations, other financial asset transfers and collateral and introduces
new disclosures. The application of SFAS No. 140 is not expected to have a
material impact on Con Edison of New York's consolidated financial
statements.
Federal Income Tax In accordance with SFAS No. 109, "Accounting for Income
Taxes," Con Edison of New York has recorded an accumulated deferred federal
income tax liability for substantially all temporary differences between the
book and tax bases of assets and liabilities at current tax rates. In accordance
with rate agreements, the company has recovered amounts from customers for a
portion of the tax expense it will pay in the future as a result of the reversal
or "turn-around" of these temporary differences. As to the remaining temporary
differences, in accordance with SFAS No. 71, the company has established
regulatory assets for the net revenue requirements to be recovered from
customers for the related future tax expense. See Note J. In 1993 the PSC
issued an Interim Policy Statement proposing accounting procedures consistent
with SFAS No. 109 and providing assurances that these future increases in taxes
will be recoverable in rates. The final policy statement is not expected to
differ materially from the Interim Policy Statement.
Accumulated deferred investment tax credits are amortized ratably over the lives
of the related properties and applied as a reduction in future federal income
tax expense.
Con Edison of New York and its subsidiaries file a federal income tax return on
a consolidated basis with Con Edison and its other subsidiaries. Income taxes
are allocated to each company based on its taxable income.
-99-
State Income Tax The New York State tax laws applicable to utility companies
were changed, effective January 1, 2000. Certain revenue-based taxes were
repealed or reduced and replaced by a net income-based tax. In addition, a
compensating use tax was imposed on gas and electricity purchased outside New
York State for use within the state. In December 2000 the PSC issued its
requirements relating to the tax law changes. The amounts applicable to the
provisions of the previous tax laws will continue to be collected through base
rates and tariff surcharges, until the PSC directs otherwise, with the
differences between those collections and the tax expense under the new law to
be deferred, pending future disposition by the PSC.
Research and Development Costs Research and development costs relating to
specific construction projects are capitalized. All other such costs are charged
to operating expenses as incurred. Research and development costs in 2000, 1999
and 1998 amounting to $14.0 million, $12.4 million, and $20.3 million,
respectively, were charged to operating expenses. No research and development
costs were capitalized in these years.
Reclassification Certain prior year amounts have been reclassified to conform
with the current year presentation.
Estimates The accompanying consolidated financial statements reflect judgments
and estimates made in the application of the above accounting policies.
Note B Capitalization
Preferred Stock Not Subject To Mandatory Redemption Con Edison of New York has
the option to redeem its $5 cumulative preferred stock at $105 and its
cumulative preferred stock, Series C and Series D, at a price of $101 per share
(in each case, plus accrued and unpaid dividends).
Preferred Stock Subject To Mandatory Redemption Con Edison of New York is
required to redeem its cumulative preferred stock, Series J shares on August 1,
2002. The redemption price is $100 per share (plus accrued and unpaid
dividends). Series J shares may not be called for redemption while dividends are
in arrears on outstanding shares of $5 cumulative preferred stock or other
cumulative preferred stock.
Common Stock During the period 1998-1999, Con Edison of New York repurchased
$940.5 million of Con Edison's shares as follows:
(Millions) Shares Cost
- --------------------------------------------------------------------------------
1998 2.6 $120.8
1999 18.7 819.7
- --------------------------------------------------------------------------------
Dividends Under Con Edison of New York's Restructuring Agreement, the dividends
that it may pay are limited to not more than 100 percent of its income available
for dividends, calculated on a two-year rolling average basis. Excluded from the
calculation of "income available for dividends" are non-cash charges to income
resulting from accounting changes or charges to income resulting from
significant unanticipated events. The restriction also does not apply to
dividends made in order to transfer to Con Edison proceeds from major
transactions, such as asset sales, or to dividends reducing Con Edison of New
York's equity ratio to a level appropriate to its business risk.
Payment of Con Edison of New York's common stock dividends to Con Edison is
subject to certain additional restrictions. No dividends may be paid, or funds
set apart for payment, on Con Edison of New York's common stock until all
dividends accrued on the $5 cumulative preferred stock and other cumulative
preferred stock have been paid, or declared and set apart for payment, and
unless Con Edison of New York is not in arrears on its mandatory redemption
obligation for the Series J cumulative preferred stock. No dividends may be paid
on any of Con Edison of New York's capital stock during any period in which Con
Edison of New York has deferred payment of interest on its subordinated
deferrable interest debentures.
Long-Term Debt Long-term debt maturing in the period 2001-2005 is as follows:
(Millions of Dollars)
- ---------------------------------
2001 $300
2002 300
2003 150
2004 150
2005 450
- ---------------------------------
Long-term debt of Con Edison of New York is stated at cost which, as of December
31, 2000, approximates fair value (estimated based on
-100-
current rates for debt of the same remaining maturities).
Note C Short Term Borrowing
At December 31, 2000, Con Edison of New York had a $500 million commercial paper
program, under which short-term borrowings are made at prevailing market rates.
The program is supported by revolving credit agreements with banks. At December
31, 2000, $140 million, at a weighted average interest rate of 6.66 percent per
annum, was outstanding under the program. Con Edison of New York changes the
amount of its program from time to time, subject to an $800 million
FERC-authorized limit.
Bank commitments under the revolving credit agreements may terminate upon a
change of control of Con Edison or Con Edison of New York, and borrowings under
the agreements are subject to certain conditions, including that the ratio
(calculated in accordance with the agreements) of debt to total capital of the
borrower not at any time exceed 0.65 to 1. At December 31, 2000, this ratio was
0.53 to 1 for Con Edison of New York.
Note D Pension Benefits
Con Edison of New York has non-contributory pension plans that cover
substantially all of its employees and certain employees of other Con Edison
subsidiaries. The plans are designed to comply with the Employee Retirement
Income Security Act of 1974 (ERISA).
Investment gains and losses are recognized over five years and unrecognized
actuarial gains and losses are amortized over 10 years.
The company offered a special retirement program in 1999 providing enhanced
pension benefits for those employees who met specified eligibility requirements
and retired within specific time limits. These incentives fall within the
category of special termination benefits as described in SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." The increase in pension obligations
as a result of this program amounted to $45 million. The Agreement provided that
$15 million of this amount would be expensed in 2000 and the remaining $30
million would be recorded as a regulatory asset and amortized over a 15-year
period beginning in October 2000.
The components of the company's net periodic pension costs for 2000, 1999 and
1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Service cost - including
administrative expenses* $ 85.1 $105.1 $104.7
Interest cost on projected
benefit obligation 383.3 358.7 346.8
Expected return on plan assets (543.6) (486.6) (445.1)
Amortization of net
actuarial (gain) (189.7) (90.1) (71.7)
Amortization of prior
service cost 10.5 10.5 10.3
Amortization of transition
obligation 3.0 3.0 3.0
- --------------------------------------------------------------------------------
Net periodic pension cost (251.4) (99.4) (52.0)
- --------------------------------------------------------------------------------
Amortization of regulatory 17.7 2.2 2.2
asset**
- --------------------------------------------------------------------------------
Total pension cost $(233.7) $(97.2) $(49.8)
- --------------------------------------------------------------------------------
Cost capitalized (49.1) (19.2) (9.2)
Cost charged to operating
expenses (184.6) (78.0) (40.6)
- --------------------------------------------------------------------------------
* Effective January 1, 1998, an assumption for administrative expenses are
included as a component of service cost.
** Relates to $33.3 million increase in pension obligations from a 1993
special retirement program and $45 million increase from a 1999 special
retirement program.
The funded status of the plans at December 31, 2000, 1999 and 1998 was as
follows:
(Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at
beginning of year $4,915.1 $5,384.1 $4,940.6
Service cost - excluding
administrative expenses 83.8 103.8 103.4
Interest cost on projected
benefit obligation 383.3 358.7 346.8
Plan amendments 32.6 0.8 2.1
Actuarial (gain) loss 113.9 (728.0) 192.6
Special termination benefits -- 45.0 --
Benefits paid (256.4) (249.3) (201.4)
- --------------------------------------------------------------------------------
Benefit obligation at
end of year $5,272.3 $4,915.1 $5,384.1
- --------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at
beginning of year $7,430.8 $6,679.2 $5,988.7
Actual return on plan assets (82.5) 1,017.2 903.3
Employer contributions 1.5 1.7 1.4
Benefits paid (256.4) (249.3) (201.4)
Administrative expenses (16.0) (18.0) (12.8)
- --------------------------------------------------------------------------------
Fair value of plan assets
at end of year $7,077.4 $7,430.8 $6,679.2
- --------------------------------------------------------------------------------
Funded status $1,805.1 $2,515.7 $1,295.1
Unrecognized net (gain) (1,547.3) (2,491.6) (1,339.8)
Unrecognized prior
service costs 94.7 72.5 82.2
Unrecognized net
transition liability at
January 1, 1987* 2.4 5.3 8.3
- --------------------------------------------------------------------------------
Net prepaid benefit cost $ 354.9 $ 101.9 $ 45.8
- --------------------------------------------------------------------------------
* Being amortized over approximately 15 years.
-101-
The amounts recognized in the Consolidated Balance Sheet at December 31, 2000,
1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Prepaid benefit cost $383.9 $136.8 $ 80.1
Accrued benefit liability (37.1) (34.9) (34.3)
Intangible asset 7.1 -- --
Accumulated other
comprehensive income 1.0 -- --
- --------------------------------------------------------------------------------
Net Amount Recognized $354.9 $101.9 $ 45.8
- --------------------------------------------------------------------------------
In 2000, Con Edison of New York adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires reporting of comprehensive income in any complete
presentation of general-purpose financial statements. Comprehensive income
consists of additional minimum pension liability adjustments (see Consolidated
Statement of Comprehensive Income).
The actuarial assumptions at December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets 8.50% 8.50% 8.50%
Rate of compensation
increase 4.55% 4.80% 4.80%
Note E Postretirement Benefits Other than Pensions
Con Edison of New York has a contributory comprehensive hospital, medical and
prescription drug program for all retirees, their dependents and surviving
spouses. The company also has a contributory life insurance program for
bargaining unit employees. In addition, the company provides basic life
insurance benefits up to a specified maximum at no cost to retired management
employees.
Certain employees of other Con Edison subsidiaries are eligible to receive
benefits under these programs. The company has reserved the right to amend or
terminate these programs.
Investment gains and losses are recognized over five years and unrecognized
actuarial gains and losses are amortized over 10 years.
The components of the company's postretirement benefit (health and life
insurance) costs for 2000, 1999 and 1998 were as follows:
(Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 9.2 $13.7 $14.9
Interest cost on
accumulated
postretirement benefit
obligation 72.0 72.5 70.8
Expected return on plan
assets (59.1) (41.5) (38.2)
Amortization of net
actuarial loss 0.3 26.8 20.9
Amortization of prior
service cost 1.4 1.4 --
Amortization of transition
obligation 17.4 17.4 21.5
- --------------------------------------------------------------------------------
Net periodic
postretirement benefit
cost $41.2 $90.3 $89.9
- --------------------------------------------------------------------------------
Cost capitalized 8.7 17.8 16.7
Cost charged to operating
expenses 32.5 72.5 73.2
- --------------------------------------------------------------------------------
The funded status of the programs at December 31, 2000, 1999 and 1998 was as
follows:
(Millions of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Change in benefit
obligation
Benefit obligation at
beginning of year $ 924.0 $1,097.0 $ 964.1
Service cost 9.2 13.7 14.9
Interest cost on
accumulated
postretirement benefit
obligation 72.0 72.5 70.8
Plan amendments 0.6 -- (44.8)
Actuarial (gain) loss 124.6 (211.8) 133.7
Benefits paid and
administrative expenses (66.4) (58.1) (51.7)
Participant contributions 11.8 10.7 10.0
- --------------------------------------------------------------------------------
Benefit obligation at
end of year $1,075.8 $ 924.0 $1,097.0
- --------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at
beginning of year $ 834.4 $ 665.8 $ 574.1
Actual return on plan
assets 4.2 100.5 119.3
Employer contributions 21.0 115.5 14.1
Participant contributions 11.8 10.7 10.0
Benefits paid (61.3) (53.9) (47.7)
Administrative expenses (5.1) (4.2) (4.0)
- --------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 805.0 $ 834.4 $ 665.8
- --------------------------------------------------------------------------------
Funded status $ (270.8) $ (89.6) $ (431.2)
Unrecognized net
(gain) loss (45.4) (224.6) 73.0
Unrecognized prior
service costs 10.4 11.2 12.6
Unrecognized transition
obligation at January 1,
1993* 208.8 226.2 243.6
- --------------------------------------------------------------------------------
Accrued postretirement
benefit cost $ (97.0) $ (76.8) $ (102.0)
- --------------------------------------------------------------------------------
* Being amortized over a period of 20 years.
The actuarial assumptions at December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets
Tax-exempt assets 8.50% 8.50% 8.50%
Taxable assets 7.50% 7.50% 7.50%
The health care cost trend rate assumed for 2001 was 8.0 percent. The rate was
assumed to decrease gradually to 5.0 percent for 2006 and remain at that level
thereafter.
-102-
A one-percentage point change in the assumed health care cost trend rate would
have the following effects:
1-Percentage- 1-Percentage-
(Millions of Dollars) Point Increas Point Decrease
- --------------------------------------------------------------------------------
Effect on accumulated
postretirement benefit
obligation $134.2 $117.5
Effect on service cost and
interest cost components $ 11.5 $ 9.8
Note F Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and
coal tar, have been used or generated in the course of operations of Con Edison
of New York and may be present in its facilities and equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (Superfund) and similar state statutes impose joint and several strict
liability, regardless of fault, upon generators of hazardous substances for
resulting removal and remedial costs and environmental damages. Liabilities
under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may
have been lawful at the time they occurred.
At December 31, 2000, Con Edison of New York had accrued $85 million as its best
estimate of its liability for sites as to which it has received process or
notice alleging that hazardous substances generated by the company (and, in most
instances, other potentially responsible parties) were deposited. There will be
additional liability at these sites and other sites, the amount of which is not
presently determinable but may be material to the company's financial position,
results of operations or liquidity.
Under Con Edison of New York's current electric, gas and steam rate agreements,
site investigation and remediation costs in excess of $5 million annually
incurred with respect to hazardous waste for which it is responsible are to be
deferred and subsequently reflected in rates. At December 31, 2000, $15 million
of such costs had been deferred as regulatory assets.
Suits have been brought in New York State and federal courts against Con Edison
of New York and many other defendants, wherein a large number of plaintiffs
sought large amounts of compensatory and punitive damages for deaths and
injuries allegedly caused by exposure to asbestos at various premises of the
company. Many of these suits have been disposed of without any payment by Con
Edison of New York, or for immaterial amounts. The amounts specified in all the
remaining suits total billions of dollars but the company believes that these
amounts are greatly exaggerated, as were the claims already disposed of. Based
on the information and relevant circumstances known to the company at this time,
it does not believe that these suits will have a material adverse effect on its
financial position, results of operations or liquidity.
Note G Nuclear Generation
Con Edison of New York owns the Indian Point 2 nuclear generating unit, which
has a capacity of approximately 1,000 MW, and the retired Indian Point 1 nuclear
generating unit.
The book value of Indian Point 2, net of accumulated depreciation, was $504
million and $382 million at December 31, 2000 and 1999, respectively.
Pending Sale In November 2000 Con Edison of New York entered into an agreement
with Entergy Nuclear Indian Point 2 LLC (Entergy) for the sale of Indian Point
2, the retired Indian Point 1 and certain related assets (including fuel) for
approximately $602 million, subject to other adjustments. The estimated net
after-tax loss on the sale of $170 million will be deferred as a regulatory
asset at the time the sale is completed. No impairment of the assets has been
recognized under SFAS No. 121 because recovery is probable under the Agreement
(see "Rate and Restructuring Agreement" in Note A).
Under the agreement, Con Edison of New York will transfer $430 million of
decommissioning trust funds at closing and Entergy will assume full
responsibility for the decommissioning of Indian Point 1 and 2. In addition, Con
Edison of New York has entered into a power purchase agreement with Entergy
through the end of 2004 for the output of the Indian Point 2 unit at an annual
average price of 3.9 cents per kilowatthour. The sale is subject to PSC and
other regulatory approvals and other conditions.
Rate Recovery Con Edison of New York is recovering its investment in Indian
Point 2 and
-103-
funds to decommission Indian Point 1 and 2 in the rates it charges all its
electric customers. Under the Agreement, following March 31, 2005, the company
will be given a reasonable opportunity to recover its remaining investment in
Indian Point 2, including funds needed to decommission Indian Point 1 and 2,
through a non-bypassable charge to customers over a periods that will extend no
longer than the end of Indian Point 2's operating license in 2013.
Reconciliation of estimated and actual decommissioning costs may be reflected in
rates after 2013.
Outage Proceedings In February 2000 Con Edison of New York shut down Indian
Point 2 following a leak in one of its four steam generators. The plant returned
to service in January 2001. During the outage, the steam generators were
replaced and refueling and maintenance work was performed.
The staff of the Nuclear Regulatory Commission (NRC) has advised Con Edison of
New York that it will monitor Indian Point 2 with heightened oversight.
The PSC is investigating the Indian Point 2 outage and its causes and the
prudence of Con Edison of New York's actions regarding the operation and
maintenance of Indian Point 2. The PSC has indicated that the examination should
include, among other things, Con Edison of New York's inspection practices, the
circumstances surrounding Indian Point 2's October 1997 to September 1998
outage, the basis for postponement of the steam generator replacement and
whether, and to what extent, increased replacement power costs and repair and
replacement costs should be borne by Con Edison of New York's shareholders.
In August 2000 the New York State legislature enacted the "Indian Point 2 Law,"
which directed the PSC to prohibit the company from recovering Indian Point 2
replacement power costs from customers. In October 2000 the United States
District Court for the Northern District of New York, in an action entitled
Consolidated Edison Company of New York, Inc. v. Pataki, et al., determined that
the Indian Point 2 Law was unconstitutional and granted the company's motion for
a permanent injunction to prevent its implementation. Appeals of the court's
decision have been filed in the United States Court of Appeals for the Second
Circuit.
Con Edison of New York has billed to customers the Indian Point 2 replacement
power costs incurred prior to August 2000 and after October 2000, but not
approximately $90 million of replacement power costs incurred in August through
October 2000.
Con Edison of New York believes that its operation, maintenance and inspection
practices related to Indian Point 2 have been prudent. At December 31, 2000, the
company accrued a $40 million liability for the possible disallowance of Indian
Point 2 replacement costs that it recovered from customers. The company is
unable to predict whether or not any Indian Point 2-related proceedings,
lawsuits, legislation or other actions will have a material adverse effect on
its financial position, results of operations or liquidity.
Outage Accounting Scheduled refueling and maintenance outages are generally
required after a cycle of approximately 22 months. Con Edison of New York's
electric rates reflect a charge for the cost of scheduled refueling and
maintenance outages. Under the company's current and previous electric rate
agreements, these charges have been deferred for recognition in income during
the period in which expenses are incurred for the outage. The costs of
unscheduled outages are expensed as incurred and are not reflected in rates.
Decommissioning Since 1975, Con Edison of New York has been collecting costs of
decommissioning from customers and accruing such amounts within its internal
accumulated depreciation reserve. Amounts collected to fund decommissioning of
the nuclear portions of the units have been deposited in external trust funds
and earnings on such funds have been accrued as additional accumulated
depreciation. The trust funds amounted to $329.0 million and $305.7 million,
respectively, at December 31, 2000 and 1999. See "Investments" in Note A.
Accumulated decommissioning provisions at December 31, 2000 and 1999 were as
follows:
Amounts Included in
Accumulated Depreciation
- --------------------------------------------------------------------------------
(Millions of Dollars) 2000 1999
- --------------------------------------------------------------------------------
Nuclear $329.0 $305.7
Non-nuclear 55.1 55.4
- --------------------------------------------------------------------------------
Total $384.1 $361.1
- --------------------------------------------------------------------------------
-104-
Con Edison of New York's electric rates reflect annual expense allowances of
$21.3 million and $1.8 million, respectively, to fund the estimated costs of
decommissioning the nuclear and non-nuclear portions of the Indian Point 1 and 2
units. These amounts were established pursuant to a 1995 electric rate agreement
based upon a 1994 site-specific study. The study estimated the decommissioning
costs to be approximately $657 million in 1993 dollars (assuming 2016 as the
midpoint for decommissioning expenditures), including $252 million for extended
storage of spent nuclear fuel. The minimum decommissioning fund estimate
calculated in accordance with NRC regulations was between $572 million and $981
million as of December 31, 2000.
Nuclear Fuel Nuclear fuel assemblies and components are amortized to operating
expense based on the quantity of heat produced in the generation of electricity.
Nuclear fuel costs are recovered in revenues through base rates or through the
fuel adjustment clause.
Nuclear fuel costs include provisions for payments to the U.S. Department of
Energy (DOE) for future off-site storage of the spent fuel and for a portion of
the costs to decontaminate and decommission the DOE facilities used to enrich
uranium purchased by Con Edison of New York. Such payments amounted to $3.9
million in 2000.
The DOE has defaulted on its obligation to Con Edison of New York and all other
utilities that have nuclear reactors to begin to take title to the spent nuclear
fuel generated at Indian Point 2. The company and a number of other utilities
are pursuing their legal remedies against the DOE. The company estimates that it
has adequate on-site capacity for interim storage of its spent fuel until 2005
after which, absent regulatory or technological developments, additional on-site
or other spent fuel storage facilities would be required. The operation of
Indian Point 2 could be curtailed if appropriate arrangements for the storage of
its spent fuel were not made.
Nuclear Insurance The insurance policies covering Con Edison of New York's
nuclear facilities for property damage, excess property damage, and outage costs
permit assessments under certain conditions to cover insurers' losses. As of
December 31, 2000, the highest amount that could be assessed for losses during
the current policy year under all of the policies was $14.7 million. While
assessments may also be made for losses in certain prior years, the company is
not 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, the company could be assessed up to $88.1 million per
incident, of which not more than $10 million may be assessed in any one year.
Note H Non-Utility Generators (NUGs)
Con Edison of New York has contracts with NUGs for approximately 2,100 MW of
electric generating capacity. Assuming performance by the NUGs, the company is
obligated over the terms of the contracts (which extend for various periods, up
to 2036) to make capacity and other fixed payments.
For the years 2001-2005, the capacity and other fixed payments under the
contracts are estimated to be $466 million, $476 million, $487 million, $498
million and $508 million. Such payments gradually increase to approximately $600
million in 2013, and thereafter decline significantly. For energy delivered
under these contracts, the company is obligated to pay variable prices that are
estimated to be lower than expected market levels.
Under the terms of its electric rate agreements, Con Edison of New York is
recovering in rates the charges it incurs under contracts with NUGs. The
Agreement provides that, following March 31, 2005, the company will be given a
reasonable opportunity to recover, through a non-bypassable charge to customers,
the amount, if any, by which the actual costs of its purchases under the
contracts exceed market value.
The Restructuring Agreement provided for a potential NUG contract disallowance
of the lower of (i) 10 percent of the above-market costs or (ii) $300 million
(in 2002 dollars). The Restructuring Agreement provided that Con Edison of New
York could offset the potential disallowance by NUG contract mitigation and by
10 percent of the gross proceeds of any generating unit sales to third parties.
The company has offset the entire $300 million maximum possible disallowance
through NUG contract mitigation and generating plant divestiture proceeds.
-105-
Note I Generation Divestiture
In 1999 Con Edison of New York completed the sales of almost 6,300 MW of its
approximately 8,300 MW of electric generating assets for an aggregate price of
$1.8 billion. The net book value of the assets sold was approximately $1
billion.
In 1999, pursuant to the Restructuring Agreement, $50 million of the net
after-tax gain was applied as an increase to the accumulated depreciation
reserve for Indian Point 2 and $29 million of accumulated deferred taxes and
investment tax credits relating to the assets sold were recognized in income. In
2000, pursuant to the Agreement, the balance of the net after-tax gain
(including interest accrued thereon) was applied as follows: $188.2 million was
credited against electric distribution plant balances, $107.3 million was used
to offset a like amount of regulatory assets (including deferred power contract
termination costs), $50 million was deferred for recognition in income during
the 12 months ending March 31, 2002, and $12 million was deferred to be used for
low-income customer programs. Pursuant to the Agreement, $30 million of
voluntary employee retirement incentive expenses related to the generation
divestiture were deferred for amortization over 15 years and $15 million of such
expenses were charged to income in 2000.
The Agreement provides for recovery of an approximately $74 million regulatory
asset representing incremental electric capacity costs incurred prior to May
2000 to purchase capacity from the buyers of the generating assets the company
sold. The Agreement provides for the company to recover these deferred costs
from the shareholders' portion of any earnings above the Earnings Sharing Levels
and by March 2005 to charge to expense any remaining asset balance.
At December 31, 2000, Con Edison of New York owned approximately 2,000 MW of
electric generating assets, including its approximately 1,000 MW Indian Point 2
plant (the sale of which is pending, see Note G) and a 480 MW interest in the
jointly-owned Roseton generating station, the sale of which was completed in
January 2001. The net book value of the company's interest in Roseton was
approximately $55.5 million, and the net after-tax gain from the sale was $37.3
million.
-106-
Note J Income Tax Consolidated Edison Company of New York, Inc.
The components of income taxes are as follows:
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Charged to operations:
State $22,233 $ -- $ --
Federal Current 111,081 857,717 329,430
Deferred - net 160,488 (455,419) 94,090
Amortization of investment tax credit (7,955) (8,151) (8,710)
- -------------------------------------------------------------------------------------------------------
Total charged to operations 285,847 394,147 414,810
- -------------------------------------------------------------------------------------------------------
Charged to other income:
State (864) -- --
Federal Current (1,267) 101 (1,625)
Deferred - net 3,065 841 1,050
Amortization of taxes associated with divestiture assets 3,145 (29,008) --
- -------------------------------------------------------------------------------------------------------
Total charged to other income 4,079 (28,066) (575)
- -------------------------------------------------------------------------------------------------------
Total $289,926 $366,081 $414,235
- -------------------------------------------------------------------------------------------------------
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities is as follows:
As of December 31 (Millions of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Liabilities:
Depreciation $1,353.9 $1,284.6 $1,307.6
Excess deferred federal income tax on depreciation 152.1 159.5 186.7
Advance refunding of long-term debt 31.9 32.5 35.5
Other 133.2 90.9 76.4
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,671.1 1,567.5 1,606.2
- -------------------------------------------------------------------------------------------------------
Assets:
Unbilled revenues (81.7) (86.1) (87.2)
Federal income tax audit adjustments -- 1992-1994 (29.7) (30.5) --
Other (67.6) (81.7) (87.7)
- -------------------------------------------------------------------------------------------------------
Total assets (179.0) (198.3) (174.9)
- -------------------------------------------------------------------------------------------------------
Regulatory liability - future federal income taxes 642.9 751.9 951.0
- -------------------------------------------------------------------------------------------------------
Net Liability $2,135.0 $2,121.1 $2,382.3
- -------------------------------------------------------------------------------------------------------
Reconciliation of the difference between income tax expenses and the amount
computed by applying the prevailing statutory income tax rate to income before
income taxes is as follows:
Year Ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
(% of Pre-tax income)
Statutory tax rate
Federal 35% 35% 35%
Changes in computed taxes resulting from:
State income tax 2% -- --
Depreciation related differences 4% 5% 4%
Cost of removal (7)% (3)% (2)%
Amortization of taxes associated with divestiture assets -- (3)% --
Amortization of investment tax credit (1)% (1)% (1)%
Other --% 1% --
- -------------------------------------------------------------------------------------------------------
Effective Tax Rate 33% 34% 36%
- -------------------------------------------------------------------------------------------------------
-107-
Note K Stock-Based Compensation
Under Con Edison's Stock Option Plan (the Plan), options may be granted to
officers and key employees of Con Edison and its subsidiaries, including Con
Edison of New York, for up to 10 million shares of Con Edison's common stock.
Generally, options become exercisable three years after the grant date and
remain exercisable until 10 years from the grant date.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," Con
Edison and Con Edison of New York have elected to follow Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and
related interpretations in accounting for employee stock options. Under APB
25, because the exercise price of Con Edison's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Disclosure of pro-forma information regarding net income is required by SFAS No.
123. The information presented below relates to the income of Con Edison of New
York. This information has been determined as if Con Edison of New York had
accounted for the stock options awarded to officers and employees under the fair
value method of that statement. The fair values of 2000, 1999 and 1998 options
are $4.42, $7.90 and $6.23 per share, respectively. They were estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.25% 5.24% 5.61%
Expected lives - in years 8 8 8
Expected stock volatility 20.51% 18.76% 12.68%
Dividend yield 6.60% 4.46% 4.98%
The following table reflects pro forma net income had Con Edison of New York
elected to adopt the fair value approach of SFAS No. 123 (income in millions):
2000 1999 1998
---- ---- ----
Net Income:
As reported $570 $698 $728
Pro forma 566 695 726
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
A summary of the status of stock options awarded to officers and employees of
Con Edison of New York under the Plan as of December 31, 2000, 1999 and 1998 and
changes during those years is as follows:
Weighted
Average
Shares Price
------ -----
Outstanding at 12/31/97 1,517,200 $ 29.852
Granted 871,650 42.607
Exercised 0 0
Forfeited (21,900) 36.041
- --------------------------------------------------------------------------------
Outstanding at 12/31/98 2,366,950 34.492
Granted 1,183,650 42.595
Exercised (113,440) 27.875
Forfeited (20,250) 40.264
- --------------------------------------------------------------------------------
Outstanding at 12/31/99 3,416,910 39.313
Granted 1,166,500 32.499
Exercised (68,697) 29.732
Forfeited (48,100) 39.231
- --------------------------------------------------------------------------------
Outstanding at 12/31/00 4,466,613 37.682
The following summarizes the Plan's stock options outstanding at December 31,
2000:
Weighted
Average Shares
Plan Exercise Outstanding Remaining
Year Price At 12/31/00 Contractual Life
- ---- ----- ----------- ----------------
2000 $32.499 1,156,500 9 years
1999 47.883 1,164,400 8 years
1998 42.608 840,850 7 years
1997 31.500 766,913 6 years
1996 27.875 537,950 5 years
Pursuant to employment agreements, effective September 2000, Con Edison granted
certain officers of Con Edison and Con Edison of New York an aggregate of
350,000 restricted stock units. The units, each of which represents the right to
receive one share of Con Edison common stock and related dividends, vest over a
five-year period and upon the occurrence of certain events. Pursuant to SFAS
No.123, Con Edison of New York is recognizing compensation expense and accruing
a liability for the units over the vesting period.
-108-
NOTE L FINANCIAL INFORMATION BY BUSINESS SEGMENT (a) Consolidated Edison Company
of New York, Inc.
Electric Steam
- ----------------------------------------------------------------------- ---------------------------------------
(Thousands of Dollars) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 6,467,074 $ 5,672,348 $ 5,717,119 $ 452,135 $ 340,026 $ 321,932
Intersegment revenues 11,541 12,740 10,791 2,023 1,667 1,655
Depreciation and amortization 456,727 423,330 439,869 18,173 17,996 17,361
Income tax expense 227,445 328,032 351,088 2,867 2,910 5,057
Operating income 753,584 830,332 905,976 25,097 19,450 19,416
Total assets 10,136,309 9,924,167 10,919,857 596,510 565,945 575,018
Construction expenditures 752,460 515,149 465,258 32,014 28,488 30,512
Gas Other
- ----------------------------------------------------------------------- ---------------------------------------
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 1,081,534 $ 943,641 $ 959,609 $ -- $ -- $ --
Intersegment revenues 3,113 2,811 2,460 -- -- --
Depreciation and amortization 60,279 62,692 60,596 -- -- --
Income tax expense 55,535 63,205 58,665 -- -- --
Operating income 173,387 151,733 141,680 -- -- --
Total assets 2,027,064 1,835,026 1,795,567 1,788,058 1,357,014 882,355
Construction expenditures 123,174 111,766 123,074 -- -- --
Total
- -----------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------
Operating revenues $ 8,000,743 $ 6,956,015 $ 6,998,660
Intersegment revenues 16,677 17,218 14,906
Depreciation and amortization 535,179 504,018 517,826
Income tax expense 285,847 394,147 414,810
Operating income 952,068 1,001,515 1,067,072
Total assets 14,547,941 13,682,152 14,172,797
Construction expenditures 907,648 655,403 618,844
(a) For a description of Con Edison of New York, see "Con Edison" appearing
before Note A.
-109-
Note M Derivative Instruments and Hedging Activities
Con Edison of New York does not enter into derivative transactions that do not
qualify for deferred accounting treatment. At December 31, 2000, deferred gains
or losses were not material.
Energy Trading Con Edison of New York uses derivative instruments to hedge
purchases or sales of electricity and gas against adverse market price
fluctuations.
Con Edison of New York, pursuant to SFAS No. 71, defers recognition in income of
hedging gains and losses until the electricity or gas is purchased or sold.
Pursuant to rate provisions that permit the recovery of the cost of purchased
power and gas, Con Edison of New York credits or charges to its customers
hedging gains or losses and related transaction costs. See "Recoverable Energy
Costs" in Note A. SFAS No. 133 will not change how Con Edison of New York
accounts for these hedging transactions. Where SFAS No. 71 does not allow
deferred accounting, Con Edison of New York will elect special hedge accounting
pursuant to SFAS No. 133 to defer recognition in income of hedging gains and
losses.
- 110 -
Report of Independent Accountants
To the Stockholder and Board of Directors
of Orange and Rockland Utilities, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Orange
and Rockland Utilities, Inc. and its subsidiaries (the "Company") at December
31, 2000 and 1999, and the results of their operations and their cash flows for
the years ended December 31, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule as of and for the years ended
December 31, 2000 and 1999 listed in the accompanying index present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
February 15, 2001
- 111 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
of Orange and Rockland Utilities, Inc.:
We have audited the accompanying consolidated statements of income, retained
earnings and cash flows of Orange and Rockland Utilities, Inc. (a New York
corporation) and Subsidiaries for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Orange and Rockland Utilities, Inc. and Subsidiaries for the year ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Supplemental Schedule II, Valuation and Qualifying
Accounts, is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the 1998 financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
February 4, 1999
- 112 -
Consolidated Balance Sheet Orange and Rockland Utilities, Inc. and Subsidiaries
Assets
At December 31 (Thousands of Dollars) 2000 1999
- -----------------------------------------------------------------------------------------------
Utility plant, at original cost (Note A)
Electric $ 672,338 $ 653,503
Gas 279,661 263,645
General 106,348 107,661
- -----------------------------------------------------------------------------------------------
Total 1,058,347 1,024,809
Less: Accumulated depreciation 366,432 348,060
- -----------------------------------------------------------------------------------------------
Net 691,915 676,749
Construction work in progress 28,091 22,373
- -----------------------------------------------------------------------------------------------
Net utility plant 720,006 699,122
- -----------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments (Note A) 8,483 78,927
Accounts receivable - customer, less allowance for uncollectible
accounts of $3,845 in 2000 and $5,395 in 1999 82,183 58,586
Other receivables - less allowance for uncollectible accounts of
$818 in 2000 and $1,401 in 1999 7,551 12,707
Accounts receivable from affiliated company -- 626
Accrued utility revenue (Note A) 29,025 24,181
Gas in storage, at average cost 16,567 14,856
Materials and supplies, at average cost 4,815 4,333
Prepayments 23,854 20,761
Other current assets 20,735 22,316
- -----------------------------------------------------------------------------------------------
Total current assets 193,213 237,293
- -----------------------------------------------------------------------------------------------
Investments
Non-Utility property-net of accumulated depreciation and amortization 3,249 3,415
Other 6 6
- -----------------------------------------------------------------------------------------------
Total investments 3,255 3,421
- -----------------------------------------------------------------------------------------------
Deferred charges, regulatory assets and noncurrent assets
Regulatory Assets
Recoverable energy costs 66,207 18,400
Deferred pension and other postretirement benefits 41,890 45,328
Deferred environmental remediation costs 34,056 3,330
Future federal income tax 33,659 33,115
Other regulatory assets 26,761 31,400
Deferred revenue taxes 7,337 10,130
- -----------------------------------------------------------------------------------------------
Total regulatory assets 209,910 141,703
Other deferred charges and noncurrent assets 12,273 7,237
- -----------------------------------------------------------------------------------------------
Total deferred charges, regulatory assets and noncurrent assets 222,183 148,940
- -----------------------------------------------------------------------------------------------
Total $1,138,657 $1,088,776
- -----------------------------------------------------------------------------------------------
- 113 -
Capitalization and Liabilities
At December 31 (Thousands of Dollars) 2000 1999
- --------------------------------------------------------------------------------
Capitalization (see Statement of Capitalization)
Common shareholder's equity $ 332,640 $ 332,014
Long-term debt 335,656 281,524
- --------------------------------------------------------------------------------
Total capitalization 668,296 613,538
- --------------------------------------------------------------------------------
Noncurrent liabilities:
Pension and benefit reserve 76,222 66,950
Other noncurrent liabilities 26,974 34,538
- --------------------------------------------------------------------------------
Total noncurrent liabilities 103,196 101,488
- --------------------------------------------------------------------------------
Current liabilities:
Long-term debt due within one year (Note B) -- 120,000
Notes payable 40,820 --
Accounts payable 58,664 49,626
Accounts payable to affiliated companies 9,169 5,105
Accrued federal income and other taxes 4,863 --
Customer deposits 7,126 7,217
Accrued interest 7,087 8,521
Accrued environmental costs 32,852 2,300
Other current liabilities 27,756 20,019
- --------------------------------------------------------------------------------
Total current liabilities 188,337 212,788
- --------------------------------------------------------------------------------
Deferred credits and regulatory liabilities
Accumulated deferred federal income tax 120,497 119,509
Deferred investment tax credits 6,897 7,351
Regulatory Liabilities
Pension and other benefits 15,587 23,855
Gas recoveries and pipeline refunds 15,076 6,061
Industry restructuring collections 14,198 588
Other regulatory liabilities 6,358 3,116
- --------------------------------------------------------------------------------
Total regulatory liabilities 51,219 33,620
Other deferred credits 215 482
- --------------------------------------------------------------------------------
Total deferred credits and regulatory liabilities 178,828 160,962
- --------------------------------------------------------------------------------
Total $1,138,657 $1,088,776
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- 114 -
Consolidated Income Statement Orange and Rockland Utilities, Inc. and
Subsidiaries
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Operating revenues (Note A)
Electric $ 513,016 $ 459,776 $ 489,878
Gas 183,436 156,995 135,619
Non-utility 4,521 723 607
- ----------------------------------------------------------------------------------------------------
Total operating revenues 700,973 617,494 626,104
- ----------------------------------------------------------------------------------------------------
Operating expenses
Purchased power 272,544 136,648 49,588
Fuel 39 44,451 94,503
Gas purchased for resale 117,150 87,947 71,649
Other operations 118,364 171,979 149,141
Maintenance 27,177 33,268 36,735
Depreciation and amortization (Note A) 26,862 32,670 35,735
Taxes, other than income tax 55,570 79,564 88,083
Income tax (Notes A and L) 22,826 5,683 24,680
- ----------------------------------------------------------------------------------------------------
Total operating expenses 640,532 592,210 550,114
- ----------------------------------------------------------------------------------------------------
Operating income 60,441 25,284 75,990
- ----------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A) 4,846 2,565 1,671
Allowance for equity funds used during construction (Note A) 212 20 4
Other income less miscellaneous deductions 757 53,932 875
Income tax (Notes A and L) (1,829) (34,441) 11
- ----------------------------------------------------------------------------------------------------
Total other income 3,986 22,076 2,561
- ----------------------------------------------------------------------------------------------------
Income before interest charges 64,427 47,360 78,551
- ----------------------------------------------------------------------------------------------------
Interest on long-term debt 22,933 27,534 25,004
Other interest 2,951 5,336 9,449
Allowance for borrowed funds used during construction (Note A) (526) (235) (869)
- ----------------------------------------------------------------------------------------------------
Net interest charges 25,358 32,635 33,584
- ----------------------------------------------------------------------------------------------------
Net income 39,069 14,725 44,967
- ----------------------------------------------------------------------------------------------------
Preferred and preference stock requirements -- 886 2,797
- ----------------------------------------------------------------------------------------------------
Net income for common stock $ 39,069 $ 13,839 $ 42,170
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Retained Earnings Orange and Rockland Utilities, Inc.
and Subsidiaries
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------
Balance, January 1 $ 137,535 $ 186,520 $ 181,473
Net income for the year 39,069 14,725 44,967
- -----------------------------------------------------------------------------------
Total 176,604 201,245 226,440
- -----------------------------------------------------------------------------------
Dividends declared on capital stock
Cumulative Preferred, at required annual rates -- 886 2,797
Dividend to parent 37,000 45,000 --
Common stock -- 17,447 34,899
- -----------------------------------------------------------------------------------
Total dividends declared 37,000 63,333 37,696
- -----------------------------------------------------------------------------------
Capital Stock, retirement -- (377) (2,213)
Capital Stock expense 6 -- (11)
- -----------------------------------------------------------------------------------
Balance, December 31 $ 139,610 $ 137,535 $ 186,520
- -----------------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income Orange and Rockland Utilities,
Inc. and Subsidiaries
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
Net Income $ 39,069 $ 13,839 $ 42,170
Other Comprehensive Income/(loss)
Investment in Marketable Equity Securities, net of $454 taxes (843) -- --
Minimum Pension Liability Adjustments, net of $340 taxes (631) -- --
- ------------------------------------------------------------------------------------------------------
Total Other Comprehensive (loss), net of taxes (1,474) -- --
- ------------------------------------------------------------------------------------------------------
Comprehensive Income $ 37,595 $ 13,839 $ 42,170
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- 115 -
Consolidated Statement of Cash Flows Orange and Rockland Utilities, Inc. and
Subsidiaries
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Operating activities
Net income $ 39,069 $ 14,725 $ 44,967
Principal non-cash charges (credits) to income
Depreciation and amortization 26,862 32,670 35,286
Amortization of investment tax credit (454) (6,303) (828)
Federal income tax deferred 444 (37,221) 5,612
Common equity component of allowance for funds used during construction (212) (20) (4)
Gain on sale of land (net of tax) (2,404) -- --
Other non-cash charges (debits) 3,462 4,900 17
Changes in assets and liabilities
Accounts receivable -- net, and accrued utility revenue (28,441) 2,817 3,379
Materials and supplies, including fuel and gas in storage (2,194) 14,972 1,108
Prepayments, other receivables and other current assets (13,212) 12,550 (9,743)
Deferred recoverable energy costs (26,166) (1,055) 423
Accounts payable 30,584 (5,843) 2,943
Refunds to customers 1,621 24,432 237
Other -- net 10,326 13,305 (5,818)
- -------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 39,285 69,929 77,579
- -------------------------------------------------------------------------------------------------------------
Investing activities including construction
Construction expenditures (51,279) (40,693) (53,037)
Common equity component of allowance for funds used during construction 212 20 4
Divestiture of utility plant (net of current federal income tax) -- 256,117 --
Proceeds from sale of land (net of tax) 2,548 -- --
- -------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities including construction (48,519) 215,444 (53,033)
- -------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Issuance of long-term debt 55,000 45,000 3,200
Retirement of long-term debt (120,030) (1,690) (2,684)
Retirement of common stock -- -- (3,225)
Retirement of preferred stock -- (43,516) --
Short-term debt arrangements 40,820 (149,050) 18,489
Dividend to parent (37,000) (45,000) --
Common stock dividends -- (17,447) (34,899)
Preferred stock dividends -- (886) (2,797)
- -------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities including dividends (61,210) (212,589) (21,916)
- -------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments (70,444) 72,784 2,630
Cash and temporary cash investments at January 1 78,927 6,143 3,513
- -------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31 $ 8,483 $ 78,927 $ 6,143
- -------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 27,285 $ 30,496 $ 32,139
Income taxes $ 30,588 $ 93,000 $ 21,011
The accompanying notes are an integral part of these financial statements.
- 116 -
Consolidated Statement of Capitalization Orange and Rockland Utilities, Inc. and
Subsidiaries
Year Ended December 31 (Thousands of Dollars) 2000 1999
- -----------------------------------------------------------------------------------------------------
Shares outstanding
---------------------------------
December 31, 2000December 31, 1999
---------------------------------
Common shareholder's equity (Note B)
Common stock 1,000 1,000 $ 5 $ 5
Capital stock expense -- (25)
Retained earnings 139,610 137,535
Additional Paid in Capital 194,499 194,499
Accumulated Comprehensive Income (1,474) --
- -----------------------------------------------------------------------------------------------------
Total common shareholder's equity 332,640 332,014
- -----------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity Interest Rate Series
- ------------------------------------------
Debentures:
2000 6.14% 1993C -- 20,000
2000 9.375% 1990A -- 80,000
2000 6.00% 1993I -- 20,000
2002 6.9%- 7.0% Various 5 36
2003 6.560% 1993D 35,000 35,000
2007 7.125% 1997J 20,000 20,000
2010 7.50% 2000A 55,000 --
2018 7.07% 1998C 3,200 3,200
2027 6.50% 1997F 80,000 80,000
2029 7.0% 1999G 45,000 45,000
- -----------------------------------------------------------------------------------------------------
Total debentures 238,205 303,236
- -----------------------------------------------------------------------------------------------------
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for
Pollution Control Revenue Bonds:
2014 6.09%* 1994* 55,000 55,000
2015 4.21%** 1995 44,000 44,000
- -----------------------------------------------------------------------------------------------------
Total tax-exempt debt 99,000 99,000
- -----------------------------------------------------------------------------------------------------
Unamortized debt discount (1,549) (712)
- -----------------------------------------------------------------------------------------------------
Total 335,656 401,524
Less: long-term debt due within one year -- 120,000
- -----------------------------------------------------------------------------------------------------
Total long-term debt 335,656 281,524
- -----------------------------------------------------------------------------------------------------
Total capitalization $ 668,296 $ 613,538
- -----------------------------------------------------------------------------------------------------
* See Note N.
** Rate reset quarterly; December 31, 2000 rate shown.
The accompanying notes are an integral part of these financial statements.
-117-
Notes to Consolidated Financial Statements
These notes form an integral part of the accompanying consolidated financial
statements of Orange and Rockland Utilities, Inc. (O&R) and its subsidiaries.
O&R
Orange and Rockland Utilities, Inc. (O&R), a regulated utility, along with its
utility subsidiaries, provides electric service to over 278,000 customers and
gas service to over 118,000 customers in southeastern New York and in adjacent
sections of New Jersey and northeastern Pennsylvania.
O&R has unregulated subsidiaries in land development businesses that are winding
down their businesses. O&R's investment in these subsidiaries amounted to $18.5
million at December 31, 2000.
Acquisition By Con Edison
In July 1999 Consolidated Edison, Inc. (Con Edison) completed its acquisition of
O&R for $791.5 million in cash.
The acquisition was accounted for under the purchase method of accounting in
accordance with accounting principles generally accepted in the United States.
The $437 million excess of the purchase price paid by Con Edison over the
estimated fair value of O&R's net acquired assets and liabilities assumed was
recorded by Con Edison as goodwill and has not been reflected in O&R's
consolidated financial statements.
Note A Summary of Significant Accounting
Policies
O&R and its utility subsidiaries are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and various state regulatory authorities with
respect to their rates and accounting. Their accounting policies conform to
accounting principles generally accepted in the United States, as applied in the
case of regulated public utilities, and are in accordance with the accounting
requirements and rate-making practices of the regulatory authority having
jurisdiction. A description of the significant accounting policies follows.
Principles of Consolidation The consolidated financial statements include the
accounts of O&R and all of its subsidiaries. All intercompany balances and
transactions have been eliminated.
Rate Regulation O&R, Rockland Electric Company (RECO), and Pike County Light
and Power Company (PIKE) are subject to rate regulation by the New York Public
Service Commission (NYPSC), the New Jersey Board of Public Utilities (NJBPU) and
the Pennsylvania Public Utility Commission (PPUC), respectively, and the FERC.
The consolidated financial statements of the company are based on generally
accepted accounting principles, including the provisions of Statement of
Financial Accounting Standards No. 71 (SFAS No. 71), "Accounting for the Effects
of Certain Types of Regulation," which gives recognition to the rate-making and
accounting practices of the regulatory agencies.
In 1997 the NYPSC, in its Competitive Opportunities proceeding, approved a
four-year O&R Restructuring Plan pursuant to which O&R in 1999 sold all of its
generating assets, made available retail access to all of its electric customers
effective May 1999, and unbundled and reduced its electric rates by
approximately $32.4 million over a four-year period. The sale of the generating
assets was completed in June 1999. The disposition of the divestiture proceeds
is discussed in Note H. The rate reductions required under O&R's Restructuring
Plan were implemented in December 1997 and 1998. The unbundling of generation
services from base rates was completed in May 1999. Since that time, O&R
recovers purchased capacity and energy cost through a Market Supply Charge
(MSC). No further rate reductions are required under the plan.
The New Jersey plan unbundled electric rates and provided rate reductions of
$6.8 million effective August 1999. Energy and purchased capacity charges are
now recovered through a Basic Generation Service Charge (BGS). Additional rate
reductions of $2.7 million effective January 2001 and a final rate reduction of
$6.2 million effective August 2002 will be implemented. In December 2000 RECO
petitioned the NJBPU to offset the January 2001 two percent rate reduction with
a new charge designed to reduce RECO's deferred purchased power cost balance.
The NJBPU failed to act on the petition and the two percent rate reduction went
into effect as scheduled on January 1, 2001 without an offsetting charge. At
December 31, 2000 RECO had $31.6 million of charges deferred.
The Pennsylvania plan provided retail access to all customers effective May
1999, and unbundled existing rates into delivery and generation service
components effective May 1999. Energy and purchased capacity charges are now
recovered through a Provider of Last Resort charge.
The approved plans in New York, New Jersey and Pennsylvania also provide for
recovery of the cost
-118-
above-market non-utility generator (NUG) contracts and load pocket costs through
non-bypassable surcharges. See Note G.
In April 1999 the NYPSC ratified a settlement agreement approving the merger of
O&R and Con Edison. As part of this settlement, O&R agreed to withdraw its
pending gas base rate case upon consummation of the merger. The settlement also
required O&R to (1) reduce gas rates by $1.1 million or 0.8 percent effective
August 1999 and (2) reduce its electric rates effective December 1999 by $6.1
million. This settlement allows for a five-year amortization of merger costs and
also allows O&R to share in net merger savings. The NJBPU and the PPUC also
issued orders approving the merger. The NJBPU's order provided for a 75/25
percent customer/shareholder sharing of net merger savings and a ten-year
amortization of merger costs. The customers' 75 percent share of net merger
savings is being returned to them as part of the five percent restructuring rate
reduction effective August 1, 1999. The PPUC agreement allows Pike to retain all
net merger savings until its next general rate case and provides for a five-year
amortization of merger costs.
In December 1999 O&R filed a gas rate increase with the NYPSC. In November 2000
the PSC approved an Agreement among O&R, the NYPSC Staff, and the Consumer
Protection Board covering the three-year period November 2000 through October
2003. With limited exceptions, the agreement provides for no changes to base
rates. O&R will be permitted to retain $18.1 million of deferred credits that
otherwise would have been returned to customers. The term of the agreement could
be reduced to 18 months depending on the outcome of the PSC's ongoing proceeding
to examine programs and rate design changes to facilitate customer choice of gas
suppliers.
The $18.1 million of deferred credits is comprised of $7.9 million of Gas
Adjustment Clause revenue and $10.2 million of other customer credits. Earnings
for gas operations above a threshold of 11.1% are subject to a 50/50 sharing
mechanism between customer and shareholder. The 11.1% sharing threshold is
subject to a positive adjustment of up to 85 basis points for the attainment of
competitive awareness and customer migration goals. The company is subject to a
potential earnings penalty of approximately $450,000 per year for failure to
meet minimum levels of performance regarding main replacement, gas leak backlog,
customer safety complaints, and protection of underground facilities.
NJBPU Comprehensive Resource Proceeding In June 1999 NJBPU instituted the
Comprehensive Resource Analysis Proceeding to consider: (i) the design of energy
efficiency and renewable energy programs, (ii) the level of funding from each
electric and gas utility, and (iii) who should administer the programs. Hearings
have been held and comments have been filed in this proceeding. RECO has
proposed funding levels that are appropriate given its own circumstances,
including past commitments and recovery levels that were established in prior
proceedings. The NJBPU is expected to issue an order on this matter in the first
six months of 2001.
NJBPU Customer Account Services Proceeding
In March 2000 the NJBPU established a proceeding to determine the manner and
timing of providing electric and gas customers in New Jersey the opportunity to
choose an alternative supplier for some or all Customer Account Services
("CAS"). CAS are defined as metering, billing and other administrative services
associated with maintaining a customer account with a utility. In December 2000
RECO entered into a Stipulation of Settlement (Stipulation) resolving all issues
in the CAS proceeding. The Stipulation provides for the introduction of
competitive billing services for RECO's retail access customers beginning 120
days after BPU approval of the Stipulation. Customers will be able to choose to
receive a single consolidated bill from either RECO or their third-party
supplier for both the supplier's commodity charges and RECO's transmission and
distribution delivery charges. Under the terms of the Stipulation, customers
choosing to receive a consolidated single bill from their third-party supplier
will receive a credit of $1 per month on RECO delivery charges. Any difference
between the amounts of billing credits provided customers and RECO's actual
avoided costs not otherwise recovered will be funded with $100,000 of customer
credits. Approval of the Stipulation by the NJBPU is expected in the first six
months of 2001.
Utility Revenues Utility revenues are recorded on the basis of monthly customer
cycle billings. Unbilled revenues are accrued at the end of each month for
estimated energy usage since the last meter reading.
The level of revenues from gas sales in New York is subject to a weather
normalization clause that requires recovery from or refund to firm customers of
a portion of the shortfalls or excesses of firm net revenues which result from
variations of more than plus or minus four percent in actual degree days from
the number of degree days used to project heating season sales.
Energy Costs The tariff schedules for electric and gas services in New York
include adjustment clauses under which purchased gas and purchased power costs,
above or below levels allowed in approved rate schedules, are billed or credited
to customers up to approximately 60 days after the costs are incurred. In
accordance with regulatory
-119-
commission policy, such costs, along with the related income tax effects, are
deferred until billed or credited to customers.
New York recoverable gas costs are reconciled with billed gas revenues annually
as of August 31. Any excess or deficiency is refunded to or recovered from
customers during a subsequent 12-month period.
Utility Plant Utility plant is stated at original cost. The capitalized cost of
additions to utility plant includes indirect costs such as engineering,
supervision, payroll taxes, pensions, other benefits and an allowance for funds
used during construction (AFDC). The original cost of property, together with
removal cost, less salvage, is charged to accumulated depreciation as property
is retired. The cost of repairs and maintenance is charged to expense, and the
cost of betterments is capitalized.
Rates used for AFDC include the cost of borrowed funds and a reasonable rate on
O&R and RECO's own funds when so used, determined in accordance with PSC and
FERC regulations. The AFDC rate for O&R was 7.4 percent in 2000 and 5 percent in
1999 and 1998. The AFDC rate for RECO was 9.1 percent in 2000, 9.2 percent in
1999 and 9.4 percent in 1998. The rate was compounded semiannually, and the
amounts applicable to borrowed funds were treated as a reduction of interest
charges.
Depreciation For financial reporting purposes, depreciation is computed on the
straight-line method based on the estimated useful lives of the various classes
of property. Provisions for depreciation are equivalent to the following
composite rates based on the average depreciable plant balances at the beginning
and end of the year:
Year Ended December 31, 2000 1999 1998
- ------------------------------------------------------
Plant Classification
Electric 3.00% 3.53% 2.80%
Gas 2.74% 2.75% 2.86%
Common 7.85% 7.80% 7.78%
- ---------------------------------------------------------------
Temporary Cash Investments Temporary cash investments are short-term, highly
liquid investments, that generally have maturities of three months or less. They
are stated at cost, which generally approximates market. O&R considers temporary
cash investments to be cash equivalents.
New Financial Accounting Standards As of January 2001, O&R adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133," and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities an amendment of FASB Statement No. 138." The application of SFAS No.
133 and No. 138 is not expected to have a material effect on the financial
position or results of operations of O&R or materially change its current
disclosure practices. See Note N.
In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement
of FASB Statement No. 125." SFAS No. 140 revises the accounting for
securitizations, other financial asset transfers and collateral and introduces
new disclosures. The application of SFAS No. 140 is not expected to have a
material impact on O&R's consolidated financial statements.
FederaI Income Taxes In accordance with SFAS No. 109, "Accounting for Income
Taxes," O&R has recorded an accumulated deferred federal income tax liability
for substantially all temporary differences between the book and tax bases of
assets and liabilities at current tax rates. In accordance with rate agreements,
the utility subsidiaries have recovered amounts from customers for a portion of
the tax expense they will pay in the future as a result of the reversal or
"turn-around" of these temporary differences. As to the remaining temporary
differences, in accordance with SFAS No. 71, the utility subsidiaries have
established regulatory assets for the net revenue requirements to be recovered
from customers for the related future tax expense. See Note L. In 1993 the PSC
issued an Interim Policy Statement proposing accounting procedures consistent
with SFAS No. 109 and providing assurances that these future increases in taxes
will be recoverable in rates. The final policy statement is not expected to
differ materially from the Interim Policy Statement.
Accumulated deferred investment tax credits are amortized ratably over the lives
of the related properties and applied as a reduction in future federal income
tax expense.
O&R and its subsidiaries file a consolidated federal income tax return as part
of the consolidated return for Con Edison.
State Income Tax The New York State tax laws applicable to utility companies
were changed, effective January 1, 2000. Certain revenue-based taxes were
repealed or reduced and replaced by a net income-based tax. In addition, a
compensating use tax was imposed on gas and electricity purchased outside New
York State for use within the state. In December 2000 the PSC issued
-120-
its requirements relating to the tax law changes. The amounts applicable to the
provisions of the previous tax laws will continue to be collected through base
rates and tariff surcharges, until the PSC directs otherwise, with the
differences between those collections and the tax expense under the new law to
be deferred, pending future disposition by the PSC.
Deferred Revenue Taxes Deferred revenue taxes represent the unamortized balance
of an accelerated payment of New Jersey Gross Receipts and Franchise Tax
(NJGRFT) required by legislation effective June 1, 1991, as well as New York
State MTA taxes that are deferred and amortized over a 12-month period following
payment, in accordance with the requirements of the NYPSC. The deferred NJGRFT
is being recovered in rates, with a carrying charge of 7.5 percent on the
unamortized balance over a five-year period.
Deferred Plant Maintenance Costs O&R utilizes a silicone injection procedure as
part of its maintenance program for residential underground electric cable in
order to prevent premature failures and ensure the realization of the expected
useful life of the facilities. O&R defers these expenditures and amortizes them
over 10-year periods in order to match the remaining life of these assets.
Reclassification Certain prior year amounts have been reclassified to conform to
the current year presentation.
Restatement of retained earnings In July 1999 O&R's retained earnings as of the
effective date of its acquisition by Con Edison were reclassified to additional
paid in capital. See "Acquisition By Con Edison" immediately preceding Note A to
the O&R financial statements included in the 1999 Form 10-K. O&R has reversed
this reclassification. The amounts shown as additional paid in capital and
retained earnings on O&R's December 31, 1999 balance sheet have been changed to
reflect this restatement. The restatement did not change total common
shareholder's equity for the period.
Estimates The accompanying consolidated financial statements reflect judgments
and estimates made in the application of the above accounting policies.
Note B Capitalization
In July 1999 O&R became a wholly owned subsidiary of Con Edison. O&R issued
1,000 shares of $5.00 par value common stock to Con Edison. In June 2000 O&R
issued $55 million of 7.5 percent Series A Debentures due 2010. Long-Term Debt
Long-term debt maturing in the period 2001-2005 is as follows:
(Millions of Dollars)
- -----------------------------------------------
2001 $ -
2002 -
2003 35
2004 -
2005 -
- -----------------------------------------------
Long-term debt of O&R and its utility subsidiaries is stated at cost, which, as
of December 31, 2000 and 1999 approximates fair value.
Note C Short-term Borrowing
At December 31, 2000, O&R had $40.8 million of short-term debt outstanding
compared to zero at December 31, 1999. In December 1999 O&R entered into
revolving credit agreements with banks, which it intends to use to support a
$100 million commercial paper program.
Bank commitments under the revolving credit agreements are subject to certain
conditions, including that the ratio (calculated in accordance with the
agreements) of debt to total capital of the borrower does not at any time exceed
0.65 to 1. At December 31, 2000, the ratio was 0.53 to 1 compared to 0.55 to 1
at December 31, 1999.
-121-
Note D Pension Benefits
O&R has a non-contributory defined benefit retirement plan, covering
substantially all employees. The plan is designed to comply with the Employee
Retirement Income Security Act of 1974 (ERISA).
Investment gains and losses are recognized over three years and unrecognized
actuarial gains and losses are amortized over 10 years.
Pension costs for 1999 reflect the impact of the sale of its generating assets
and the acquisition of O&R by Con Edison. Due to the relatively high number of
employees who ceased to be O&R employees as a result of the plant sale, a
curtailment charge was recorded in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits." The acquisition triggered purchase accounting
requirements that are reflected in the net periodic pension cost. Under such
accounting O&R's accrued pension liability was adjusted to recognize all
previously unrecognized actuarial gains and losses, all unrecognized prior
service costs, and the remainder of any unrecognized obligation or asset
existing at the date of the initial application of SFAS No. 87, "Employers'
Accounting for Pensions."
O&R is currently allowed to recover in rates pension costs recognized under SFAS
No. 87. In accordance with the provisions of SFAS No. 71, the company defers for
future recovery any difference between expenses recognized under SFAS No. 87 and
the current rate allowance authorized by each regulatory jurisdiction in which
it operates.
The components of O&R's net periodic pension costs for 2000, 1999, and 1998 were
as follows:
(Thousands of 2000 1999 1998
Dollars)
- ------------------- ------- ------- -------
Service cost - including
administrative expenses $4,887 $5,825 $6,868
Interest cost on projected
benefit obligation 25,397 19,702 19,194
Expected return on plan
assets (22,118) (19,025) (17,480)
Amortization of net
acturial loss (gain) 3,557 (2,725) (6,338)
Amortization of prior
service cost - 2,128 4,251
Amortization of transition
(asset) - (504) (1,009)
Recognition of curtailment
and termination benefits - 11,857 -
Recognition of purchase
accounting valuation - (29,611) -
- ----------------------------------------------------------------------
Net periodic pension cost $11,723 $(12,353) $5,486
- ----------------------------------------------------------------------
Amortized/(deferred and
capitalized) (7,677) 28,370 90
- ---------------------------------------------------------------------
Net expense $4,046 $16,017 $5,576
- ---------------------------------------------------------------------
The funded status of the plan at December 31, 2000, 1999, and 1998 was as
follows:
(Thousands of 2000 1999 1998
Dollars)
- ------------------- ------- ------- -------
Change in benefit
obligation
Benefit obligation at
beginning of year $326,472 $289,765 $260,306
Service cost - excluding
administrative expenses 4,887 5,825 6,868
Interest cost on projected
benefit obligation 25,397 19,702 19,194
Plan amendments 5,114 54 -
Actuarial loss 14,669 22,551 18,375
Curtailment and
termination benefits - 4,707 -
Benefits paid (18,366) (16,132) (14,978)
- ---------------------------------------------------------------------
Benefit obligation at
end of year $358,173 $326,472 $289,765
- ---------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at
beginning of year $289,311 $266,511 $247,523
Actual return on
plan assets (2,192) 29,811 34,640
Employer contributions 3,207 11,356 -
Benefits paid (18,366) (16,132) (14,131)
Administrative expenses (1,833) (2,235) (1,521)
- --------------------------------------------------------------------
Fair value of plan assets at
end of year $270,127 $289,311 $266,511
- --------------------------------------------------------------------
Funded status $(88,046) $(37,161) $(23,254)
Unrecognized net loss
(gain) 50,552 13,390 (57,031)
Unrecognized prior
service costs 5,114 - 35,830
Unrecognized net
transition asset at
January 1, 1987* - - (3,026)
- --------------------------------------------------------------------
Accrued benefit cost $(32,380) $(23,771) $(47,481)
====================================================================
*Was being amortized over approximately 15 years.
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The amounts recognized in the Balance Sheet at December 31, 2000, 1999 and 1998
were as follows:
(Thousands of
Dollars) 2000 1999 1998
- ------------------- ------- ------- -------
Accrued benefit cost $(33,350) $(23,771) $(47,481)
Intangible asset - - -
Accumulated other
comprehensive income 970 - -
- -------------------------------------------------------------------------
Net Amount Recognized $(32,380) $(23,771) $(47,481)
- -------------------------------------------------------------------------
O&R adopted SFAS No. 130, "Reporting Comprehensive Income," which requires
reporting of comprehensive income in any complete presentation of
general-purpose financial statements. For O&R, comprehensive income consists of
additional minimum pension liability adjustments for the O&R plans and
unrealized gains and losses on available-for-sale marketable securities
associated with the O&R supplemental retirement plan (see Consolidated Statement
of Comprehensive Income).
The actuarial assumptions at December 31, 2000, 1999, and 1998 were as follows:
2000 1999 1998
- ------------------- ------- ------- -------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets 8.50% 8,50% 8.00%
Rate of compensation
increase
Hourly 4.40% 3.00% 3.00%
Management 4.40% 1.00% 1.00%
Note E Postretirement Benefits Other than
Pensions (OPEB)
O&R has a contributory medical and prescription drug program for all retirees,
their dependents and surviving spouses. The company also has a non-contributory
life insurance program for retirees.
Investment gains and losses are based on actual fair market value and
unrecognized actuarial gains and losses are amortized over 10 years.
During 1999, O&R sold its electric generating assets. Because of the relatively
high number of O&R employees for whom benefits in the plan ceased to be accrued
as a result of this event, a curtailment charge was recorded in accordance with
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions."
The acquisition of O&R by Con Edison in July 1999 triggered purchase accounting
requirements that are reflected in the net periodic pension cost. Under purchase
accounting O&R's accrued postretirement liability was adjusted to recognize all
previously unrecognized actuarial gains or losses, all unrecognized prior
service costs, and the remainder of any unrecognized obligation or asset
existing at the date of the initial application of SFAS No. 106. The total of
these adjustments along with the curtailment charge discussed above were
recorded as a regulatory asset in accordance with SFAS No. 71.
O&R is currently allowed to recover in rates OPEB costs recognized under SFAS
No. 106. In accordance with the provisions of SFAS No. 71, O&R defers for future
recovery any difference between expenses recognized under SFAS No. 106 and the
current rate allowance authorized by each regulatory jurisdiction in which it
operates.
The components of O&R's postretirement benefit (health and life insurance) costs
for 2000, 1999, and 1998 were as follows:
(Thousands of
Dollars) 2000 1999 1998
- ------------------- ------- ------- -------
Service cost $1,478 $1,699 $1,463
Interest cost on
accumulated
postretirement benefit
obligation 6,856 5,302 5,326
Expected return on plan
assets (3,188) (2,174) (1,654)
Amortization of net
actuarial loss 901 383 21
Amortization of prior
service cost - 4 9
Amortization of transition
obligation - 1,213 2,427
Recognition of curtailment
and termination benefits - (5,091) -
Recognition of purchase
accounting valuation - 39,166 -
- ----------------------------------------------------------------------
Net periodic
postretirement benefit
cost $6,047 $40,502 $7,592
- ----------------------------------------------------------------------
Deferred and
capitalized/(amortized) 1,602 35,222 (3,169)
- ----------------------------------------------------------------------
Net expense $4,445 $5,280 $10,761
- ----------------------------------------------------------------------
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The program's funded status at December 31, 2000, 1999, and 1998 was as follows:
(Thousands of
Dollars) 2000 1999 1998
- ------------------- ------- ------- -------
Change in benefit
obligation
Benefit obligation at
beginning of year $88,536 $80,477 $80,625
Service cost 1,478 1,699 1,463
Interest cost on
accumulated
postretirement benefit
obligation 6,856 5,302 5,326
Plan amendments (979) - 98
Actuarial loss (gain) 2,992 6,314 (1,802)
Benefits paid and
administrative expenses (5,041) (5,405) (5,334)
Participant contributions 206 149 101
- ----------------------------------------------------------------------
Benefit obligation at
end of year $94,048 $88,536 $80,477
- ----------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at
beginning of year $37,890 $31,180 $22,238
Actual return on plan
assets 162 3,512 2,086
Employer contributions 2,500 5,512 12,089
Participant contributions - 54 101
Reimbursements for
benefits owed to
company (813) - -
Benefits paid and
administrative expenses (1,483) (2,368) (5,334)
- ----------------------------------------------------------------------
Fair value of plan assets at
end of year $38,256 $37,890 $31,180
- ----------------------------------------------------------------------
Funded status $(55,792) $(50,646) $(49,297)
Unrecognized net
loss 14,125 9,008 5,016
Unrecognized prior
service costs (979) - 89
Unrecognized transition
obligation at January 1,
1993* - - 34,601
- ----------------------------------------------------------------------
Accrued postretirement
benefit cost $(42,646) $(41,638) $(9,591)
- ----------------------------------------------------------------------
*Was being amortized over a period of 20 years.
The actuarial assumptions at December 31, 2000, 1999, and 1998 were as follows:
2000 1999 1998
- ------------------- ------- ------- -------
Discount rate 7.75% 8.00% 6.75%
Expected return on plan
assets
Tax-exempt assets 8.50% 8.50% 6.00%
Taxable assets 8.00% 7.50% 7.00%
The health care cost trend rate assumed for 2001 was 8.0 percent. The rate was
assumed to decrease gradually to 5.0 percent for 2006 and remain at that level
thereafter. A one-percentage point change in the assumed health care cost trend
rate would have the following effects:
(Thousands of 1 - Percentage- 1 - Percentage-
Dollars) Point Increase Point Decrease
- ------------------- ------------------ ------------------
Effect on accumulated
postretirement benefit
obligation $8,674 $7,488
Effect on service cost and
interest cost components $1,086 $894
Note F Environmental Matters
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and
coal tar, have been used or generated in the course of operations of O&R and may
be present in its facilities and equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (Superfund) and similar state statutes impose joint and several strict
liability, regardless of fault, upon generators of hazardous substances for
resulting removal and remedial costs and environmental damages. Liabilities
under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may
have been lawful at the time that they occurred.
At December 31, 2000, O&R had accrued $32.9 million as its best estimate of its
liability for sites as to which it has received process or notice alleging that
hazardous substances generated by the company (and, in most instances, other
potentially responsible parties) were deposited. There will be additional
liability at these sites and other sites, including the costs of investigating
and remediating sites where the company or its predecessors manufactured gas.
The total amount of liability is not presently determinable but may be material
to the company's financial position, results of operations or liquidity.
Under O&R's current gas rate agreement, O&R may defer for subsequent recovery
through rates the cost of investigating and remediating manufactured gas sites.
At December 31, 2000, $34 million of such costs had been deferred as a
regulatory asset.
Suits have been brought in New York State and federal courts against O&R and
many other defendants, wherein a large number of plaintiffs sought large amounts
of compensatory and punitive damages for deaths and injuries allegedly caused by
exposure to asbestos at various premises of the company. Many of these suits
have been disposed of without any payment by O&R, or for immaterial amounts. The
amounts specified in all the remaining suits totals billions of dollars but the
company believes that these amounts are greatly exaggerated, as were the claims
already disposed of. Based on the information and relevant circumstances known
to the company at this time, it does not believe that these suits will have a
material adverse effect on its financial position, results of operation or
liquidity.
In May 2000 the New York State Department of Environmental Conservation (DEC)
issued notices of violation to O&R and four other companies that have
-124-
operated coal-fired electric generating facilities in New York State. The
notices allege violations of the federal Clean Air Act and the New York State
Environmental Conservation law resulting from the alleged failure to install
pollution control equipment that would have reduced harmful emissions. The
notice of violation received by O&R relates to the Lovett Generating Station
that it sold in June 1999. O&R is unable to predict whether or not the alleged
violations will have a material adverse effect on its financial position,
results of operations or liquidity.
Note G Non-Utility Generators
O&R has contracts with NUGs for approximately 27 MW of electric generating
capacity. Assuming performance by the NUGs, O&R is obligated over the terms of
the contracts (which extend for various periods) to make payments for energy.
For the years 2001-2005, payments under the contracts are estimated to be $17.3
million, $17.6 million, $17.9 million, $18.3 million and $18.6 million. Such
payments gradually increase to approximately $19 million in 2006 and thereafter
decline significantly. For energy delivered under these contracts, O&R is
obligated to pay variable prices that are estimated to be at or slightly above
market levels. All above-market NUG costs are recoverable by O&R through a
non-bypassable surcharge.
Note H Divestiture
In June 1999 O&R sold all of its electric generating assets, including the
two-thirds interest in the Bowline Point generating facility owned by
Consolidated Edison Company of New York, Inc. (Con Edison of New York).
The total gross proceeds from the sale amounted to approximately $486.2 million,
of which approximately $349.3 million was attributable to O&R and approximately
$136.9 million was attributable to Con Edison of New York for its two-thirds
ownership share of the Bowline Point plant. The net book value of O&R's
generating facilities sold was approximately $258.2 million, and the value of
certain fuel and other plant inventory included in the sale was approximately
$17.2 million, for a total combined net book value of assets sold of $275.4
million. After deducting approximately $7.1 million of direct selling costs and
approximately $11.3 million of employee retraining, retention and severance pay,
the pre-tax gain on the sale amounted to approximately $55.5 million. The
provision for income taxes amounted to approximately $40.8 million, and the net
gain after federal income tax on the sale was, therefore, approximately $14.7
million. As required by regulatory orders approving the sale, the net gain from
the sale was deferred pending final review by the NYPSC, the NJBPU and the PPUC
of the calculation of the gain as well as final disposition of the net gain.
O&R's reported after-tax net income for the 12 months ended December 31, 1999
was positively impacted by approximately $2.4 million as a result of the sale.
The divestiture triggered curtailments and special termination benefits
accounting as required by SFAS No. 88. O&R's transition program for its
generating employees contains special provisions that allow early vesting and
enhancements to the benefit plans for those employees not offered employment or
who are involuntarily terminated by the new owner within five years from the
date of transfer. The expected costs of these enhancements together with
curtailment costs resulted in additional pension and postretirement benefit
costs of $1.6 million and $0.8 million, respectively. These estimates are
included in the $11.3 million of employee costs noted above in determining the
cost of the sale. O&R will retain the pension assets and liabilities as well as
the obligation relating to the employees which were employed by O&R prior to the
sale. O&R made a $10 million settlement payment with respect to certain pension
calculations and reduced its pension and other post employment benefit liability
by this amount.
In March 2000 the NYPSC issued an Order directing O&R to pass back a portion of
the gain from the sale of generating assets to customers over a 20-month period
starting April 1, 2000.
In December 2000 the NJBPU issued an Order directing RECO to pass back a portion
of the gain from the sale of generating assets to customers over a 30-month
period starting January 1, 2001.
Rate Orders from PPUC covering the disposition of divestiture proceeds are
pending.
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Note I Regulatory Assets and Liabilities
O&R has established various regulatory assets and liabilities to defer specific
costs and gains that the applicable regulatory agencies have permitted or are
expected to permit to be recovered in rates or refunded to customers over time.
For RECO current recovery of purchased power costs is subject to certain
limitations imposed by the NJBPU and costs that are not currently recovered are
deferred for future recovery. At December 31, 2000, net recoverable purchased
power costs of approximately $31.6 million were deferred by RECO for future
recovery.
Note J Related Party Transactions
Each month O&R is invoiced by Con Edison and its affiliates for the cost of any
services rendered to O&R by Con Edison and its affiliates. These services,
provided primarily by Con Edison of New York, include substantially all
administrative support operations, such as corporate directorship and associated
ministerial duties, accounting, treasury, investor relations, information
resources, legal, human resources, fuel supply and energy management services.
The cost of these services was $10.7 million for 2000 and $7.1 million for 1999.
In addition, O&R purchased $103.9 million of gas from Con Edison of New York
during 2000.
O&R provides certain recurring services to Con Edison of New York on a monthly
basis, including cash receipts processing, rubber goods testing, and certain
administrative services. The cost of these services, which are invoiced to Con
Edison of New York, totaled $8.3 million for 2000 and $1.6 million for 1999. In
addition, O&R sold $4.9 million of gas to Con Edison of New York during 2000.
Note K Leases
The future minimum rental commitments under O&R's non-cancellable operating
leases are as follows:
(Thousands of Dollars)
- -------------------------------------------
2001 $ 3,974
2002 2,777
2003 1,414
2004 1,464
2005 1,464
All years thereafter 24,920
- -------------------------------------------
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Note L Income Tax Orange & Rockland Utilities, Inc. & Subsidiaries
The components of income taxes are as follows:
Year Ended December 31 (Thousands of Dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Charged to operations:
State $6,040 $1,966 $2,167
Federal Current 15,564 139 17,449
Deferred - net 1,345 3,691 5,186
Amortization of investment tax credit (123) (113) (122)
- -------------------------------------------------------------------------------------------------------
Total charged to operations 22,826 5,683 24,680
- --------------------------------------------------------------------------------------------------------
Charged to other income:
Current 2,151 80,787 268
Deferred - net 9 (38,905) 426
Amortization of investment tax credit (331) (485) (705)
Amortization of taxes associated with divestiture assets - (6,956) -
- --------------------------------------------------------------------------------------------------------
Total charged to other income 1,829 34,441 (11)
- --------------------------------------------------------------------------------------------------------
Total $24,655 $40,124 $24,669
- --------------------------------------------------------------------------------------------------------
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities is as follows:
As of December 31 (Millions of Dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Liabilities:
Depreciation $86.0 $81.2 $119.9
Excess deferred federal income tax on depreciation 4.1 5.8 7.3
Other 17.1 23.6 26.0
- -----------------------------------------------------------------------------------------------------------
Total liabilities 107.2 110.6 153.2
- -----------------------------------------------------------------------------------------------------------
Assets:
Other (20.4) (24.2) (29.8)
- -----------------------------------------------------------------------------------------------------------
Total assets (20.4) (24.2) (29.8)
- -----------------------------------------------------------------------------------------------------------
Regulatory liability - future federal income taxes 33.7 33.1 74.3
- -----------------------------------------------------------------------------------------------------------
Net liability $120.5 $119.5 $197.7
- -----------------------------------------------------------------------------------------------------------
Reconciliation of the difference between income tax expenses and the amount
computed by applying the prevailing statutory income tax rate to income before
income taxes is as follows:
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
(% of Pre-tax income)
Statutory tax rate
Federal 35% 35% 35%
Changes in computed taxes resulting from:
State income tax 6% 2% 2%
Depreciation related differences 1% 3% 2%
Cost of removal (1)% (2)% (2)%
Amortization of investment tax credit (1)% - (1)%
Other (1)% 4% (1)%
- -----------------------------------------------------------------------------------------------------------
Subtotal 39% 42% 35%
- -----------------------------------------------------------------------------------------------------------
Unallowable cost related to merger - 6% -
Sale of divestiture assets - 26% -
- -----------------------------------------------------------------------------------------------------------
Effective tax rate 39% 74% 35%
- -----------------------------------------------------------------------------------------------------------
-127-
Orange and Rockland Utilities, Inc. and Subsidiaries
Note M FINANCIAL INFORMATION BY BUSINESS SEGMENT (a)
Electric Unregulated and Other
- ----------------------------------------------------------------------- ---------------------------------------
(Thousands of Dollars) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 513,016 $ 459,776 $ 489,878 $ 4,521 $ 723 $ 607
Intersegment revenues 11 8 9 - - -
Depreciation and amortization 20,358 25,591 29,919 3 60 128
Income tax expense 20,237 6,252 23,929 1,489 (641) (558)
Operating income 47,529 18,705 67,390 1,821 (603) (1,451)
Total assets 772,123 748,103 1,004,102 66,479 75,183 43,284
Construction expenditures 33,751 24,731 33,910 - - 18
Gas Total
- ----------------------------------------------------------------------- ---------------------------------------
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------- ---------------------------------------
Operating revenues $ 183,436 $ 156,995 $ 135,619 $ 700,973 $ 617,494 $ 626,104
Intersegment revenues - 37 14 11 45 23
Depreciation and amortization 6,501 6,891 5,688 26,862 32,542 35,735
Income tax expense 1,100 72 1,309 22,826 5,683 24,680
Operating income 11,091 7,182 10,051 60,441 25,284 75,990
Total assets 300,055 265,490 260,754 1,138,657 1,088,776 1,308,140
Construction expenditures 17,528 15,962 19,109 51,279 40,693 53,037
(a) For a description of O & R, see "Con Edison" appearing before Note A.
-128-
Note N Derivative Instrument and
Hedging Activities
In connection with its $55 million promissory note issued to the New York State
Energy Research and Development Authority for the net proceeds of the
Authority's variable rate Pollution Control Refunding Revenue Bonds, 1994 Series
A (the 1994 Bonds), O&R has a swap agreement pursuant to which it pays interest
at the fixed rate of 6.09 percent and is paid interest at the same variable rate
as is paid on the 1994 Bonds. If the swap agreement had been terminated on
December 31, 2000, O&R would have been required to pay approximately $13.9
million. Pursuant to SFAS No. 133, O&R's swap agreement will be accounted for as
a cash flow hedge and changes in its fair value will be recorded in other
comprehensive income. The fair value of the swap agreement, which has no
established market price, is the amount that would be required to be paid upon
early termination.
- 129 -
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
OF
CONSOLIDATED EDISON, INC.
(Thousands of Dollars)
CONDENSED BALANCE SHEET
At December 31, 2000 1999
---------------------------
Assets
Current assets
Cash and temporary cash investments $ 5,531 $ 7,773
Other current assets 2,261 4,690
---------------------------
Total current assets 7,792 12,463
Investments in subsidiaries 6,590,345 6,372,295
Other assets 4,435 --
---------------------------
Total Assets $ 6,602,572 $ 6,384,758
===========================
Capitalization and Liabilities
Stockholders' Equity
Common stock $ 1,436,643 $ 1,436,643
Retained earnings 4,991,651 4,908,913
---------------------------
Total stockholders' equity 6,428,294 6,345,556
Current Liabilities
Accounts payable 103,680 34,441
Notes payable 74,254 --
Other current liabilities 9,674 4,759
---------------------------
Total current liabilities 187,608 39,200
Noncurrent Liabilities (13,330) 2
---------------------------
Total Liabilities 174,278 39,202
---------------------------
Total Capitalization and Liabilities $ 6,602,572 $ 6,384,758
===========================
- 130 -
SCHEDULE I (Continued)
CONDENSED FINANCIAL INFORMATION
OF
CONSOLIDATED EDISON, INC.
(Thousands of Dollars, except per share amounts)
CONDENSED INCOME STATEMENT
For the year ended December 31, 2000 1999 1998
-----------------------------------------------------------
Equity in earnings of subsidiaries $ 616,930 $ 709,604 $ 709,700
Other income (deductions), net of taxes (15,315) 980 3,182
Operating expenses
Amortization of O&R goodwill (10,917) (5,459) --
Other (990) (2,709) (140)
Interest expense (6,873) (1,801) --
-----------------------------------------------------------
Net Income $ 582,835 $ 700,615 $ 712,742
===========================================================
Average number of shares outstanding (in thousands) 212,186 223,442 234,308
Basic earnings per common share $ 2.75 $ 3.14 $ 3.04
Diluted earnings per common share $ 2.74 $ 3.13 $ 3.04
CONDENSED STATEMENT OF CASH FLOWS
Year ended December 31, 2000 1999 1998
-----------------------------------------------------------
Net income $ 582,835 $ 700,615 $ 712,742
Dividends received from:
Consolidated Edison Company of New York, Inc. 462,503 1,327,786 496,945
Orange and Rockland Utilities, Inc. 37,000 45,000 --
Other - net (468,152) (944,584) (917,506)
-----------------------------------------------------------
Net cash flows from operating activities 614,186 1,128,817 292,181
Investing activities
Acquisition of Orange and Rockland Utilities, Inc.,
net of cash and cash equivalents -- (509,083) --
Financing activities
Repurchase of common stock (39,078) -- --
Stock options exercised (1,026) (16,757) --
Common stock dividends (462,503) (477,110) (493,201)
Corporate restructuring to establish holding company -- -- 198,362
Contributions to subsidiaries (113,821) (165,220) (59,095)
-----------------------------------------------------------
Net cash flows from financing activities (616,428) (659,087) (353,934)
-----------------------------------------------------------
Net decrease in cash and temporary cash investments (2,242) (39,353) (61,753)
Cash and temporary cash investments at January 1, 7,773 47,126 108,879
-----------------------------------------------------------
Cash and temporary cash investments at December 31, $ 5,531 $ 7,773 $ 47,126
===========================================================
- 131 -
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
(Thousands of Dollars)
COLUMN A COLUMN B COLUMN C (1) COLUMN C (2) COLUMN D COLUMN E
Additions Additions
Balance at Charged to Charged Balance
Beginning Costs and To Other At End
Company Description of Period Expenses Accounts Deductions** of Period
- ------- ----------- --------- -------- -------- ------------ ---------
Con Edison
Allowance for
uncollectible
accounts*:
2000 $34,821 $38,292 -- $39,399 $33,714
1999 $24,957 $41,456 $3,686*** $35,278 $34,821
1998 $21,600 $30,983 -- $27,626 $24,957
Con Edison of
New York Allowance for
uncollectible
accounts*:
2000 $22,600 $31,808 -- $28,608 $25,800
1999 $22,600 $25,369 -- $25,369 $22,600
1998 $21,600 $28,626 -- $27,626 $22,600
O&R
Allowance for
uncollectible
accounts*:
2000 $ 5,395 $3,029 -- $4,579 $ 3,845
1999 $ 3,686 $8,806 -- $7,097 $ 5,395
1998 $ 2,530 $4,019 -- $2,863 $ 3,686
- ----------
* This is a valuation account deducted in the balance sheet from the assets
(Accounts receivable -customer) to which they apply.
**Accounts written off less cash collections, miscellaneous adjustments and
amounts reinstated as receivables previously written off.
*** Represents O&R balance at time of Con Edison's acquisition of O&R in July
1999.
- 132 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CON EDISON
None.
CON EDISON OF NEW YORK
None.
O&R
Reference is made to O&R's Current Report on Form 8-K, dated July 8, 1999,
reporting the completion of its acquisition by Con Edison and the appointment of
PricewaterhouseCoopers LLP, Con Edison's independent accountants, as O&R's
independent accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CON EDISON
Information required by Part III as to Con Edison is incorporated by reference
from Con Edison's definitive joint proxy statement for its Annual Meeting of
Stockholders to be held on May 21, 2001. The proxy statement is to be filed
pursuant to Regulation 14A not later than 120 days after December 31, 2000, the
close of the fiscal year covered by this report.
In accordance with General Instruction G(3) to Form 10-K, other information
regarding Con Edison's Executive Officers may be found in Part I of this report
under the caption "Executive Officers of the Registrant."
CON EDISON OF NEW YORK
Information required by Part III as to Con Edison of New York is substantially
the same as the information required by Part III as to Con Edison, except:
Michael J. Del Giudice, who is a member of the Boards of Directors of Con Edison
and O&R, is not a member of the Board of Trustees of Con Edison of New York,
Inc. Con Edison owns all of the issued and outstanding shares of Con Edison of
New York Common Stock ($2.50 par value). No Trustee or executive officer of Con
Edison of New York owns any voting or equity securities of Con Edison of New
York and, to the best knowledge of the management of Con Edison of New York, no
person, other than Con Edison, owns more than 5% of any class of voting
securities of Con Edison of New York.
In accordance with General Instruction G(3) to Form 10-K, other information
regarding Con Edison of New York's Executive Officers may be found in Part I of
this report under the caption "Executive Officers of the Registrant."
- 133 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. List of Financial Statements - See financial statements listed in Item 8.
2. List of Financial Statement Schedules - See financial statements schedules
listed in Item 8.
3. List of Exhibits
Exhibits listed below which have been filed previously with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 and the Securities
Exchange Act of 1934, and which were designated as noted below, are hereby
incorporated by reference and made a part of this report with the same effect as
if filed with the report. Exhibits listed below that were not previously filed
are filed herewith.
CON EDISON
2.1 Amended and Restated Agreement and Plan of Merger, dated as of October
13, 1999, as amended and restated as of January 11, 2000, among Con
Edison, Northeast Utilities, Consolidated Edison, Inc. (a Delaware
corporation, originally incorporated as CWB Holdings, Inc.) and N
Acquisition LLC. (Designated in Con Edison's Current Report on Form
8-K, dated January 11, 2000 (File No. 1-14514) as Exhibit 2.)
3.1.1 Restated Certificate of Incorporation of Consolidated Edison, Inc.
("Con Edison") (Designated in the Registration Statement on Form S-4 of
Con Edison (No. 333-39164) as Exhibit 3.1.)
3.1.2 By-laws of Con Edison, effective as of June 23, 1998. (Designated in
Con Edison's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998 (File No. 1-14514) as Exhibit 3.2.1)
10.1.1 Con Edison 1996 Stock Option Plan, as amended and restated effective
February 24, 1998. (Designated in Con Edison of New York's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No.
1-1217) as Exhibit 10.20.)
10.1.2 The Consolidated Edison, Inc. Restricted Stock Plan for Non-Employee
Directors, effective October 1, 1998. (Designated in Con Edison's
Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 1-14514) as Exhibit 10.20.)
10.1.3 Employment Agreement, dated as of September 1, 2000, between Con Edison
and Eugene R. McGrath. (Designated in Con Edison's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 (File No.
1-14514) as Exhibit 10.1.1)
10.1.4 Employment Agreement, dated as of September 1, 2000, between Con Edison
and Joan S. Freilich. (Designated in Con Edison's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 (File No.
1-14514) as Exhibit 10.1.2)
10.1.5 Employment Agreement, dated as of September 1, 2000, between Con Edison
and John D. McMahon.
10.1.6 Employment Agreement, dated as of September 1, 2000, between Con Edison
and Kevin Burke.
10.1.7 Severance Program for Officers of Consolidated Edison, Inc. and its
Subsidiaries, effective as of September 1, 2000. (Designated in Con
Edison's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000 (File No. 1-14514) as Exhibit 10.1.3)
10.1.8 The Consolidated Edison, Inc. Discount Stock Plan. (Designated in Con
Edison's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000 (File No. 1-14514) as Exhibit 10)
12.1 Statement of computation of ratio of earnings to fixed charges for the
years 1996 -2000.
21.1 Subsidiaries of Con Edison.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney of each of the persons signing this report by
attorney-in-fact.
- 134 -
CON EDISON OF NEW YORK
3.2.1.1 Restated Certificate of Incorporation of Con Edison filed with the
Department of State of the State of New York on December 31, 1984.
(Designated in the Annual Report on Form 10-K of Con Edison of New York
for the year ended December 31, 1989 (File No. 1-1217) as Exhibit
3(a).)
3.2.1.2 The following certificates of amendment of Restated Certificate of
Incorporation of Con Edison of New York filed with the Department of
State of the State of New York, which are designated as follows:
Securities Exchange Act
Date Filed With File No. 1-1217
Department of State Form Date Exhibit
5/16/88 10-K 12/31/89 3(b)
6/2/89 10-K 12/31/89 3(c)
4/28/92 8-K 4/24/92 4(d)
8/21/92 8-K 8/20/92 4(e)
2/18/98 10-K 12/31/97 3.1.2.3
3.2.2 By-laws of Con Edison of New York, effective as of February 17, 2000.
(Designated in the Annual Report on Form 10-K of Con Edison of New York
for the year ended December 31, 1999 (File No. 1-1217) as Exhibit
3.2.2.2)
4.2.1.1 Participation Agreement, dated as of August 15, 1985, between New York
State Energy Research and Development Authority ("NYSERDA") and Con
Edison of New York. (Designated in Con Edison of New York's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1990 (File
No. 1-1217) as Exhibit 4(a)(1).)
4.2.1.2 The following Supplemental Participation Agreements supplementing the
Participation Agreement, dated as of August 15, 1985, between NYSERDA
and Con Edison of New York, which are designated as follows:
Supplemental Securities Exchange Act
Participation Agreement File No. 1-1217
Number Date Form Date Exhibit
1. Eighth 1/1/91 10-K 12/31/90 4(e)(8)
2. Ninth 1/15/92 10-K 12/31/91 4(e)(9)
4.2.2.1 Participation Agreement, dated as of December 1, 1992, between NYSERDA
and Con Edison of New York. (Designated in Con Edison of New York's
Annual Report on Form 10-K for the year ended December 31, 1992 (File
No. 1-1217) as Exhibit 4(f).)
4.2.2.2 The following Supplemental Participation Agreements supplementing the
Participation Agreement, dated as of December 1, 1992, between NYSERDA
and Con Edison of New York, which are designated as follows:
Supplemental Securities Exchange Act
Participation Agreement File No. 1-1217
Number Date Form Date Exhibit
1. First 3/15/93 10-Q 6/30/93 4.1
2. Second 10/1/93 10-Q 9/30/93 4.3
3. Third 12/1/94 10-K 12/31/94 4.7.3
4. Fourth 7/1/95 10-Q 6/30/95 4.2
4.2.3 Participation Agreement, dated as of July 1, 1999, between NYSERDA and
Con Edison of New York. (Designated in Con Edison of New York's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999 (File No. 1-1217) as Exhibit 4.1.)
- 135 -
4.2.4.1 Indenture of Trust, dated as of August 15, 1985, between NYSERDA and
Morgan Guaranty Trust Company of New York, as Trustee (Morgan
Guaranty). (Designated in Con Edison of New York's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1990 (File No.
1-1217) as Exhibit 4(b)(1).)
4.2.4.2 The following Supplemental Indentures of Trust supplementing the
Indenture of Trust, dated as of August 15, 1985, between NYSERDA and
Morgan Guaranty.
Supplemental Securities Exchange Act
Indenture of Trust File No. 1-1217
Number Date Form Date Exhibit
1. Eighth 1/1/91 10-K 12/31/90 4(g)(8)
2. Ninth 1/15/92 10-K 12/31/91 4(g)(9)
4.2.5.1 Indenture of Trust, dated as of December 1, 1992, between NYSERDA and
Morgan Guaranty. (Designated in Con Edison of New York's Annual Report
on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as
Exhibit 4(i).)
4.2.5.2 The following Supplemental Indentures of Trust supplementing the
Indenture of Trust, dated as of December 1, 1992, between NYSERDA and
Morgan Guaranty.
Supplemental Securities Exchange Act
Indenture of Trust File No. 1-1217
Number Date Form Date Exhibit
1. First 3/15/93 10-Q 6/30/93 4.2
2. Second 10/1/93 10-Q 9/30/93 4.4
3. Third 12/1/94 10-K 12/31/94 4.11.3
4. Fourth 7/1/95 10-Q 6/30/95 4.3
4.2.6 Indenture of Trust, dated as of July 1, 1999 between NYSERDA and HSBC
Bank USA, as trustee. (Designated in Con Edison of New York's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1999 (File
No. 1-1217) as Exhibit 4.2.)
4.2.7.1 Indenture, dated as of December 1, 1990, between Con Edison of New York
and The Chase Manhattan Bank (National Association), as Trustee (the
"Debenture Indenture"). (Designated in Con Edison of New York's Annual
Report on Form 10-K for the year ended December 31, 1990 (File No.
1-1217) as Exhibit 4(h).)
4.2.7.2 First Supplemental Indenture (to the Debenture Indenture), dated as of
March 6, 1996, between Con Edison of New York and The Chase Manhattan
Bank (National Association), as Trustee. (Designated in Con Edison of
New York's Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-1217) as Exhibit 4.13.)
4.2.7.3 The following forms of Con Edison of New York's Debentures:
Securities Exchange Act Securities Exchange Act
File No. 1-1217 File No. 1-1217
------------------------- --------------------------
Debenture Form Date Exhibit Debenture Form Date Exhibit
---------------------------------------------------- ---------------------------------------------------
7 5/8%, Series 1992 B 8-K 2/5/92 4(b) 6 1/4%, Series 1998 A 8-K 1/29/98 4.1
6 1/2%, Series 1993 B 8-K 2/4/93 4(a) 7.10%, Series 1998 B 8-K 1/29/98 4.2
6 5/8%, Series 1993 C 8-K 2/4/93 4(b) 6.15%, Series 1998 C 8-K 6/22/98 4
6 3/8%, Series 1993 D 8-K 4/7/93 4 6.90%, Series 1998 D 8-K 9/24/98 4
7 1/2%, Series 1993 G 8-K 6/7/93 4 7.35%, Series 1999 A 8-K 6/25/99 4
7 1/8%, Series 1994 A 8-K 2/8/94 4 7.15%, Series 1999 B 8-K 12/1/99 4
6 5/8%, Series 1995 A 8-K 6/21/95 4 8 1/8%, Series 2000 A 8-K 5/3/00 4
7 3/4%, Series 1996 A 8-K 4/24/96 4 7 1/2%, Series 2000 B 8-K 8/23/00 4
Floating Rate 1996 B 8-K 11/25/96 4 6 5/8%, Series 2000 C 8-K 12/12/00 4
Floating Rate 1997 A 8-K 6/17/97 4
6.45%, Series 1997 B 8-K 11/24/97 4
- 136 -
4.2.7.4 Form of Con Edison of New York's 7 3/4% Quarterly Income Capital
Securities (Series A Subordinated Deferrable Interest Debentures).
(Designated in Con Edison of New York's Current Report on Form 8-K,
dated February 29, 1996, (File No. 1-1217) as Exhibit 4.)
10.2.1 Amended and Restated Agreement and Settlement, dated September 19,
1997, between Con Edison of New York and the Staff of the New York
State Public Service Commission (without Appendices). (Designated in
Con Edison of New York's Current Report on Form 8-K, dated September
23, 1997, (File No. 1-1217) as Exhibit 10.)
10.2.2 Settlement Agreement, dated October 2, 2000, by and among Con Edison of
New York, the Staff of the New York State Public Service Commission and
certain other parties. (Designated in Con Edison of New York's Current
Report on Form 8-K, dated September 22, 2000, (File No. 1-1217) as
Exhibit 10.)
10.2.3.1 Planning and Supply Agreement, dated March 10, 1989, between Con Edison
of New York and the Power Authority of the State of New York.
(Designated in Con Edison of New York's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 1-1217) as Exhibit 10(gg).)
10.2.3.2 Delivery Service Agreement, dated March 10, 1989, between Con Edison of
New York and the Power Authority of the State of New York. (Designated
in Con Edison of New York's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 1-1217) as Exhibit 10(hh).)
10.2.4.1 Employment Contract, dated May 22, 1990, between Con Edison of New York
and Eugene R. McGrath. (Designated in Con Edison of New York's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1990 (File No. 1-1217) as Exhibit 10.)
10.2.4.2 The following amendments to Employment Contract, dated May 22, 1990,
between Con Edison of New York and Eugene R. McGrath:
Amendment Securities Exchange Act File No. 1-1217
Date Form Date Exhibit
8/27/91 10-Q 9/30/91 19
8/25/92 10-Q 9/30/92 19
2/18/93 10-K 12/31/92 10(o)
8/24/93 10-Q 9/30/93 10.1
8/24/94 10-Q 9/30/94 10.1
8/22/95 10-Q 9/30/95 10.3
7/23/96 10-Q 6/30-96 10.2
7/22/97 10-Q 6/30/97 10
7/28/98 8-K 9/24/98 10
7/27/99 10-Q 9/30/99 10.2
7/20/00 10-Q 9/30/00 10.2.1
10.2.5 Agreement and Plan of Exchange, entered into on October 28, 1997,
between Con Edison and Con Edison of New York. (Designated in the
Registration Statement on Form S-4 of Con Edison (No. 333-39164) as
Exhibit 2.)
10.2.6 The Consolidated Edison Company of New York, Inc. Executive Incentive
Plan, amended and restated as of April 1, 1999. (Designated in Con
Edison of New York's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-1217) as Exhibit 10.8.)
10.2.7.1 The Consolidated Edison Retirement Plan for Management Employees, as
amended and restated. (Designated in Con Edison of New York's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995
(File No. 1-1217) as Exhibit 10.1.)
- 137 -
10.2.7.2 The following amendments to the Consolidated Edison Retirement Plan for
Management Employees:
Securities Exchange Act
Amendment File No. 1-1217
Date Form Date Exhibit
12/29/95 10-K 12/31/95 10.29
7/1/96 10-K 12/31/96 10.22
6/1/97 10-K 12/31/97 10.11.3
11/14/97 10-K 12/31/97 10.11.4
12/30/98 10-K 12/31/98 10.9.3
10.2.8 Consolidated Edison Company of New York, Inc Supplemental Retirement
Income Plan, as amended and restated as of April 1, 1999. (Designated
in Con Edison of New York's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-1217) as Exhibit 10.10.)
10.2.9.1 Consolidated Edison Company of New York, Inc. Retirement Plan for
Trustees, effective as of July 1, 1988. (Designated in Con Edison of
New York's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-1217) as Exhibit 10(ee).)
10.2.9.2 Amendment No. 1, dated September 28, 1990, to the Consolidated Edison
Company of New York, Inc. Retirement Plan for Trustees. (Designated in
Con Edison of New York's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1990 (File No. 1-1217) as Exhibit
19(c).)
10.2.10 The Con Edison of New York Thrift Savings Plan for Management Employees
and Tax Reduction Act Stock Ownership Plan, as amended and restated.
(Designated in Con Edison of New York's Annual Report on Form 10-K for
the year ended December 31, 1996 (File No. 1-1217) as Exhibit 10.5.)
10.2.11 Deferred Compensation Plan for the Benefit of Trustees of Con Edison of
New York, dated February 27, 1979, and amendments thereto, dated
September 19, 1979 (effective February 27, 1979), February 26, 1980,
and November 24, 1992 (effective January 1, 1993). (Designated in Con
Edison of New York's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-1217) as Exhibit 10(i).)
10.2.12 Supplemental Medical Plan for the Benefit of Con Edison of New York's
officers. (Designated in Con Edison of New York's Annual Report on Form
10-K for the year ended December 31, 1991 (File No. 1-1217) as Exhibit
10(aa).)
10.2.14.1 The Consolidated Edison Retiree Health Program for Management
Employees, effective as of January 1, 1993. (Designated in Con Edison
of New York's Annual Report on Form 10-K for the year ended December
31, 1992 (File No. 1-1217) as Exhibit 10(ll).)
10.2.14.2 The following amendments to the Consolidated Edison Retiree Health
Program for Management Employees.
Securities Exchange Act
Amendment File No. 1-1217
Date Form Date Exhibit
10/31/94 10-Q 9/30/94 10.3
12/28/94 10-K 12/31/95 10.44
12/29/95 10-K 12/31/95 10.45
7/1/96 10-K 12/31/96 10.39
11/14/97 10-K 12/31/97 10.18.3
12/30/98 10-K 12/31/98 10.16.3
10.2.15 The Con Edison of New York Severance Pay Plan for Management Employees.
(Designated in Con Edison of New York's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997 (File No. 1-1217) as
Exhibit 10.)
- 138 -
10.2.16 The Consolidated Edison Company of New York, Inc. Deferred Income Plan,
as amended and restated as of April 1, 1999. (Designated in Con Edison
of New York's Annual Report on Form 10-K for the year ended December
31, 1998 (File No. 1-1217) as Exhibit 10.19.)
12.2 Statement of computation of ratio of earnings to fixed charges for the
years 1996 - 2000.
23.2 Consent of PricewaterhouseCoopers LLP.
24.2 Powers of Attorney of each of the persons signing this report by
attorney-in-fact. (Included as part of Exhibit 24.1.)
O&R
3.3.1.1 Restated Certificate of Incorporation of O&R, dated May 7, 1996.
(Designated in O&R's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996 (File No. 1-4315) as Exhibit 3.4.)
3.3.1.2 Certificate of Amendment of the Restated Certificate of Incorporation
of O&R, dated July 14, 1999. (Designated in O&R's Form 10-Q for the
period ended June 30, 1999 (File No. 1-4315) as Exhibit 3.1.)
3.3.2 By-Laws of O&R, as Adopted on July 8, 1999. (Designated in O&R's Form
10-Q for the period ended June 30, 1999 (File No. 1-4315) as Exhibit
3.2.)
4.3.1 Mortgage Trust Indenture of Rockland Electric Company, dated as of July
1, 1954. (Designated in O&R's Registration Statement No. 2-14159 as
Exhibit 2.16.)
4.3.2 Mortgage Trust Indenture of Pike County Light & Power Company, dated as
of July 15, 1971. (Designated in O&R's Registration Statement No.
2-45632 as Exhibit 4.31.)
12.3 Statement of computation of ratio of earnings to fixed charges for the
years ended 1996 - 2000.
21.3 Subsidiaries of O&R. (Included as part of Exhibit 21.1 hereto.)
24.3 Powers of Attorney of each of the persons signing this report by
attorney-in-fact. (Included as part of Exhibit 24.1 hereto.)
- 139 -
(b) Reports on Form 8-K:
CON EDISON
Con Edison, along with Con Edison of New York and O&R, filed a combined Current
Report on Form 8-K, dated September 22, 2000, reporting (under Item 5) the
October 2000 agreement with the staff of the New York State Public Service
Commission and other parties discussed in Note A to each of the Con Edison, Con
Edison of New York and O&R financial statements included in Item 8 and certain
matters relating to Con Edison's October 1999 agreement to acquire Northeast
Utilities discussed in Note P to the Con Edison financial statements included in
Item 8.
In addition, Con Edison, along with Con Edison of New York, filed (i) a combined
Current Report on Form 8-K, dated October 10, 2000, reporting (under Item 5)
certain developments with respect to the Indian Point 2 outage discussed in Note
G to the Con Edison and Con Edison of New York financial statements included in
Item 8, and (ii) combined Current Reports on Form 8-K, dated October 31, 2000
and November 3, 2000, furnishing (under Item 9) certain material pursuant to
Regulation FD. No other Con Edison Current Report on Form 8-K was filed during
the quarter ended December 31, 2000 or, through the date of this filing, in
2001.
CON EDISON OF NEW YORK
In addition to the combined Con Edison, Con Edison of New York and O&R Current
Reports on Form 8-K, (discussed above), Con Edison of New York filed a Current
Report on Form 8-K, dated December 12, 2000, reporting (under Item 5) the
issuance and sale of $350 million aggregate principal amount of the Company's
6.625% Debentures, Series 2000 C. No other Con Edison of New York Current Report
on Form 8-K was filed during the quarter ended December 31, 2000 or, through the
date of this filing, in 2001.
O&R
Other than the combined Con Edison, Con Edison of New York and O&R Current
Report on Form 8-K, dated September 22, 2000 (discussed above), no O&R Current
Report on Form 8-K was filed during the quarter ended December 31, 2000 or,
through the date of this filing, in 2001.
- 140 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 2001.
CONSOLIDATED EDISON, INC.
CONSOLIDATED EDISON COMPANY ORANGE AND ROCKLAND UTILITIES, INC.
OF NEW YORK, INC.
By JOAN S. FREILICH By EDWARD J. RASMUSSEN
Joan S. Freilich Edward J. Rasmussen
Executive Vice President Vice President, Controller and
and Chief Financial Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities, indicated on March 29, 2001.
Signature Registrant Title
Eugene R. McGrath* Con Edison Chairman of the Board, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Con Edison of New York Chairman of the Board, Chief Executive Officer
and Trustee (Principal Executive Officer)
O&R Chairman of the Board and Director
Joan S. Freilich* Con Edison Executive Vice President, Chief Financial
Officer and Director (Principal Financial Officer)
Con Edison of New York Executive Vice President, Chief Financial
Officer and Trustee (Principal Financial Officer)
Edward J. Rasmussen* Con Edison Vice President, Controller and Chief Accounting
Officer (Principal Accounting Officer)
Con Edison of New York Vice President, Controller and Chief Accounting
Officer (Principal Accounting Officer)
O&R Vice President, Controller and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
Stephen B. Bram* O&R President and Chief Executive Officer and
Director (Principal Executive Officer)
George Campbell* Con Edison Director
Con Edison of New York Trustee
E. Virgil Conway* Con Edison Director
Con Edison of New York Trustee
Gordon J. Davis* Con Edison Director
Con Edison of New York Trustee
Ruth M. Davis* Con Edison Director
Con Edison of New York Trustee
Ellen V. Futter* Con Edison Director
Con Edison of New York Trustee
Michael J. Del Guidice* Con Edison Director
O&R Director
Sally Hernandez-Pinero* Con Edison Director
Con Edison of New York Trustee
Peter W. Likins* Con Edison Director
Con Edison of New York Trustee
Dr. George W. Sarney* Con Edison Director
Con Edison of New York Trustee
Richard A. Voell* Con Edison Director
Con Edison of New York Trustee
Stephen R. Volk* Con Edison Director
Con Edison of New York Trustee
*By JOAN S. FREILICH, Attorney-in-Fact
Joan S. Freilich