Form 10-Q
Table of Contents

FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

x

 

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended SEPTEMBER 30, 2008

OR

   

¨

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

 

Commission

File Number

  

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of

Incorporation

   I.R.S. Employer
ID. Number

1-14514

  

Consolidated Edison, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

   New York    13-3965100

1-1217

  

Consolidated Edison Company of New York, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

   New York    13-5009340

 

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.

 

Con Edison        Yes  x    No  ¨
Con Edison of New York        Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Con Edison         
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Con Edison of New York         
Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x    Smaller reporting company  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Con Edison        Yes  ¨    No  x
Con Edison of New York        Yes  ¨    No  x

 

As of October 31, 2008, Con Edison had outstanding 273,629,636 Common Shares ($.10 par value). All of the outstanding common equity of Con Edison of New York is held by Con Edison.

 

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Filing Format

 

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and, as such, the information in this report about Con Edison of New York also applies to Con Edison. As used in this report, the term the “Companies” refers to Con Edison and Con Edison of New York. However, Con Edison of New York makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

 

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TABLE OF CONTENTS

 

          PAGE

Glossary of Terms

   4

PART I—Financial Information

    

ITEM 1

   Financial Statements (Unaudited)     
    

Con Edison

    
    

Consolidated Balance Sheet

   6
    

Consolidated Income Statement

   8
    

Consolidated Statement of Comprehensive Income

   9
    

Consolidated Statement of Common Shareholders’ Equity

   10
    

Consolidated Statement of Cash Flows

   11
    

Con Edison of New York

    
    

Consolidated Balance Sheet

   12
    

Consolidated Income Statement

   14
    

Consolidated Statement of Comprehensive Income

   15
    

Consolidated Statement of Common Shareholder’s Equity

   16
    

Consolidated Statement of Cash Flows

   17
    

Notes to Financial Statements (Unaudited)

   18

ITEM 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

46

ITEM 3

  

Quantitative and Qualitative Disclosures About Market Risk

   80

ITEM 4

  

Controls and Procedures

   80

ITEM 4T

  

Controls and Procedures

   80

PART II—Other Information

    

ITEM 1

  

Legal Proceedings

   81

ITEM 1A

  

Risk Factors

   81

ITEM 6

  

Exhibits

   82

Signatures

   83

 

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GLOSSARY OF TERMS

 

The following is a glossary of frequently used abbreviations or acronyms that are found in the Companies’ SEC reports:

 

Con Edison Companies

    

Con Edison

  

Consolidated Edison, Inc.

Con Edison Communications

  

Con Edison Communications, LLC

Con Edison Development

  

Consolidated Edison Development, Inc.

Con Edison Energy

  

Consolidated Edison Energy, Inc.

Con Edison of New York

  

Consolidated Edison Company of New York, Inc.

Con Edison Solutions

  

Consolidated Edison Solutions, Inc.

O&R

  

Orange and Rockland Utilities, Inc.

Pike

  

Pike County Light & Power Company

RECO

  

Rockland Electric Company

The Companies

  

Con Edison and Con Edison of New York

The Utilities

  

Con Edison of New York and O&R

Regulatory and State Agencies

    

ALJs

  

Administrative Law Judges

DEC

  

New York State Department of Environmental Conservation

EPA

  

Environmental Protection Agency

FERC

  

Federal Energy Regulatory Commission

IRS

  

Internal Revenue Service

ISO-NE

  

ISO New England

NJBPU

  

New Jersey Board of Public Utilities

NJDEP

  

New Jersey Department of Environmental Protection

NYAG

  

New York Attorney General

NYISO

  

New York Independent System Operator

NYPA

  

New York Power Authority

NYSERDA

  

New York State Energy Research and Development Authority

NYSRC

  

New York State Reliability Council

PJM

  

PJM Interconnection

PSC

  

New York State Public Service Commission

PPUC

  

Pennsylvania Public Utility Commission

SEC

  

Securities and Exchange Commission

Other

    

ABO

  

Accumulated Benefit Obligation

APB

  

Accounting Principles Board

AFDC

  

Allowance for funds used during construction

CO2

  

Carbon dioxide

COSO

  

Committee of Sponsoring Organizations Treadway

Commission

DIG

  

Derivatives Implementation Group

District Court

  

The United States District Court for the Southern District of

New York

dths

  

Dekatherms

EITF

  

Emerging Issues Task Force

 

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Other

    

EMF

  

Electric and magnetic fields

ERRP

  

East River Repowering Project

FASB

  

Financial Accounting Standards Board

FIN

  

FASB Interpretation No.

First Quarter Form 10-Q

  

The Companies’ combined Quarterly Report on Form 10-Q

for the quarterly period ended March 31, 2008

Fitch

  

Fitch Ratings

Form 10-K

  

The Companies’ combined Annual Report on Form 10-K for

the year ended December 31, 2007

FSP

  

FASB Staff Position

GHG

  

Greenhouse gases

kV

  

Kilovolts

kWh

  

Kilowatt-hour

LILO

  

Lease In/Lease Out

LTIP

  

Long Term Incentive Plan

MD&A

  

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

mdths

  

Thousand dekatherms

MGP Sites

  

Manufactured gas plant sites

mmlbs

  

Million pounds

Moody’s

  

Moody’s Investors Service

MVA

  

Megavolt amperes

MW

  

Megawatts or thousand kilowatts

MWH

  

Megawatt hour

Net T&D Revenues

  

Revenue requirement impact resulting from the reconciliation

pursuant to Con Edison of New York’s electric rate agreement

of the differences between the actual amount of transmission

and distribution utility plant, net of depreciation, to the

amount reflected in electric rates

NUGs

  

Non-utility generators

OCI

  

Other Comprehensive Income

PCBs

  

Polychlorinated biphenyls

PPA

  

Power purchase agreement

PRP

  

Potentially responsible party

S&P

  

Standard & Poor’s Rating Services

SFAS

  

Statement of Financial Accounting Standards

SO2

  

Sulfur dioxide

SSCM

  

Simplified service cost method

Second Quarter Form 10-Q

  

The Companies’ combined Quarterly Report on Form 10-Q

for the quarterly period ended June 30, 2008

Superfund

  

Federal Comprehensive Environmental Response,

Compensation and Liability Act of 1980 and similar state

statutes

Third Quarter Form 10-Q

  

The Companies’ combined Quarterly Report on Form 10-Q

for the quarterly period ended September 30, 2008

VaR

  

Value-at-Risk

VIE

  

Variable interest entity

 

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Consolidated Edison, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

    September 30, 2008   December 31, 2007
    (Millions of Dollars)

ASSETS

           

UTILITY PLANT, AT ORIGINAL COST

           

Electric

  $ 17,001   $ 15,979

Gas

    3,614     3,403

Steam

    1,811     1,755

General

    1,761     1,732

TOTAL

    24,187     22,869

Less: Accumulated depreciation

    5,007     4,784

Net

    19,180     18,085

Construction work in progress

    1,086     1,028

NET UTILITY PLANT

    20,266     19,113

NON-UTILITY PLANT

           

Non-utility property, less accumulated depreciation of $40 and $36 in 2008 and 2007, respectively

    19     18

Non-utility property held for sale

        778

Construction work in progress

    1     5

NET PLANT

    20,286     19,914

CURRENT ASSETS

           

Cash and temporary cash investments

    68     210

Restricted cash

    1     1

Accounts receivable—customers, less allowance for uncollectible accounts of $56 and $47 in 2008 and 2007, respectively

    1,010     970

Accrued unbilled revenue

    122     149

Other receivables, less allowance for uncollectible accounts of $6 in 2008 and 2007

    421     288

Fuel oil, at average cost

    58     44

Gas in storage, at average cost

    373     215

Materials and supplies, at average cost

    147     146

Prepayments

    809     119

Fair value of derivative assets

    127     98

Recoverable energy costs

    88     213

Deferred derivative losses

    118     45

Current assets held for sale

        40

Other current assets

    10     12

TOTAL CURRENT ASSETS

    3,352     2,550

INVESTMENTS

    374     378

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

           

Goodwill

    411     408

Intangible assets, less accumulated amortization of $1 in 2008 and 2007

    5     2

Regulatory assets

    4,478     4,511

Noncurrent assets held for sale

        88

Other deferred charges and noncurrent assets

    416     411

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

    5,310     5,420

TOTAL ASSETS

  $ 29,322   $ 28,262

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

     September 30, 2008    December 31, 2007
     (Millions of Dollars)

CAPITALIZATION AND LIABILITIES

             

CAPITALIZATION

             

Common shareholders’ equity (See Statement of Common Shareholders’ Equity)

   $ 9,723    $ 9,076

Preferred stock of subsidiary

     213      213

Long-term debt

     8,849      7,611

TOTAL CAPITALIZATION

     18,785      16,900

MINORITY INTERESTS

          43

NONCURRENT LIABILITIES

             

Obligations under capital leases

     18      22

Provision for injuries and damages

     169      161

Pensions and retiree benefits

     873      938

Superfund and other environmental costs

     274      327

Uncertain income taxes

     143      155

Asset retirement obligations

     123      110

Fair value of derivative liabilities

     45      15

Noncurrent liabilities held for sale

          61

Other noncurrent liabilities

     90      95

TOTAL NONCURRENT LIABILITIES

     1,735      1,884

CURRENT LIABILITIES

             

Long-term debt due within one year

     282      809

Notes payable

     602      840

Accounts payable

     1,032      1,187

Customer deposits

     262      249

Accrued taxes

     113      26

Accrued interest

     168      149

Accrued wages

     82      82

Fair value of derivative liabilities

     100      76

Deferred derivative gains

     33      10

Deferred income taxes - recoverable energy costs

     36      86

Current liabilities held for sale

          28

Other current liabilities

     304      309

TOTAL CURRENT LIABILITIES

     3,014      3,851

DEFERRED CREDITS AND REGULATORY LIABILITIES

             

Deferred income taxes and investment tax credits

     4,972      4,465

Regulatory liabilities

     778      1,097

Other deferred credits

     38      22

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

     5,788      5,584

TOTAL CAPITALIZATION AND LIABILITIES

   $ 29,322    $ 28,262

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.

 

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)

 

    

For the Three Months

Ended September 30,

   

For the Nine Months

Ended September 30,

 
         2008         2007         2008         2007    
     (Millions of Dollars/Except Share Data)  

OPERATING REVENUES

                                

Electric

   $ 2,922     $ 2,477     $ 6,752     $ 6,160  

Gas

     273       234       1,545       1,505  

Steam

     111       102       529       525  

Non-utility

     552       766       1,758       1,703  

TOTAL OPERATING REVENUES

     3,858       3,579       10,584       9,893  

OPERATING EXPENSES

                                

Purchased power

     2,016       1,735       4,670       4,107  

Fuel

     179       136       503       491  

Gas purchased for resale

     132       113       871       877  

Other operations and maintenance

     590       544       1,699       1,532  

Depreciation and amortization

     183       163       531       481  

Taxes, other than income taxes

     356       343       1,033       988  

Income taxes

     92       126       429       355  

TOTAL OPERATING EXPENSES

     3,548       3,160       9,736       8,831  

Gain on sale of generation projects

     1             261        

OPERATING INCOME

     311       419       1,109       1,062  

OTHER INCOME (DEDUCTIONS)

                                

Investment and other income

     10       21       79       56  

Allowance for equity funds used during construction

     2       2       6       5  

Preferred stock dividend requirements of subsidiary

     (3 )     (3 )     (9 )     (9 )

Other deductions

     (3 )     (2 )     (13 )     (20 )

Income taxes

     4       2       (17 )     13  

TOTAL OTHER INCOME (DEDUCTIONS)

     10       20       46       45  

INTEREST EXPENSE

                                

Interest on long-term debt

     135       116       379       351  

Other interest

     6       15       22       44  

Allowance for borrowed funds used during construction

     (2 )     (2 )     (8 )     (7 )

NET INTEREST EXPENSE

     139       129       393       388  

INCOME FROM CONTINUING OPERATIONS

     182       310       762       719  

INCOME FROM DISCONTINUED OPERATIONS

                                

Gain on sale of generation projects, net of tax expense of $0 and $174 in 2008

                 270        

Income from discontinued operations, net of tax expense of $0 and $3 in 2008, and $1 and $1 in 2007, respectively

           2       4       3  

TOTAL INCOME FROM DISCONTINUED OPERATIONS

           2       274       3  

NET INCOME

   $ 182     $ 312     $ 1,036     $ 722  

EARNINGS PER COMMON SHARE - BASIC

                                

Continuing operations

   $ 0.66     $ 1.14     $ 2.79     $ 2.72  

Discontinued operations

           0.01       1.01       0.01  

Net income

   $ 0.66     $ 1.15     $ 3.80     $ 2.73  

EARNINGS PER COMMON SHARE - DILUTED

                                

Continuing operations

   $ 0.66     $ 1.14     $ 2.79     $ 2.71  

Discontinued operations

           0.01       1.00       0.01  

Net income

   $ 0.66     $ 1.15     $ 3.79     $ 2.72  

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

   $ 0.585     $ 0.580     $ 1.755     $ 1.740  

AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)

     273.2       271.0       272.7       264.6  

AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)

     273.8       272.0       273.3       265.8  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
       2008        2007         2008         2007    
     (Millions of Dollars)  

NET INCOME

   $ 182    $ 312     $ 1,036     $ 722  

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

                               

Pension plan liability adjustments, net of $1 and $2 in 2008 and $1 and $3 taxes in 2007, respectively

     1      1       3       4  

Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $(1) in 2008 and $3 taxes in 2007, respectively

                (1 )     4  

Less: Reclassification adjustment for unrealized losses included in regulatory assets, net of $(5) taxes in 2008

                (8 )      

Less: Reclassification adjustment for gains/(losses) included in net income, net of $1 and $0 in 2008 and $(7) and $(21) taxes in 2007, respectively

     1      (11 )           (31 )

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

          12       10       39  

COMPREHENSIVE INCOME

   $ 182    $ 324     $ 1,046     $ 761  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

    Common Stock  

Additional
Paid-

In Capital

  Retained
Earnings
    Treasury Stock     Capital
Stock
Expense
   

Accumulated

Other
Comprehensive
Loss

    Total  
    Shares   Amount       Shares   Amount        
    (Millions of Dollars/Except Share Data)  

BALANCE AS OF
DECEMBER 31, 2006

  257,456,303   $ 28   $ 3,314   $ 5,804     23,210,700   $ (1,001 )   $ (58 )   $ (83 )   $ 8,004  

Net income

                    256                                   256  

Common stock dividends

                    (150 )                                 (150 )

Issuance of common shares—dividend reinvestment and employee stock plans

  1,327,669           61                                         61  

Other comprehensive loss

                                                36       36  

BALANCE AS OF
MARCH 31, 2007

  258,783,972   $ 28   $ 3,375   $ 5,910     23,210,700   $ (1,001 )   $ (58 )   $ (47 )   $ 8,207  

Net income

                    154                                   154  

Common stock dividends

                    (156 )                                 (156 )

Issuance of common shares—public offering

  11,000,000     1     559                         (2 )             558  

Issuance of common shares—dividend reinvestment and employee stock plans

  1,089,068           52                                         52  

Other comprehensive income

                                                (9 )     (9 )

BALANCE AS OF
JUNE 30, 2007

  270,873,040   $ 29   $ 3,986   $ 5,908     23,210,700   $ (1,001 )   $ (60 )   $ (56 )   $ 8,806  

Net income

                    312                                   312  

Common stock dividends

                    (158 )                                 (158 )

Issuance of common shares—dividend reinvestment and employee stock plans

  375,262           18                                         18  

Other comprehensive income

                                                12       12  

BALANCE AS OF
SEPTEMBER 30, 2007

  271,248,302   $ 29   $ 4,004   $ 6,062     23,210,700   $ (1,001 )   $ (60 )   $ (44 )   $ 8,990  

BALANCE AS OF
DECEMBER 31, 2007

  272,024,874   $ 29   $ 4,038   $ 6,113     23,210,700   $ (1,001 )   $ (60 )   $ (43 )   $ 9,076  

Net income

                    303                                   303  

Common stock dividends

                    (160 )                                 (160 )

Issuance of common shares—dividend reinvestment and employee stock plans

  476,809           21                                         21  

Other comprehensive income

                                                7       7  

Adjustment for adoption of FASB Statement No. 157

                    17                                   17  

BALANCE AS OF
MARCH 31, 2008

  272,501,683   $ 29   $ 4,059   $ 6,273     23,210,700   $ (1,001 )   $ (60 )   $ (36 )   $ 9,264  

Net income

                    552                                   552  

Common stock dividends

                    (162 )                                 (162 )

Issuance of common shares—dividend reinvestment and employee stock plans

  493,092           23                                         23  

Other comprehensive income

                                                3       3  

BALANCE AS OF
JUNE 30, 2008

  272,994,775   $ 29   $ 4,082   $ 6,663     23,210,700   $ (1,001 )   $ (60 )   $ (33 )   $ 9,680  

Net income

                    182                                   182  

Common stock dividends

                    (160 )                                 (160 )

Issuance of common shares—dividend reinvestment and employee stock plans

  532,679           21                                         21  

BALANCE AS OF
SEPTEMBER 30, 2008

  273,527,454   $ 29   $ 4,103   $ 6,685     23,210,700   $ (1,001 )   $ (60 )   $ (33 )   $ 9,723  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

     For the Nine Months
Ended September 30,
 
     2008     2007  
     (Millions of Dollars)  

OPERATING ACTIVITIES

                

Net Income

   $ 1,036     $ 722  

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

                

Depreciation and amortization

     531       501  

Deferred income taxes

     337       285  

Rate case amortization and accruals

     (135 )     (236 )

Net transmission and distribution reconciliation

     (48 )     (138 )

Common equity component of allowance for funds used during construction

     (6 )     (5 )

Prepaid pension costs (net of capitalized amounts)

           121  

Net derivative losses

           (67 )

Pre-tax gain on sale of generation projects

     (704 )      

Other non-cash items (net)

     30       58  

CHANGES IN ASSETS AND LIABILITIES

                

Accounts receivable—customers, less allowance for uncollectibles

     (40 )     (114 )

Materials and supplies, including fuel oil and gas in storage

     (173 )     2  

Other receivables and other current assets

     (104 )     179  

Prepayments

     (690 )     (189 )

Recoverable energy costs

     230       63  

Accounts payable

     (235 )     (24 )

Pensions and retiree benefits

     (60 )     (164 )

Accrued taxes

     87       19  

Accrued interest

     19       12  

Deferred charges, noncurrent assets and other regulatory assets

     (222 )     (331 )

Deferred credits and other regulatory liabilities

     187       191  

Other assets

     145       (7 )

Other liabilities

     (135 )     49  

NET CASH FLOWS FROM OPERATING ACTIVITIES

     50       927  

INVESTING ACTIVITIES

                

Utility construction expenditures (excluding capitalized support costs of $- and $(47) in 2008 and 2007, respectively)

     (1,602 )     (1,357 )

Cost of removal less salvage

     (139 )     (125 )

Non-utility construction expenditures

     2       (4 )

Common equity component of allowance for funds used during construction

     6       5  

Increase in restricted cash

           1  

Proceeds from sale of generation projects

     1,477        

Proceeds from sale of properties

           30  

Purchase of ownership interest in Hawkeye lease

     (12 )      

Purchase of ownership interest in Newington SCS

     (20 )      

NET CASH FLOWS USED IN INVESTING ACTIVITIES

     (288 )     (1,450 )

FINANCING ACTIVITIES

                

Net proceeds from/(payments of) short-term debt

     (238 )     233  

Retirement of long-term debt

     (485 )     (357 )

Issuance of long-term debt

     1,250       525  

Issuance of common stock

     37       660  

Debt issuance costs

     (10 )     (5 )

Common stock dividends

     (458 )     (435 )

NET CASH FLOWS FROM FINANCING ACTIVITIES

     96       621  

CASH AND TEMPORARY CASH INVESTMENTS:

                

NET CHANGE FOR THE PERIOD

     (142 )     98  

BALANCE AT BEGINNING OF PERIOD

     210       94  

BALANCE AT END OF PERIOD

   $ 68     $ 192  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                

Cash paid during the period for:

                

Interest

   $ 378     $ 369  

Income taxes

   $ 217     $ 75  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

    September 30, 2008   December 31, 2007
    (Millions of Dollars)

ASSETS

           

UTILITY PLANT, AT ORIGINAL COST

           

Electric

  $ 15,997   $ 15,027

Gas

    3,199     2,999

Steam

    1,811     1,755

General

    1,615     1,599

TOTAL

    22,622     21,380

Less: Accumulated depreciation

    4,568     4,360

Net

    18,054     17,020

Construction work in progress

    1,044     973

NET UTILITY PLANT

    19,098     17,993

NON-UTILITY PROPERTY

           

Non-utility property, less accumulated depreciation of $19 and $18 in 2008 and 2007, respectively

    11     12

NET PLANT

    19,109     18,005

CURRENT ASSETS

           

Cash and temporary cash investments

    39     121

Accounts receivable - customers, less allowance for uncollectible accounts of $52 and $43 in 2008 and 2007, respectively

    843     832

Other receivables, less allowance for uncollectible accounts of $4 and $3 in 2008 and 2007, respectively

    200     159

Accounts receivable from affiliated companies

    80     96

Fuel oil, at average cost

    58     44

Gas in storage, at average cost

    295     170

Materials and supplies, at average cost

    137     138

Prepayments

    775     81

Fair value of derivative assets

    75     66

Recoverable energy costs

    83     190

Deferred derivative losses

    115     44

Other current assets

    4     5

TOTAL CURRENT ASSETS

    2,704     1,946

INVESTMENTS

    108     111

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

           

Regulatory assets

    4,064     4,103

Other deferred charges and noncurrent assets

    341     339

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

    4,405     4,442

TOTAL ASSETS

  $ 26,326   $ 24,504

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

    September 30, 2008    December 31, 2007
    (Millions of Dollars)

CAPITALIZATION AND LIABILITIES

            

CAPITALIZATION

            

Common shareholder’s equity (See Statement of Common Shareholder’s Equity)

  $ 8,991    $ 8,086

Preferred stock

    213      213

Long-term debt

    8,096      7,172

TOTAL CAPITALIZATION

    17,300      15,471

NONCURRENT LIABILITIES

            

Obligations under capital leases

    18      22

Provision for injuries and damages

    163      154

Pensions and retiree benefits

    597      638

Superfund and other environmental costs

    219      271

Uncertain income taxes

    131      142

Asset retirement obligations

    123      110

Fair value of derivative liabilities

    11      4

Other noncurrent liabilities

    70      77

TOTAL NONCURRENT LIABILITIES

    1,332      1,418

CURRENT LIABILITIES

            

Long-term debt due within one year

    275      280

Notes payable

    381      555

Accounts payable

    843      899

Accounts payable to affiliated companies

    20      19

Customer deposits

    247      234

Accrued taxes

    33      21

Accrued taxes to affiliated companies

    21      9

Accrued interest

    147      134

Accrued wages

    78      74

Fair value of derivative liabilities

    58      20

Deferred derivative gains

    26      5

Deferred income taxes—recoverable energy costs

    34      77

Other current liabilities

    273      276

TOTAL CURRENT LIABILITIES

    2,436      2,603

DEFERRED CREDITS AND REGULATORY LIABILITIES

            

Deferred income taxes and investment tax credits

    4,579      4,018

Regulatory liabilities

    646      976

Other deferred credits

    33      18

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    5,258      5,012

TOTAL CAPITALIZATION AND LIABILITIES

  $ 26,326    $ 24,504

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
         2008             2007             2008             2007      
     (Millions of Dollars)  

OPERATING REVENUES

                                

Electric

   $ 2,670     $ 2,272     $ 6,162     $ 5,646  

Gas

     242       204       1,366       1,316  

Steam

     111       102       529       525  

TOTAL OPERATING REVENUES

     3,023       2,578       8,057       7,487  

OPERATING EXPENSES

                                

Purchased power

     1,195       922       2,620       2,291  

Fuel

     178       125       501       460  

Gas purchased for resale

     110       88       752       738  

Other operations and maintenance

     508       463       1,458       1,326  

Depreciation and amortization

     172       150       497       442  

Taxes, other than income taxes

     341       326       986       941  

Income taxes

     145       108       298       305  

TOTAL OPERATING EXPENSES

     2,649       2,182       7,112       6,503  

OPERATING INCOME

     374       396       945       984  

OTHER INCOME (DEDUCTIONS)

                                

Investment and other income

     4       6       18       30  

Allowance for equity funds used during construction

     2       2       5       6  

Other deductions

     (3 )     (3 )     (10 )     (10 )

Income taxes

           1       (2 )     1  

TOTAL OTHER INCOME (DEDUCTIONS)

     3       6       11       27  

INTEREST EXPENSE

                                

Interest on long-term debt

     120       108       347       317  

Other interest

     6       9       16       32  

Allowance for borrowed funds used during construction

     (2 )     (2 )     (6 )     (6 )

NET INTEREST EXPENSE

     124       115       357       343  

NET INCOME

     253       287       599       668  

PREFERRED STOCK DIVIDEND REQUIREMENTS

     3       3       9       9  

NET INCOME FOR COMMON STOCK

   $ 250     $ 284     $ 590     $ 659  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
         2008            2007            2008            2007    
     (Millions of Dollars)

NET INCOME

   $ 253    $ 287    $ 599    $ 668

OTHER COMPREHENSIVE INCOME, NET OF TAXES

                   

COMPREHENSIVE INCOME

   $ 253    $ 287    $ 599    $ 668

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS EQUITY

(UNAUDITED)

 

    Common Stock  

Additional
Paid-

In Capital

  Retained
Earnings
    Repurchased
Con Edison
Stock
    Capital
Stock
Expense
    Accumulated
Other
Comprehensive
Loss
    Total  
    Shares   Amount            
    (Millions of Dollars/Except Share Data)  

BALANCE AS OF DECEMBER 31, 2006

  235,488,094   $ 589   $ 2,252   $ 5,320     $ (962 )   $ (58 )   $ (9 )   $ 7,132  

Net income

                    239                               239  

Common stock dividend to parent

                    (131 )                             (131 )

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF MARCH 31, 2007

  235,488,094   $ 589   $ 2,252   $ 5,425     $ (962 )   $ (58 )   $ (9 )   $ 7,237  

Net income

                    142                               142  

Common stock dividend to parent

                    (131 )                             (131 )

Capital contribution by parent

              518                     (2 )             516  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF JUNE 30, 2007

  235,488,094   $ 589   $ 2,770   $ 5,433     $ (962 )   $ (60 )   $ (9 )   $ 7,761  

Net income

                    287                               287  

Common stock dividend to parent

                    (142 )                             (142 )

Capital contribution by parent

              15                                     15  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF SEPTEMBER 30, 2007

  235,488,094   $ 589   $ 2,785   $ 5,575     $ (962 )   $ (60 )   $ (9 )   $ 7,918  

BALANCE AS OF DECEMBER 31, 2007

  235,488,094   $ 589   $ 2,912   $ 5,616     $ (962 )   $ (60 )   $ (9 )   $ 8,086  

Net income

                    222                               222  

Common stock dividend to parent

                    (139 )                             (139 )

Capital contribution by parent

              23                                     23  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF MARCH 31, 2008

  235,488,094   $ 589   $ 2,935   $ 5,696     $ (962 )   $ (60 )   $ (9 )   $ 8,189  

Net income

                    124                               124  

Common stock dividend to parent

                    (145 )                             (145 )

Capital contribution by parent

              26                                     26  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF JUNE 30, 2008

  235,488,094   $ 589   $ 2,961   $ 5,672     $ (962 )   $ (60 )   $ (9 )   $ 8,191  

Net income

                    253                               253  

Common stock dividend to parent

                    (152 )                             (152 )

Capital contribution by parent

              702                                     702  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF SEPTEMBER 30, 2008

  235,488,094   $ 589   $ 3,663   $ 5,770     $ (962 )   $ (60 )   $ (9 )   $ 8,991  

 

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

     For the Nine Months
Ended September 30,
 
         2008             2007      
     (Millions of Dollars)  

OPERATING ACTIVITIES

                

Net income

   $ 599     $ 668  

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

                

Depreciation and amortization

     497       442  

Deferred income taxes

     385       270  

Rate case amortization and accruals

     (135 )     (236 )

Net transmission and distribution reconciliation

     (48 )     (138 )

Common equity component of allowance for funds used during construction

     (5 )     (6 )

Prepaid pension costs (net of capitalized amounts)

           77  

Other non-cash items (net)

     36       (50 )

CHANGES IN ASSETS AND LIABILITIES

                

Accounts receivable—customers, less allowance for uncollectibles

     (11 )     (49 )

Materials and supplies, including fuel oil and gas in storage

     (138 )     (20 )

Other receivables and other current assets

     (228 )     177  

Prepayments

     (694 )     (204 )

Recoverable energy costs

     201       71  

Accounts payable

     (55 )     (28 )

Pensions and retiree benefits

     (53 )     (124 )

Accrued taxes

     161       (39 )

Accrued interest

     13       7  

Deferred charges, noncurrent assets and other regulatory assets

     (191 )     (288 )

Deferred credits and other regulatory liabilities

     181       188  

Other assets

           (1 )

Other liabilities

     (28 )     48  

NET CASH FLOWS FROM OPERATING ACTIVITIES

     487       765  

INVESTING ACTIVITIES

                

Utility construction expenditures (excluding capitalized support costs of $- and $(47) in 2008 and 2007, respectively)

     (1,532 )     (1,297 )

Cost of removal less salvage

     (139 )     (123 )

Common equity component of allowance for funds used during construction

     5       6  

Proceeds from loan to affiliate

     55        

Proceeds from sale of properties

           30  

NET CASH FLOWS USED IN INVESTING ACTIVITIES

     (1,611 )     (1,384 )

FINANCING ACTIVITIES

                

Net payments of short-term debt

     (174 )      

Retirement of long-term debt

     (280 )      

Issuance of long-term debt

     1,200       525  

Debt issuance costs

     (10 )     (5 )

Capital contribution by parent

     751       531  

Dividend to parent

     (436 )     (404 )

Preferred stock dividends

     (9 )     (9 )

NET CASH FLOWS FROM FINANCING ACTIVITIES

     1,042       638  

CASH AND TEMPORARY CASH INVESTMENTS:

                

NET CHANGE FOR THE PERIOD

     (82 )     19  

BALANCE AT BEGINNING OF PERIOD

     121       47  

BALANCE AT END OF PERIOD

   $ 39     $ 66  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                

Cash paid during the period for:

                

Interest

   $ 333     $ 304  

Income taxes

   $ (82 )   $ 102  

 

The accompanying notes are an integral part of these financial statements.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the Con Edison of New York consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to Con Edison of New York and O&R.

 

As used in these notes, the term “Companies” refers to Con Edison and Con Edison of New York and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, Con Edison of New York makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.

 

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2007 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2008 (the First Quarter Form 10-Q) and June 30, 2008 (the Second Quarter Form 10-Q). Information in the notes to the consolidated financial statements in the Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q referred to in these notes is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into these notes the information to which reference is made. Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of results for the entire fiscal year.

 

Con Edison has two regulated utility subsidiaries: Con Edison of New York and O&R. Con Edison of New York provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that participates in infrastructure projects. During the second quarter of 2008, Con Edison Development and its subsidiary, CED/SCS Newington, LLC, completed the sale of their ownership interests in power generating projects with an aggregate capacity of approximately 1,706 megawatts. See Note N.

 

Note A - Earnings Per Common Share

 

Reference is made to “Earnings Per Common Share” in Note A to the financial statements included in Item 8 of the Form 10-K. For the three and nine months ended September 30, 2008 and 2007, Con Edison’s basic and diluted EPS are calculated as follows:

 

     For the Three
Months Ended
September 30,
  

For the Nine

Months Ended
September 30,

(Millions of Dollars, except per share amounts/Shares in Millions)    2008    2007    2008    2007

Income from continuing operations

   $ 182    $ 310    $ 762    $ 719

Income from discontinued operations, net of tax

          2      274      3

Net income

   $ 182    $ 312    $ 1,036    $ 722

Weighted average common shares outstanding – Basic

     273.2      271.0      272.7      264.6

Add: Incremental shares attributable to effect of potentially dilutive securities

     0.6      1.0      0.6      1.2

Adjusted weighted average common shares outstanding – Diluted

     273.8      272.0      273.3      265.8

EARNINGS PER COMMON SHARE – BASIC

                           

Continuing operations

   $ 0.66    $ 1.14    $ 2.79    $ 2.72

Discontinued operations

          0.01      1.01      0.01

Net income

   $ 0.66    $ 1.15    $ 3.80    $ 2.73

EARNINGS PER COMMON SHARE – DILUTED

                           

Continuing operations

   $ 0.66    $ 1.14    $ 2.79    $ 2.71

Discontinued operations

          0.01      1.00      0.01

Net income

   $ 0.66    $ 1.15    $ 3.79    $ 2.72

 

Note B - Regulatory Matters

Reference is made to “Accounting Policies” in Note A and “Rate Agreements” in Note B to the financial statements included in Item 8 of the Form 10-K and Note B to the financial statements in Part I, Item 1 of the First and Second Quarter Forms 10-Q.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Rate Agreements

Con Edison of New York - Electric

In May 2008, Con Edison of New York filed a proposal with the New York State Public Service Commission (PSC) for a three-year electric rate plan with level annual rate increases of $556.7 million effective April 2009, 2010 and 2011. The filing reflects a return on common equity of 10.0 percent and a common equity ratio of 48.0 percent. The company is requesting that expenses for pension and other post-retirement benefits, property taxes, municipal infrastructure support and environmental site investigation and remediation be reconciled to amounts reflected in rates and that increases, if any, in certain expenses above a four percent annual inflation rate be deferred as a regulatory asset if its annual return on common equity is less than the authorized return.

 

The filing reflects efforts by Con Edison of New York to mitigate the impact on its customers of rate increases, including its proposed targeted energy efficiency programs and its proposal to begin to accrue revenues in the month electric service is provided instead of when it bills customers for the service.

 

The filing also includes an alternative proposal for an electric rate increase of $654 million, effective April 2009, to recover increased property taxes ($200 million); additional operating costs and new and/or expanded operating programs ($165 million); carrying charges on additional infrastructure investments ($230 million); and an increased return on equity as compared to the return on equity reflected in current electric rates ($115 million). In September 2008, the company submitted to the PSC an update to the filing, primarily reflecting additional property taxes and pension expenses, as a result of which the company’s proposed April 2009 rate increase is $819 million. In October 2008, the PSC staff submitted testimony supporting a rate increase of $346 million.

 

The filing reflects continuation of the revenue decoupling mechanism that eliminates the direct relationship between the company’s level of delivery revenues and profits. It also reflects continuation of the provisions pursuant to which the company recovers its purchased power and fuel costs from customers.

 

Con Edison of New York - Steam

In September 2008, the PSC approved the June 2008 Joint Proposal among the company, the PSC staff and other parties with respect to the rates the company can charge its customers for steam service. The Joint Proposal covers the period from October 1, 2008 through September 30, 2010. The Joint Proposal provides for steam rate increases of $43.7 million effective October 1, 2008 and 2009.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

The Joint Proposal reflects the following major items:

 

   

an annual return on common equity of 9.3 percent;

 

   

any actual earnings above a 10.1 percent return on equity (based on actual average common equity ratio, subject to a 50 percent maximum) are to be shared as follows: half will be deferred for the benefit of customers and the other half is to be retained by the company (with half of the company’s share subject to offset to reduce any regulatory assets for under-collections of property taxes);

 

   

deferral as a regulatory asset or regulatory liability, as the case may be, of the difference between (i) actual costs for pension and other post-retirement benefits, environmental remediation, property taxes, certain tax-exempt debt, municipal infrastructure support and certain other costs and (ii) amounts for those costs reflected in rates (90 percent of the difference in the case of property taxes and interference costs);

 

   

deferral as a regulatory liability of the revenue requirement impact (i.e., return on investment, depreciation and income taxes) of the amount, if any, by which the actual capital expenditures related to steam production plant are less than amounts reflected in rates;

 

   

potential negative earnings adjustments (revenue reductions) of approximately $0.95 million to $1 million annually if certain business development, customer service and safety performance targets are not met;

 

   

amortization of certain regulatory assets and liabilities, the net effect of which will be a non-cash increase in steam revenues of $20.3 million over the two-year period covered by the Joint Proposal; and

 

   

continuation of the rate provisions pursuant to which the company recovers its fuel and purchased steam costs from customers.

 

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 30, 2008 and December 31, 2007 were comprised of the following items:

 

     Con Edison     Con Edison of
New York
(Millions of Dollars)    2008    2007     2008    2007

Regulatory assets

                            

Unrecognized pension and other postretirement costs

   $ 2,035    $ 2,106     $ 1,903    $ 1,956

Future federal income tax

     1,237      1,112       1,180      1,057

Environmental remediation costs

     387      378       323      312

World Trade Center restoration costs

     145      154       145      154

Pension and other postretirement benefits deferrals

     99      152       44      96

Revenue taxes

     83      77       82      75

O&R transition bond charges

     60      63           

Unbilled gas revenue

     44      44       44      44

Workers’ compensation

     38      41       38      41

Gas rate plan deferral

     31      7       31      7

Net electric deferrals

     27            27     

Electric property tax reconciliation

     23            23     

Deferred derivative losses – long-term

     18      5          17      4

Other retirement program costs

     14      16       14      16

Recoverable energy costs

     10      50       10      50

Asbestos-related costs

     10      10       10      10

Net T&D reconciliation

          142            142

Electric rate increase accrual

          14            14

Other

     217      140       173      125

Regulatory assets

     4,478      4,511       4,064      4,103

Deferred derivative losses – current

     118      45       115      44

Recoverable energy costs – current

     88      213       83      190

Total Regulatory Assets

   $ 4,684    $ 4,769     $ 4,262    $ 4,337

Regulatory liabilities

                            

Allowance for cost of removal less salvage

   $ 383    $ 422     $ 318    $ 362

Refundable energy costs

     94      29       54     

Net electric deferrals

     38      33       38      33

Gain on sale of First Avenue properties

     36      124       36      124

Gas interruptible sales credits

     16      10       16      10

Deferred derivative gains – long-term

     14      21       4      8

Gas excess earnings

     9      10       9      10

EPA SO2 allowance proceeds – electric and steam

     6      18       6      18

Property tax reconciliation

     5      41       5      41

Prior year deferred tax amortization

     2      51       2      51

NYS tax law changes

     1      42            41

Interest on federal income tax refund

          41            41

Transmission congestion contracts

          40            40

Net steam deferrals

          21            21

2004 electric, gas and steam one-time rate agreement charges

          16            16

Gain on sale of W. 24th St. property

          10            10

Other

     174      168       158      150

Regulatory liabilities

     778      1,097       646      976

Deferred derivative gains – current

     33      10       26      5

Total Regulatory Liabilities

   $ 811    $ 1,107     $ 672    $ 981

 

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Power Outage Proceedings

In July 2008, the PSC approved a Joint Proposal among Con Edison of New York, the PSC staff and other parties with respect to the July 2006 Queens outage. The PSC order provides that (i) the company will make available $17 million for the benefit of the communities affected by the outage, including customer bill credits, and will not recover from customers $40 million of capital costs incurred to replace and repair electric delivery facilities and $6 million of related carrying charges; and (ii) the company will be released from all prudence-related claims that were or could have been asserted in any PSC proceeding relating to the outage other than with respect to any damage to the Long Island City network, or incremental costs, that are neither known nor reasonably foreseeable.

 

In June 2008, the PSC concluded that Con Edison of New York is not liable for food spoilage claims in connection with the September 2006 outage in Westchester resulting from Tropical Storm Ernesto.

 

Note C - Long-term Debt

Reference is made to Note C to the financial statements in Item 8 of the Form 10-K and Note C to the financial statements in Part I, Item 1 of the First and Second Quarter Forms 10-Q.

 

At September 30, 2008, $5 million of the $126 million of Con Edison of New York’s Series 2005A weekly-rate, tax-exempt debt (Series 2005A Debt), $49 million of the $55 million of O&R’s weekly-rate, tax-exempt debt that is insured by Financial Guaranty Insurance Company (Series 1994A Debt), and $4 million of the $44 million of such debt insured by Ambac Assurance Company (Series 1995A Debt), had been tendered by bondholders and purchased with funds drawn under letters of credit maintained as liquidity facilities for the tax-exempt debt. Con Edison of New York’s obligation to reimburse the bank for funds used to purchase the Series 2005A Debt that was tendered is included as long-term debt in the Companies’ consolidated balance sheets. O&R reimbursed the bank for the funds used to purchase its tendered bonds, together with interest thereon.

 

From October 1, 2008 through October 23, 2008, an additional $35 million of Series 2005A Debt and $21 million of Series 1995A Debt was tendered by bondholders and purchased with funds drawn under letters of credit maintained as liquidity facilities for the tax-exempt debt.

 

In August 2008, O&R issued $50 million of 6.15 percent, 10-year debentures. The net proceeds received from the issuance were used for general corporate purposes, including repayment of short-term debt.

 

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Note D - Short-Term Borrowing and Credit Agreements

Reference is made to Note D to the financial statements in Item 8 of the Form 10-K and Note D to the financial statements in Part I, Item 1 of the First and Second Quarter Forms 10-Q.

 

At September 30, 2008, Con Edison had $602 million of commercial paper outstanding, $381 million of which was outstanding under Con Edison of New York’s program. The weighted average interest rate at September 30, 2008 was 6.0 percent and 5.8 percent for Con Edison and Con Edison of New York, respectively. At September 30, 2007, Con Edison had $350 million of commercial paper outstanding, none of which was outstanding under Con Edison of New York’s program. The weighted average interest rate at September 30, 2007 was 5.2 percent for Con Edison. Under the Companies’ credit agreement, which provides for a current maximum of $2.25 billion of credit (with the full amount available to Con Edison of New York and $1 billion available to Con Edison), Lehman Brothers Bank, FSB has a $100 million commitment. At September 30, 2008 and 2007, no loans were outstanding under the Companies’ credit agreements and $68 million and $79 million of letters of credit were outstanding, respectively.

 

Note E - Pension Benefits

Reference is made to Note E to the financial statements in Item 8 of the Form 10-K and Note E to the financial statements in Part I, Item 1 of the First and Second Quarter Forms 10-Q.

 

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and nine months ended September 30, 2008 and 2007 were as follows:

 

     For the Three Months Ended September 30,  
     Con Edison    

Con Edison of

New York

 
(Millions of Dollars)       2008           2007           2008           2007     

Service cost – including administrative expenses

   $ 35     $ 32     $ 33     $ 30  

Interest cost on projected benefit obligation

     128       122          123       114  

Expected return on plan assets

     (172 )     (161 )     (169 )     (154 )

Amortization of net actuarial loss

     48       40       44       35  

Amortization of prior service costs

     2       3       1       2  

NET PERIODIC BENEFIT COST

   $ 41     $ 36     $ 32     $ 27  

Amortization of regulatory asset*

     1       1       1       1  

TOTAL PERIODIC BENEFIT COST

   $ 42     $ 37     $ 33     $ 28  

Cost capitalized

     (15 )     (14 )     (13 )     (12 )

Cost deferred

     (8 )     (26 )     (7 )     (24 )

Cost charged/(credited) to operating expenses

   $ 19     $ (3 )   $ 13     $ (8 )
* Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

 

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     For the Nine Months Ended September 30,  
     Con Edison    

Con Edison of

New York

 
(Millions of Dollars)       2008           2007           2008           2007     

Service cost – including administrative expenses

   $ 104     $ 98     $ 97     $ 91  

Interest cost on projected benefit obligation

     386       368          364       344  

Expected return on plan assets

     (518 )     (484 )     (499 )     (463 )

Amortization of net actuarial loss

     144       120       129       104  

Amortization of prior service costs

     6       8       5       7  

NET PERIODIC BENEFIT COST

   $ 122     $ 110     $ 96     $ 83  

Amortization of regulatory asset*

     3       3       3       3  

TOTAL PERIODIC BENEFIT COST

   $ 125     $ 113     $ 99     $ 86  

Cost capitalized

     (43 )     (37 )     (36 )     (30 )

Cost deferred

     (33 )     (75 )     (35 )     (69 )

Cost charged/(credited) to operating expenses

   $ 49     $ 1     $ 28     $ (13 )
* Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

 

Expected Contributions

The estimated fair value of the Companies’ pension plan assets at October 31, 2008 was approximately 25 percent less than at December 31, 2007, reflecting the ongoing global financial turmoil. Any change from amounts reflected in rates for the Utilities’ accounting costs recognized under SFAS No. 87, “Employers’ Accounting for Pensions,” including changes resulting from the decline in the fair value of assets, are deferred pursuant to the New York Utilities’ current rate plans. See Note E to the financial statements in Item 8 of the Form 10-K. In September 2008, the Companies contributed $147 million to the pension plan (of which, $114 million was contributed by Con Edison of New York). The Companies do not expect to make any additional contributions to the pension plan in 2008. Absent a substantial increase in the fair value of the plan’s assets, the Companies expect that, under current funding regulations, tax laws and PSC policies, the Companies’ contributions in future years to the pension plan may materially exceed the amounts contributed in 2008.

 

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Note F - Other Postretirement Benefits

Reference is made to Note F to the financial statements in Item 8 of the Form 10-K and Note F to the financial statements in Part I, Item 1 of the First and Second Quarter Forms 10-Q.

 

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and nine months ended September 30, 2008 and 2007 were as follows:

 

     For the Three Months Ended September 30,  
     Con Edison    

Con Edison of

New York

 
(Millions of Dollars)       2008           2007           2008           2007     

Service cost

   $ 5     $ 4     $ 3     $ 4  

Interest cost on accumulated other postretirement benefit obligation

     24       24          21       21  

Expected return on plan assets

     (22 )     (21 )     (18 )     (19 )

Amortization of net actuarial loss

     17       17       15       15  

Amortization of prior service cost

     (3 )     (4 )     (4 )     (4 )

Amortization of transition obligation

     1       1       1       1  

NET PERIODIC POSTRETIREMENT BENEFIT COST

   $ 22     $ 21     $ 18     $ 18  

Cost capitalized

     (8 )     (7 )     (7 )     (6 )

Cost deferred

           (7 )     (1 )     (7 )

Cost charged to operating expenses

   $ 14     $ 7     $ 10     $ 5  
     For the Nine Months Ended September 30,  
     Con Edison    

Con Edison of

New York

 
(Millions of Dollars)       2008           2007           2008           2007     

Service cost

   $ 15     $ 13     $ 11     $ 11  

Interest cost on accumulated other postretirement benefit obligation

     71       70          63       62  

Expected return on plan assets

     (65 )     (61 )     (57 )     (56 )

Amortization of net actuarial loss

     51       50       44       44  

Amortization of prior service cost

     (9 )     (11 )     (11 )     (11 )

Amortization of transition obligation

     3       3       3       3  

NET PERIODIC POSTRETIREMENT BENEFIT COST

   $ 66     $ 64     $ 53     $ 53  

Cost capitalized

     (23 )     (22 )     (19 )     (18 )

Cost deferred

     (11 )     (27 )     (10 )     (25 )

Cost charged to operating expenses

   $ 32     $ 15     $ 24     $ 10  

 

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Note G - Environmental Matters

Superfund Sites

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.

 

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and environmental damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”

 

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

 

The accrued liabilities and regulatory assets related to Superfund Sites at September 30, 2008 and December 31, 2007 were as follows:

 

     Con Edison     Con Edison of
New York
(Millions of Dollars)    2008    2007     2008    2007

Accrued Liabilities:

                            

Manufactured gas plant sites

   $ 227    $ 267     $ 172    $ 212

Other Superfund Sites

     47      60          47      59

Total

   $ 274    $ 327     $ 219    $ 271

Regulatory assets

   $ 387    $ 378     $ 323    $ 312

 

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Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. As investigations progress on these and other sites, the Utilities expect that additional liability will be accrued, the amount of which is not presently determinable but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.

 

Environmental remediation payments and insurance recoveries received related to Superfund Sites for the three and nine months ended September 30, 2008 and 2007 were as follows:

 

     For the Three Months Ended September 30,
     Con Edison    

Con Edison of

New York

(Millions of Dollars)        2008            2007             2008            2007    

Remediation payments

   $ 24    $ 16     $ 24    $ 13

Insurance recoveries received

                       
     For the Nine Months Ended September 30,
     Con Edison    

Con Edison of

New York

(Millions of Dollars)    2008    2007     2008    2007

Remediation payments

   $ 77    $ 33     $ 76    $ 29

Insurance recoveries received

          1               1

 

In 2006, Con Edison of New York estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.1 billion. In 2007, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $115 million. These estimates were based on the assumption that there is contamination at the sites that have not yet been investigated and additional assumptions about these and the other sites regarding the extent of contamination and the type and extent of remediation that may be required. Actual experience may be materially different.

 

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities 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 Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts

 

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specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2006, Con Edison of New York estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, Con Edison of New York is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 2008 and December 31, 2007 were as follows:

 

     Con Edison    

Con Edison of

New York

(Millions of Dollars)        2008            2007             2008            2007    

Accrued liability – asbestos suits

   $ 10    $ 10     $ 10    $ 10

Regulatory assets – asbestos suits

   $ 10    $ 10      $ 10    $ 10

Accrued liability – workers’ compensation

   $ 114    $ 116     $ 109    $ 111

Regulatory assets – workers’ compensation

   $ 38    $ 41     $ 38    $ 41

 

Note H - Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a Con Edison of New York steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. As of September 30, 2008, with respect to the incident, the company incurred estimated operating costs of $35 million for property damage, clean up and other response costs, recorded $21 million in actual and expected insurance recoveries and invested $12 million in capital, retirement and other costs. Over 70 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies currently in force will cover most of the company’s costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

 

In August 2008, Con Edison of New York entered into a Joint Proposal with the PSC staff and the New York State Consumer Protection Board with respect to the PSC’s ongoing proceeding relating to

 

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the steam main rupture. (See “Regulatory Matters – Con Edison of New York – Steam” in Note B to the financial statements in Item 8 of the Form 10-K.) Pursuant to the Joint Proposal, which is subject to PSC approval, among other things, the company (i) will not recover from customers the operating, capital and retirement costs it incurred as a result of the steam main rupture; (ii) will, in general, effectively be limited in its recovery from customers of premiums for its excess liability insurance policies for each of the policy years beginning April 2008 through April 2011 to amounts designed to prevent recovery of any premium increase resulting from the steam main rupture; and (iii) will be released from all prudence-related claims that were or could have been asserted in any PSC proceeding relating to the steam main rupture other than with respect to any damage to company facilities, or incremental costs, that are neither known nor reasonably foreseeable. In August 2008, the company entered into a second agreement with the PSC staff, subject to the approval by the PSC of the Joint Proposal, pursuant to which in lieu of a penalty action for violations, if any, of the Public Service Law or the PSC’s regulations or orders as a result of the steam main rupture, the company accrued a $4 million regulatory liability to be used for future steam customer benefit.

 

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transaction). The transactions respectively involve electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with Statement of Financial Accounting Standards (SFAS) No. 13, “Accounting for Leases,” Con Edison is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. The company’s investment in these leveraged leases was immaterial at September 30, 2008 and $9 million at December 31, 2007 and is comprised of a $235 million gross investment less $239 million of deferred tax liabilities at September 30, 2008 and $235 million gross investment less $226 million of deferred tax liabilities at December 31, 2007.

 

On audit of Con Edison’s tax return for 1997, the Internal Revenue Service (IRS) disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and

 

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commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of this tax payment and interest. A trial was completed in November 2007, post trial briefs have been filed and oral argument took place on August 13, 2008. A decision is possible later this year.

 

Two cases involving LILO and sale in/lease out transactions have been decided in other courts, each of which was decided in favor of the government and one of which has been affirmed on appeal. See, BB&T Corp. v. United States, 523 F.3d 461 (4th Cir. 2008), and AWG Leasing Trust v. United States, 1:07-CV-857 (N.D. Ohio May 28, 2008). The court before which Con Edison stands, the Court of Federal Claims, has not previously rendered a decision with respect to such transactions and is not bound by these cases. Con Edison believes its tax deductions are proper and that its transaction is distinguishable on a number of grounds. For example, the two cases recently decided involved investments by banks in industrial assets, Swedish wood pulp mill equipment and a German waste-to-energy disposal facility respectively. In contrast, the facts surrounding Con Edison’s investment are quite different. Its investment was made in the context of the deregulation of the electric energy industry in New York. It involved an acquisition by Con Edison Development of a leasehold interest in an electric generating power plant in the Netherlands. The asset is consistent with Con Edison Development’s plan at the time to invest in a variety of international infrastructure projects. Moreover, in both BB&T and AWG the United States, as defendant, successfully argued that the counterparties in those cases were certain to exercise their early purchase options and, therefore, that those transactions did not qualify as leases. In contrast, Con Edison produced evidence that it is unclear whether the counterparty will exercise its early purchase option.

 

In a third LILO case, a jury verdict was rendered, partially favorable to the taxpayer and partially favorable to the government. See, Fifth Third Bancorp & Subsidiaries v. United States, 1:05-CV-350 (S.D. Ohio April 18, 2008). Post-verdict motions are pending in that case and a decision has not been rendered.

 

The IRS has completed the pre-filing Compliance Assurance Process for the 2007 tax year and the company and the IRS did not reach agreement on the treatment of the LILO transactions within the 2007 tax return, a net tax deduction of $41 million. In connection with its audit of Con Edison’s federal income tax return for the tax year 2006, the IRS disallowed $43 million of net tax deductions taken with respect to both of the LILO transactions for the tax year. Con Edison filed an appeal of this audit level disallowance with the Appeals Office of the IRS, where consideration of this matter is pending. In connection with its audit of Con Edison’s federal income tax returns for the tax years 1998 through 2005, the IRS indicated that it intends to disallow $332 million of net tax deductions taken

 

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with respect to both of the LILO transactions for the tax years. If and when these audit level disallowances become appealable, Con Edison intends to file appeals of the disallowances with the Appeals Office of the IRS.

 

Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edison’s estimated tax savings, reflected in its financial statements, from the two LILO transactions through September 30, 2008, in the aggregate, was $184 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $74 million at September 30, 2008.

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FASB Statement (FAS) 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,” which became effective for fiscal years beginning after December 15, 2006. This FSP requires the expected timing of income tax cash flows generated by Con Edison’s LILO transactions to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the company’s results of operations.

 

Uncertain Tax Positions

Reference is made to “Uncertain Tax Positions” in Note L to the financial statements included in Item 8 of the Form 10-K.

 

In July 2008, the IRS entered into a closing agreement with Con Edison covering the Companies’ use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2004. The closing agreement does not cover 2005, the last year for which SSCM is an uncertain tax position. The Companies do not expect the required repayment, with interest, to the IRS of their SSCM tax benefits for 2002 through 2005 to exceed the $160 million ($147 million of which is attributable to Con Edison of New York) the Companies paid to the IRS in June 2007 as a deposit for the repayment.

 

Other Contingencies

See “Power Outage Proceedings” in Note B.

 

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Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. In addition, a Con Edison Development subsidiary has issued a guarantee on behalf of an entity in which it has an equity interest. At September 30, 2008 and December 31, 2007, the maximum amounts guaranteed by Con Edison totaled $1.4 billion in both periods.

 

A summary, by type and term, of Con Edison’s total guarantees at September 30, 2008 is as follows:

 

Guarantee Type    0 –3 years    4 –10 years    > 10 years    Total
     (Millions of Dollars)

Commodity transactions

   $ 857    $ 45    $ 230    $ 1,132

Affordable housing program

          15           15

Intra-company guarantees

     39           1      40

Other guarantees

     218      34           252

TOTAL

   $ 1,114    $ 94    $ 231    $ 1,439

 

For a description of guarantee types, see Note H to the financial statements in Item 8 of the Form 10-K.

 

Note I - Stock-Based Compensation

For a description of stock-based compensation, including stock options, restricted stock units (RSUs) and stock purchase plan, reference is made to Note M to the financial statements in Item 8 of the Form 10-K.

 

In accordance with SFAS No. 123(R), “Share-Based Payment,” the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the three and nine months ended September 30, 2008 and 2007:

 

     For the Three Months Ended September 30,
    

Con

Edison

   

Con Edison of

New York

(Millions of Dollars)    2008    2007     2008    2007

Stock options

   $    $ 1     $    $ 1

Restricted stock units

     1                

Performance-based restricted stock

     7      1          6      1

Non-officer director deferred stock compensation

     1            1     

Total

   $ 9    $ 2     $ 7    $ 2

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

     For the Nine Months Ended September 30,
    

Con

Edison

    Con Edison of
New York
(Millions of Dollars)    2008    2007     2008    2007

Stock options

   $ 1    $ 2     $ 1    $ 1

Restricted stock units

     1      1               1

Performance-based restricted stock

     7      3       6      3

Non-officer director deferred stock compensation

     1            1     

Total

   $ 10    $ 6     $ 8    $ 5

 

Stock Options

A summary of changes in the status of stock options during the three and nine months ended September 30, 2008 and 2007 is as follows:

 

     Con Edison    

Con Edison of

New York

     Shares     Weighted
Average
Exercise
Price
    Shares     Weighted
Average
Exercise
Price

Outstanding at 12/31/06

   8,617,601     $ 42.773     7,346,601     $ 42.842

Granted

                  

Exercised

   (975,100 )     41.630     (907,050 )     41.634

Forfeited

   (1,001 )     42.169     (1,001 )     42.169

Outstanding at 3/31/07

   7,641,500     $ 42.919     6,438,550     $ 43.013

Granted

                  

Exercised

   (668,350 )     42.803     (587,500 )     42.829

Forfeited

   (19,350 )     42.483     (7,500 )     41.870

Outstanding at 6/30/07

   6,953,800     $ 42.931     5,843,550     $ 43.033

Granted

                  

Exercised

   (8,100 )     39.997        (7,450 )     39.639

Forfeited

   (26,450 )     42.457     (10,250 )     41.891

Outstanding at 9/30/07

   6,919,250     $ 42.934     5,825,850     $ 43.037

Outstanding at 12/31/07

   6,596,850     $ 43.072     5,531,850     $ 43.187

Granted

                  

Exercised

   (26,500 )     39.658     (22,000 )     39.242

Forfeited

   (75,550 )     43.028     (73,050 )     43.032

Outstanding at 3/31/08

   6,494,800     $ 43.087     5,436,800     $ 43.205

Granted

                  

Exercised

   (5,000 )     36.988     (5,000 )     36.988

Forfeited

   (36,600 )     43.648     (17,000 )     43.602

Outstanding at 6/30/08

   6,453,200     $ 43.088     5,414,800     $ 43.209

Granted

                  

Exercised

   (236,400 )     39.417     (208,500 )     40.060

Forfeited

   (4,700 )     43.022     (7,000 )     45.437

Outstanding at 9/30/08

   6,212,100     $ 43.228     5,199,300     $ 43.333

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

The change in the fair value of all outstanding options from their grant dates to September 30, 2008 and 2007 (aggregate intrinsic value) for Con Edison was $(2) million and $23 million, respectively. The change in the fair value of all outstanding options from their grant dates to September 30, 2008 and 2007 (aggregate intrinsic value) for Con Edison of New York was $(2) million and $19 million, respectively. The aggregate intrinsic value of options exercised in the periods ended September 30, 2008 and 2007 was $1.3 million and $0.05 million, respectively, and the cash received by Con Edison for payment of the exercise price was $10.5 million and $0.3 million, respectively. The weighted average remaining contractual life of options outstanding is four years as of September 30, 2008.

 

The following table summarizes stock options outstanding at September 30, 2008 for each plan year for the Companies:

 

     Con Edison     Con Edison of New York
Plan Year    Remaining
Contractual
Life
  

Options

Outstanding

   Weighted
Average
Exercise
Price
   Options
Exercisable
   

Options

Outstanding

   Weighted
Average
Exercise
Price
   Options
Exercisable

2006

   8    1,617,800    $ 45.180        1,392,700    $ 45.196   

2005

   7    1,230,200      42.755    1,230,200     1,006,750      42.729    1,006,750

2004

   6    922,200      43.766    922,200     739,350      43.761    739,350

2003

   5    638,900      39.756    638,900     470,400      39.719    470,400

2002

   4    848,550      42.510    848,550        712,550      42.510    712,550

2001

   3    311,300      37.750    311,300     265,800      37.750    265,800

2000

   2    101,650      32.500    101,650     87,650      32.500    87,650

1999

   1    541,500      47.940    541,500     524,100      47.940    524,100

Total

        6,212,100    $ 43.228    4,594,300     5,199,300    $ 43.333    3,806,600

 

There were no new awards granted in 2008 and 2007. The total expense to be recognized in future periods for unvested stock options outstanding as of September 30, 2008 is $0.3 million for Con Edison and Con Edison of New York.

 

Restricted Stock Units

At September 30, 2008 and 2007, there were 113,555 and 114,855 units outstanding, respectively, for Con Edison employees, of which 76,455 and 62,855 units were outstanding, respectively, for Con Edison of New York. The weighted average fair value as of the grant date of the outstanding units other than Performance RSUs or awards under the directors’ deferred compensation plan for September 30, 2008 and 2007 was $41.10 and $42.86 per unit, respectively, for Con Edison. The weighted average fair value as of the grant date of the outstanding units for September 30, 2008 and 2007 was $43.86 and $45.87 per unit, respectively, for Con Edison of New York. The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of September 30, 2008 for Con Edison and Con Edison of New York was $1.3 million.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

A summary of changes in the status of the Performance RSUs Total Shareholder Return (TSR) portion during the three and nine months ended September 30, 2008 and 2007 is as follows:

 

     Con Edison    

Con Edison of

New York

     Units     Weighted
Average
Fair
Value*
    Units     Weighted
Average
Fair
Value*

Non-vested at 12/31/06

   126,425     $ 13.992     94,025     $ 14.420

Granted

   113,600       45.730        81,848       45.730

Vested and Exercised

   (31,400 )         (21,475 )    

Forfeited

                  

Non-vested at 3/31/07

   208,625     $ 36.108     154,398     $ 35.709

Granted

   33,280       48.060     30,805       48.060

Vested and Exercised

                  

Forfeited

                  

Non-vested at 6/30/07

   241,905     $ 20.152     185,203     $ 20.155

Granted

                  

Vested and Exercised

                  

Forfeited

   (4,723 )         (4,723 )    

Non-vested at 9/30/07

   237,182     $ 22.677     180,480     $ 22.726

Non-vested at 12/31/07

   195,980     $ 33.398     146,033     $ 33.048

Granted

   159,950       36.270     115,758       36.270

Vested and Exercised

   (5 )     31.370          

Forfeited

   (5,270 )         (200 )    

Non-vested at 3/31/08

   350,655     $ 21.178     261,591     $ 20.918

Granted

   38,375       25.980     35,515       25.980

Vested and Exercised

                  

Forfeited

   (4,839 )         (2,814 )    

Non-vested at 6/30/08

   384,191     $ 15.269     294,292     $ 15.177

Granted

                  

Vested and Exercised

                  

Forfeited

   (8,123 )         (3,671 )    

Non-vested at 9/30/08

   376,068     $ 47.455     290,621     $ 47.301
* Fair value is determined using the Monte Carlo simulation.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

A summary of changes in the status of the Performance RSUs’ Executive Incentive Plan (EIP) portion during the three and nine months ended September 30, 2008 and 2007 is as follows:

 

     Con Edison    

Con Edison of

New York

     Units     Weighted
Average
Price
    Units     Weighted
Average
Price

Non-vested at 12/31/06

   126,425     $ 48.070     94,025     $ 48.070

Granted

   113,600       47.815        81,848       47.807

Vested and Exercised

   (31,400 )     47.530     (21,475 )     47.530

Forfeited

                  

Non-vested at 3/31/07

   208,625     $ 51.060     154,398     $ 51.060

Granted

   33,280       51.060     30,805       51.060

Vested and Exercised

                  

Forfeited

                  

Non-vested at 6/30/07

   241,905     $ 45.120     185,203     $ 45.120

Granted

                  

Vested and Exercised

                  

Forfeited

   (4,723 )         (4,723 )    

Non-vested at 9/30/07

   237,182     $ 46.300     180,480     $ 46.300

Non-vested at 12/31/07

   195,980     $ 48.850     146,033     $ 48.850

Granted

   159,950       46.440     115,758       46.440

Vested and Exercised

   (20 )     43.570          

Forfeited

   (5,255 )         (200 )    

Non-vested at 3/31/08

   350,655     $ 39.700     261,591     $ 39.700

Granted

   38,375       39.700     35,515       39.700

Vested and Exercised

                  

Forfeited

   (4,839 )         (2,814 )    

Non-vested at 6/30/08

   384,191     $ 39.090     294,292     $ 39.090

Granted

                  

Vested and Exercised

                  

Forfeited

   (8,123 )         (3,671 )    

Non-vested at 9/30/08

   376,068     $ 42.960     290,621     $ 42.960

 

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of September 30, 2008 is $20 million, including $15 million for Con Edison of New York.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Stock Purchase Plan

In the three months ended September 30, 2008 and 2007, 197,330 shares and 164,152 shares were purchased under the Stock Purchase Plan at a weighted average price of $39.90 and $46.43 per share, respectively. In the nine months ended September 30, 2008 and 2007, 555,727 shares and 468,964 shares were purchased under the Stock Purchase Plan at a weighted average price of $42.52 and $48.13 per share, respectively.

 

Note J - Financial Information by Business Segment

Reference is made to Note N to the financial statements in Item 8 of the Form 10-K.

 

The financial data for the business segments are as follows:

 

     For the Three Months Ended September 30,  
     Operating
Revenues
    Inter-segment
revenues
    Depreciation
and amortization
    Operating
Income
 
(Millions of Dollars)    2008    2007     2008     2007     2008    2007     2008     2007  

Con Edison of New York

                                                              

Electric

   $ 2,670    $ 2,272     $ 3     $ 3     $ 133    $ 113        $ 369     $ 395  

Gas

     242      204       2       1       23      22       8       4  

Steam

     111      102          18       18          16      15       (3 )     (3 )

Consolidation adjustments

                (23 )     (22 )                       

Total Con Edison of New York

 &