SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 28, 2000
<TABLE>
<S> <C> <C> <C>
Commission Exact name of registrant as specified in its charter State of I.R.S. Employer
File Number and principal office address and telephone number Incorporation I.D. Number
1-14514 Consolidated Edison, Inc. New York 13-3965100
4 Irving Place, New York, New York 10003
(212) 460-4600
</TABLE>
<PAGE>
- 2 -
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
Dr. George Campbell, Jr., was elected to the Board of Directors, effective
February 17, 2000. Dr. Campbell is the President and Chief Executive Officer of
the National Action Council for Minorities in Engineering.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule. (To the extent provided in Rule 402 of
Regulation S-T, this exhibit shall not be deemed "filed", or
otherwise subject to liabilities, or be deemed part of a registration
statement.)
99.1 Consolidated balance sheet and statement of capitalization at December 31,
1999 and 1998, and related consolidated statements of income, of retained
earnings, and of cash flows for each of the three years in the period
ended December 31, 1999, and the notes thereto, of Consolidated Edison,
Inc. and its subsidiaries ("1999 Financial Statements").
99.2 Report of PricewaterhouseCoopers LLP, dated February 17, 2000, relating
to the 1999 Financial Statements.
99.3 Management's Discussion and Analysis of Financial Condition and Results of
Operations, dated February 17, 2000 relating to the 1999 Financial
Statements.
<PAGE>
- 3 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
CONSOLIDATED EDISON, INC.
By: Hyman Schoenblum
Hyman Schoenblum
Vice President, Controller
and Chief Accounting Officer
DATE: February 28, 2000
CONSOLIDATED EDISON, INC.
Ratio of Earnings to Fixed Charges
Twelve Months Ended
(Thousands of Dollars)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Earnings
Net Income Available
for Common $688,285 $688,169 $694,479 $712,742 $700,615
Preferred
Dividends 35,565 5,916 ** 18,344 17,007 13,593
Federal Income
Tax 328,600 355,590 357,100 318,980 838,213
Federal Income Tax
Deferred 78,330 49,510 31,450 95,140 (428,008)
Investment Tax Credits
Deferred (9,310) (8,910) (8,830) (8,710) (37,380)
---------- --------- ---------- --------- ---------
Earnings Before Federal
Income Tax 1,121,470 1,090,275 1,092,543 1,135,159 1,087,033
Fixed Charges* 350,254 343,308 353,689 345,513 357,178
---------- --------- ---------- --------- ---------
Earnings Before Federal Income
Tax and Fixed Charges $1,471,724 $1,433,583 $1,446,232 $1,480,672 $1,444,211
---------- --------- ---------- --------- ---------
* Fixed Charges
Interest on
Long-Term Debt $287,842 $296,443 $306,109 $294,894 $305,879
Amort. of Debt Discount,
Premium and Expense 14,075 11,376 12,049 13,777 13,514
Interest on Component
of Rentals 19,383 18,157 18,448 18,442 17,720
Other Interest 28,954 17,332 17,083 18,400 20,065
---------- --------- ---------- --------- ---------
Total Fixed Charges $350,254 $343,308 $353,689 $345,513 $357,178
--------- ---------- ---------- --------- ---------
Ratio of Earnings to 4.20 4.18 4.09 4.29 4.04
Fixed Charges
</TABLE>
** Reflects gain on refunding
of preferred stock
EXHIBIT 23 TO FORM 8-K REPORT
Consent of Independent Accountants
We hereby consent to the incorporation by reference of our report dated
February 17, 2000 included in Exhibit 99.2 of this Current Report on Form 8-K of
Consolidated Edison, Inc.("Con Edison") in: (i) the Prospectus constituting part
of Con Edison's Registration Statement on Form S-3 (No. 333-69013) relating to
the Con Edison Automatic Dividend Reinvestment and Cash Payment Plan; (ii) the
Prospectus constituting part of Con Edison's Registration Statement on Form S-8
(No. 333-04463-99) relating to the Con Edison 1996 Stock Option Plan; and (iii)
the Prospectus constituting part of Con Edison's Registration Statement on Form
S-8 (No. 333-48475) relating to The Consolidated Edison Discount Stock Purchase
Plan.
PricewaterhouseCoopers LLP
New York, NY
February 28, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> The schedule contains summary financial
information extracted from Consolidated
Balance Sheet, Income Statement and Statement of
Cash Flows for Consolidated
Edison, Inc. and is qualified in its entirety
by reference to such financial statements
and the notes thereto.
</LEGEND>
<CIK> 0001047862
<NAME> Consolidated Edison, Inc.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<PERIOD-TYPE> 12-Mos
<BOOK-VALUE> Per-Book
<TOTAL-NET-UTILITY-PLANT> 11,353,845
<OTHER-PROPERTY-AND-INVEST> 487,918
<TOTAL-CURRENT-ASSETS> 1,714,565
<TOTAL-DEFERRED-CHARGES> 1,975,148
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 15,531,476
<COMMON> 588,720
<CAPITAL-SURPLUS-PAID-IN> 857,509
<RETAINED-EARNINGS> 3,965,778
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,412,007
37,050
212,563
<LONG-TERM-DEBT-NET> 4,524,604
<SHORT-TERM-NOTES> 495,371
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 395,000
0
<CAPITAL-LEASE-OBLIGATIONS> 34,544
<LEASES-CURRENT> 2,656
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,417,681
<TOT-CAPITALIZATION-AND-LIAB> 15,531,476
<GROSS-OPERATING-REVENUE> 7,491,323
<INCOME-TAX-EXPENSE> 399,716
<OTHER-OPERATING-EXPENSES> 6,071,808
<TOTAL-OPERATING-EXPENSES> 6,471,524
<OPERATING-INCOME-LOSS> 1,019,799
<OTHER-INCOME-NET> 31,972
<INCOME-BEFORE-INTEREST-EXPEN> 1,051,771
<TOTAL-INTEREST-EXPENSE> 337,563
<NET-INCOME> 714,208
13,593
<EARNINGS-AVAILABLE-FOR-COMM> 700,615
<COMMON-STOCK-DIVIDENDS> 478,155
<TOTAL-INTEREST-ON-BONDS> 319,393
<CASH-FLOW-OPERATIONS> 1,205,370
<EPS-BASIC> 3.14
<EPS-DILUTED> 3.13
</TABLE>
CONSOLIDATED BALANCE SHEET
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------------
1999 1998
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT ORIGINAL COST (NOTE A)
Electric.................................................... $11,323,826 $12,039,082
Gas......................................................... 2,197,735 1,838,550
Steam....................................................... 722,265 604,761
General..................................................... 1,328,544 1,204,262
Unregulated generating assets............................... 48,583 --
----------- -----------
Total....................................................... 15,620,953 15,686,655
Less: Accumulated depreciation.............................. 4,733,613 4,726,211
----------- -----------
Net......................................................... 10,887,340 10,960,444
Construction work in progress............................... 381,804 347,262
Nuclear fuel assemblies and components, less accumulated
amortization.............................................. 84,701 98,837
----------- -----------
NET UTILITY PLANT........................................... 11,353,845 11,406,543
----------- -----------
CURRENT ASSETS
Cash and temporary cash investments (Note A)................ 485,050 102,295
Accounts receivable--customer, less allowance for
uncollectible accounts of $34,821 and $24,957 at December
31, 1999 and 1998, respectively 647,545 521,648
Other receivables........................................... 122,474 49,381
Fuel, at average cost....................................... 24,271 33,289
Gas in storage, at average cost............................. 55,387 49,656
Materials and supplies, at average cost..................... 142,905 184,916
Prepayments................................................. 197,671 131,374
Other current assets........................................ 39,262 20,984
----------- -----------
TOTAL CURRENT ASSETS........................................ 1,714,565 1,093,543
----------- -----------
INVESTMENTS
Nuclear decommissioning trust funds......................... 305,717 265,063
Other....................................................... 182,201 113,382
----------- -----------
TOTAL INVESTMENTS (NOTE A).................................. 487,918 378,445
----------- -----------
DEFERRED CHARGES
Goodwill.................................................... 427,496 --
Regulatory assets (Notes A and J)........................... 1,382,265 1,359,135
Other deferred charges...................................... 165,387 143,737
----------- -----------
TOTAL DEFERRED CHARGES...................................... 1,975,148 1,502,872
----------- -----------
TOTAL....................................................... $15,531,476 $14,381,403
----------- -----------
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------------
1999 1998
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (NOTE B)
COMMON SHAREHOLDERS' EQUITY
Common stock, $.10 par value, authorized 500,000,000 shares;
213,810,634 shares and 232,833,494 shares outstanding,
net of treasury stock, at December 31, 1999 and 1998,
respectively.............................................. $ 1,482,341 $ 1,482,341
Retained earnings........................................... 4,921,089 4,700,500
Treasury stock, at cost; 21,358,500 shares and 2,654,600
shares at December 31, 1999 and 1998, respectively........ (955,311) (120,790)
Capital stock expense....................................... (36,112) (36,446)
----------- -----------
TOTAL COMMON SHAREHOLDERS' EQUITY........................... 5,412,007 6,025,605
----------- -----------
Preferred stock subject to mandatory redemption............. 37,050 37,050
Other preferred stock....................................... 212,563 212,563
Long-term debt ............................................. 4,524,604 4,050,108
----------- -----------
TOTAL CAPITALIZATION........................................ 10,186,224 10,325,326
----------- -----------
NONCURRENT LIABILITIES
Obligations under capital leases............................ 34,544 37,295
Other noncurrent liabilities................................ 305,632 203,543
----------- -----------
TOTAL NONCURRENT LIABILITIES................................ 340,176 240,838
----------- -----------
CURRENT LIABILITIES
Long--term debt due within one year......................... 395,000 225,000
Notes payable............................................... 495,371 --
Accounts payable............................................ 615,983 371,274
Customer deposits........................................... 204,421 181,236
Accrued taxes............................................... 18,389 15,670
Accrued interest............................................ 60,061 76,466
Accrued wages............................................... 79,408 83,555
Other current liabilities................................... 232,706 188,186
----------- -----------
TOTAL CURRENT LIABILITIES................................... 2,101,339 1,141,387
----------- -----------
DEFERRED CREDITS
Accumulated deferred federal income tax (Note L)............ 2,267,548 2,392,812
Regulatory liabilities (Note J)............................. 636,022 281,018
Other deferred credits...................................... 167 22
----------- -----------
TOTAL DEFERRED CREDITS...................................... 2,903,737 2,673,852
----------- -----------
CONTINGENCIES (NOTE F)
TOTAL....................................................... $15,531,476 $14,381,403
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING REVENUES (NOTE A)
Electric.............................................. $ 5,792,673 $ 5,674,446 $ 5,635,575
Gas................................................... 1,000,083 959,609 1,093,880
Steam................................................. 340,026 321,932 391,799
Non-utility........................................... 358,541 137,061 74,898
----------- ----------- -----------
TOTAL OPERATING REVENUES.............................. 7,491,323 7,093,048 7,196,152
----------- ----------- -----------
OPERATING EXPENSES
Purchased power....................................... 1,824,023 1,253,783 1,349,587
Fuel.................................................. 430,050 579,006 596,824
Gas purchased for resale.............................. 485,155 437,308 552,597
Other operations...................................... 1,188,623 1,157,958 1,124,703
Maintenance........................................... 437,979 477,413 474,788
Depreciation and amortization (Note A)................ 526,182 518,514 503,455
Taxes, other than federal income tax.................. 1,179,796 1,208,102 1,181,156
Federal income tax (Notes A and L).................... 399,716 407,639 377,722
----------- ----------- -----------
TOTAL OPERATING EXPENSES.............................. 6,471,524 6,039,723 6,160,832
----------- ----------- -----------
OPERATING INCOME...................................... 1,019,799 1,053,325 1,035,320
----------- ----------- -----------
OTHER INCOME (DEDUCTIONS)
Investment income (Note A)............................ 14,842 11,801 12,214
Allowance for equity funds used during construction
(Note A)............................................ 3,810 2,431 4,448
Other income less miscellaneous deductions............ (13,571) (14,212) (4,100)
Federal income tax (Notes A and L).................... 26,891 2,229 (1,998)
----------- ----------- -----------
TOTAL OTHER INCOME.................................... 31,972 2,249 10,564
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES........................ 1,051,771 1,055,574 1,045,884
----------- ----------- -----------
Interest on long-term debt............................ 319,393 308,671 318,158
Other interest........................................ 20,065 18,400 17,083
Allowance for borrowed funds used during construction
(Note A)............................................ (1,895) (1,246) (2,180)
----------- ----------- -----------
NET INTEREST CHARGES.................................. 337,563 325,825 333,061
----------- ----------- -----------
PREFERRED STOCK DIVIDEND REQUIREMENTS................. 13,593 17,007 18,344
----------- ----------- -----------
NET INCOME FOR COMMON STOCK........................... $ 700,615 $ 712,742 $ 694,479
=========== =========== ===========
BASIC EARNINGS PER COMMON SHARE....................... $ 3.14 $ 3.04 $ 2.95
DILUTED EARNINGS PER COMMON SHARE..................... $ 3.13 $ 3.04 $ 2.95
AVERAGE NUMBER OF SHARES OUTSTANDING.................. 223,442,315 234,307,767 235,082,063
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
BALANCE, JANUARY 1....................................... $4,700,500 $4,484,703 $4,283,935
Less: Stock options exercised............................ 1,922 -- --
Add: Orange & Rockland purchase accounting adjustment.... 51 -- --
NET INCOME FOR COMMON STOCK FOR THE YEAR................. 700,615 712,742 694,479
---------- ---------- ----------
TOTAL.................................................... 5,399,244 5,197,445 4,978,414
---------- ---------- ----------
Dividends declared on common, $2.14, $2.12 and $2.10 per
share, respectively.................................... 478,155 496,945 493,711
---------- ---------- ----------
BALANCE, DECEMBER 31..................................... $4,921,089 $4,700,500 $4,484,703
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income for common stock................................. $ 700,615 $ 712,742 $ 694,479
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization............................... 526,182 518,514 503,455
Federal income tax deferred (excluding taxes resulting from
divestiture of plant)..................................... 41,784 86,430 22,620
Common equity component of allowance for funds used during
construction.............................................. (3,730) (2,364) (4,321)
Other non-cash charges...................................... 42,050 11,297 17,268
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS FROM
PURCHASE OF ORANGE AND ROCKLAND
Accounts receivable-customer, less allowance for
uncollectibles............................................ (66,371) 59,515 (37,159)
Materials and supplies, including fuel and gas in storage... 56,554 14,804 31,824
Prepayments, other receivables and other current assets..... (91,588) (50,689) 16,062
Deferred recoverable fuel costs............................. (66,655) 76,288 3,161
Cost of removal less salvage................................ (71,451) (72,033) (73,719)
Accounts payable............................................ 167,598 (68,840) 8,999
Other-net .................................................. (29,618) 104,165 103,490
--------- --------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................... 1,205,370 1,389,829 1,286,159
--------- --------- ---------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures................................... (678,157) (618,844) (654,221)
Nuclear fuel expenditures................................... (16,537) (7,056) (14,579)
Contributions to nuclear decommissioning trust.............. (21,301) (21,301) (21,301)
Common equity component of allowance for funds used during
construction.............................................. 3,730 2,364 4,321
Payment for purchase of Orange and Rockland, net of cash and
cash equivalents.......................................... (509,083) -- --
Divestiture of utility plant (net of federal income tax).... 1,138,750 -- --
Unregulated subsidiary investments.......................... (101,953) (24,072) (66,032)
--------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING
CONSTRUCTION.............................................. (184,551) (668,909) (751,812)
--------- --------- ---------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock.................................. (817,399) (115,247) --
Net proceeds from short-term debt........................... 430,196 -- --
Issuance of long-term debt.................................. 767,689 460,000 480,000
Retirement of long-term debt................................ (225,000) (200,000) (106,256)
Advance refunding of preferred stock and long-term debt..... (300,000) (773,645) --
Issuance and refunding costs................................ (16,440) (8,864) (8,930)
Funds held for refunding of debt............................ -- 328,874 (328,874)
Common stock dividends...................................... (477,110) (493,201) (493,711)
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING
DIVIDENDS................................................. (638,064) (802,083) (457,771)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS............................................... 382,755 (81,163) 76,576
--------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1............ 102,295 183,458 106,882
--------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT DECEMBER 31.......... $ 485,050 $ 102,295 $ 183,458
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 321,785 $ 285,956 $ 310,310
Income taxes.............................................. 846,559 355,707 335,586
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CAPITALIZATION
CONSOLIDATED EDISON, INC.
<TABLE>
<CAPTION>
SHARES OUTSTANDING YEAR ENDED DECEMBER 31
------------------------------------- -----------------------
DECEMBER 31, 1999 DECEMBER 31, 1998 1999 1998
----------------- ----------------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY (NOTE B)
Common stock.......................... 213,810,634 232,833,494 $1,482,341 $1,482,341
Retained earnings..................... 4,921,089 4,700,500
Treasury stock, at cost............... (955,311) (120,790)
Capital stock expense................. (36,112) (36,446)
---------- ----------
TOTAL COMMON SHAREHOLDERS' EQUITY..... 5,412,007 6,025,605
---------- ----------
PREFERRED STOCK (NOTE B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
6 1/8% Series J..................... 370,500 370,500 37,050 37,050
---------- ----------
TOTAL SUBJECT TO MANDATORY
REDEMPTION.......................... 37,050 37,050
---------- ----------
OTHER PREFERRED STOCK
$5 Cumulative Preferred, without par
value, authorized 1,915,319 shares... 1,915,319 1,915,319 175,000 175,000
Cumulative Preferred, $100 par value,
authorized 6,000,000 shares*
4.65% Series C.................... 153,296 153,296 15,330 15,330
4.65% Series D.................... 222,330 222,330 22,233 22,233
---------- ----------
TOTAL OTHER PREFERRED STOCK........... 212,563 212,563
---------- ----------
TOTAL PREFERRED STOCK................. $ 249,613 $ 249,613
========== ==========
</TABLE>
- ------------------------
* Represents total authorized shares of cumulative preferred stock, $100 par
value, including preferred stock subject to mandatory redemption.
<PAGE>
LONG-TERM DEBT (NOTE B)
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------------
MATURITY INTEREST RATE SERIES 1999 1998
- -------- ------------- -------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Debentures:
1999...................................... 6 1/2 % 1992D $ -- $ 75,000
1999...................................... -- 1994B -- 150,000
2000...................................... 9 3/8 1990A 80,000 --
2000...................................... 7 3/8 1992A 150,000 150,000
2000...................................... 7.60 1992C 125,000 125,000
2000...................................... 6.14 1993C 20,000 --
2001...................................... 6 1/2 1993B 150,000 150,000
2001...................................... 6.22 * 1996B 150,000 150,000
2002...................................... 6 5/8 1993C 150,000 150,000
2002...................................... 6.18 * 1997A 150,000 150,000
2003...................................... 6 3/8 1993D 150,000 150,000
2003...................................... 6.56 1993D 35,000 --
2004...................................... 7 5/8 1992B 150,000 150,000
2005...................................... 6 5/8 1995A 100,000 100,000
2007...................................... 6.45 1997B 330,000 330,000
2008...................................... 6 1/4 1998A 180,000 180,000
2008...................................... 6.15 1998C 100,000 100,000
2009...................................... 7.15 1999B 200,000 --
2023...................................... 7 1/2 1993G 380,000 380,000
2026...................................... 7 3/4 1996A 100,000 100,000
2027...................................... 6 1/2 1997F 80,000 --
2028...................................... 7.10 1998B 105,000 105,000
2028...................................... 6.90 1998D 75,000 75,000
2029...................................... 7 1/8 1994A 150,000 150,000
2029...................................... 7.00 1999G 45,000 --
2039...................................... 7.35 1999A 275,000 --
----------- -----------
Total debentures.......................... 3,430,000 2,920,000
=========== ===========
</TABLE>
<PAGE>
LONG-TERM DEBT (NOTE B)--(CONTINUED)
Tax-exempt debt--notes issued to New York State Energy Research and
Development Authority for Facilities Revenue Bonds:
<TABLE>
<CAPTION>
AT DECEMBER 31
-----------------------------
MATURITY INTEREST RATE SERIES 1999 1998
- -------- ------------- -------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
2014...................................... 6.09 1994*** 55,000 --
2015...................................... 3.07 ** 1995*** 44,000 --
2020...................................... 5 1/4 1993B 127,715 127,715
2020...................................... 6.10 1995A 128,285 128,285
2022...................................... 5 3/8 1993C 19,760 19,760
2024...................................... 7 1/4 1989C -- 150,000
2025...................................... 7 1/2 1990A -- 150,000
2026...................................... 7 1/2 1991A 128,150 128,150
2027...................................... 6 3/4 1992A 100,000 100,000
2027...................................... 6 3/8 1992B 100,000 100,000
2028...................................... 6.00 1993A 101,000 101,000
2029...................................... 7 1/8 1994A 100,000 100,000
2034...................................... 4.12 ** 1999A 292,700 --
----------- -----------
Total tax-exempt debt..................... 1,196,610 1,104,910
=========== ===========
Subordinated deferrable interest
debentures:
2031...................................... 7 3/4 1996A 275,000 275,000
----------- -----------
Other long-term debt...................... 43,236 868
Unamortized debt discount................. (25,242) (25,670)
----------- -----------
Total..................................... 4,919,604 4,275,108
Less: long-term debt due within one
year.................................... 395,000 225,000
----------- -----------
Total long-term debt...................... 4,524,604 4,050,108
----------- -----------
Total capitalization...................... $10,186,224 $10,325,326
----------- -----------
</TABLE>
- ------------------------
* Rates reset quarterly; December 31, 1999 rate shown.
** Rates reset weekly; December 31, 1999 rate shown.
*** Issued for pollution control financing for Bowline and Lovett generating
stations.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These notes form an integral part of the accompanying consolidated financial
statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries.
CON EDISON
On January 1, 1998, Con Edison was established as the parent holding company
for Consolidated Edison Company of New York, Inc. (Con Edison of New York)
pursuant to an agreement and plan of exchange which provided for the exchange of
the outstanding shares of common stock, $2.50 par value, of Con Edison of New
York for an equal number of shares of common stock, $.10 par value, of Con
Edison.
Con Edison, through its subsidiaries, provides a wide range of
energy-related services to its customers.
Con Edison of New York, a regulated utility, provides electric service to
over three million customers and gas service to over a million customers in New
York City and Westchester County. It also provides steam service in parts of
Manhattan.
Orange and Rockland Utilities, Inc. (O&R), a regulated utility which Con
Edison acquired in July 1999 (see Note K), provides electric service to over
275,000 customers and gas service to over 100,000 customers in southeastern New
York and in adjacent sections of New Jersey and northeastern Pennsylvania.
Con Edison's non-utility subsidiaries provide competitive gas and electric
supply and energy-related products and services (Con Edison Solutions); invest
in and manage energy infrastructure projects (Con Edison Development); market
specialized energy supply services to wholesale customers (Con Edison Energy);
and invest in telecommunications infrastructure (Con Edison Communications).
These subsidiaries operate primarily in the Mid-Atlantic and New England states.
NORTHEAST UTILITIES MERGER
In October 1999 Con Edison agreed to acquire Northeast Utilities (Northeast)
for an estimated aggregate purchase price of not more than $3.8 billion, payable
50 percent in cash and 50 percent in stock and subject to adjustment as
discussed below.
To effect the acquisition, Con Edison will merge into a new parent holding
company (New Con Edison) and a subsidiary of New Con Edison will merge into
Northeast (collectively these mergers are referred to as the Merger). The Merger
is subject to certain conditions, including the approval of Con Edison's and
Northeast's shareholders and federal and state regulatory agencies.
Upon completion of the Merger, the former holders of Con Edison and
Northeast common shares will together own all of the outstanding shares of
common stock of New Con Edison, and New Con Edison will in turn own all of the
outstanding common shares of Con Edison of New York, O&R (which will continue to
own its regulated utility subsidiaries), its unregulated subsidiaries and
Northeast (which will continue to own its regulated utilities) and its
unregulated subsidiaries.
New Con Edison is expected to account for the Merger under the purchase
method of accounting in accordance with accounting principles generally accepted
in the United States.
Con Edison will pay a base price of $25 for each Northeast common share,
subject to adjustment as follows: (i) $1 per share will be added to the price
if, prior to the closing of the Merger, Northeast enters into binding agreements
and receives certain regulatory approvals with respect to the sale of certain
nuclear facilities (the "divestiture condition") and (ii) $0.0034 per share will
be added to the price for each day after August 5, 2000 through the day prior to
the closing of the Merger. The stock
<PAGE>
consideration (i.e., the number of shares of New Con Edison common stock) to be
received by Northeast shareholders will be determined by dividing the adjusted
price to be paid for each Northeast share by a calculated average market price
of Con Edison common shares over a specified period prior to the closing. The
calculated average market price to be used in this determination is subject to a
"price collar" of not more than $46 per share or less than $36 per Con Edison
share. As a result of the price collar, Northeast shareholders may receive more
(if the calculated average market price of Con Edison's shares exceeds $46 per
share) or fewer (if the calculated average market price is less than $36 per
share) New Con Edison shares than they would have in the absence of the collar.
If the divestiture condition is satisfied following the completion of the Merger
but prior to December 31, 2000, the $1 per Northeast share referred to above
would be separately paid by New Con Edison to the former Northeast shareholders
in cash.
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION Con Edison's consolidated financial statements
include the accounts of Con Edison and its consolidated subsidiaries, including
the regulated utilities, Con Edison of New York and O&R. Intercompany
transactions have been eliminated.
RESTRUCTURING AGREEMENTS In May 1996 the New York State Public Service
Commission (PSC), in its Competitive Opportunities proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry. In September 1997 the PSC approved a restructuring agreement between
Con Edison of New York, the PSC staff and certain other parties (the
Restructuring Agreement). The Restructuring Agreement provides for a transition
to a competitive electric market through the development of a "retail access"
plan, a rate plan for the period ending March 31, 2002, a reasonable opportunity
for recovery of "strandable costs" and the divestiture of electric generation
capacity by Con Edison of New York.
At December 31, 1999 approximately 70,000 Con Edison of New York customers
representing approximately 20 percent of aggregate customer load were purchasing
electricity from other suppliers under the electric Retail Choice program. In
February 2000 the PSC issued an order requiring Con Edison of New York to make
available the program to all of its electric customers by November 2000. Con
Edison of New York delivers electricity to customers in this program through its
regulated transmission and distribution systems. In general, Con Edison of New
York's delivery rates for Retail Choice customers are equal to the rates
applicable to other comparable Con Edison of New York customers, less an amount
representing the cost of the energy and capacity it avoids by not supplying
these customers. In its February 2000 order, the PSC reduced the delivery rate
for large electric Retail Choice customers and authorized Con Edison of New York
to recover the resulting lost revenues by recognizing a portion of the deferred
generation divestiture gain. See Note I.
Con Edison of New York reduced electric rates by $129 million in 1998 and
$80 million in April 1999 as part of the Restructuring Agreement's rate plan.
Under this plan, the revenues that the company receives over the five-year
transition period ending in March 2002 are reduced by $1 billion from the amount
that would have been received had the March 1997 rate levels remained in effect.
Pursuant to the rate plan, rate reductions of approximately $103 million and
$209 million are scheduled to take effect in April 2000 and 2001, respectively.
The April 2001 rate decrease will be partially offset by $36 million of a rate
increase attributable to the New York Power Authority, the recognition of which
is being deferred over the first four years of the rate plan, and $50 million of
deferred generation divestiture gain (see Note I). In addition, a regulatory
liability was established in 1997 for rate reductions for certain customers that
is being amortized over the remaining years of the rate plan.
Con Edison of New York's potential electric strandable costs are those prior
utility investments and commitments that may not be recoverable in a competitive
electric supply market. These include
<PAGE>
the unrecovered book cost of its remaining electric generating plants, including
its Indian Point 2 nuclear generating unit, the future cost of decommissioning
Indian Point 2 and its retired Indian Point 1 nuclear generating unit and
charges under contracts with non-utility generators (NUGs). Con Edison of New
York is recovering these costs in the rates it charges all customers, including
those customers purchasing electricity from others. Pursuant to the
Restructuring Agreement, following March 31, 2002, Con Edison of New York will
be given a reasonable opportunity to recover, through a non-bypassable charge to
customers, any remaining strandable costs, including a reasonable return on
investment. For any remaining fossil-related strandable costs, the recovery
period will be 10 years. For additional information about nuclear generation,
see "Rate Recovery" in Note G. For information about NUG-related strandable
costs, see Note H.
Pursuant to the Restructuring Agreement, as amended by a July 1998 PSC
order, Con Edison of New York has sold approximately 6,300 MW of the
approximately 8,300 MW of generating capacity that it owned. See Note I.
In late 1997 the PSC, in its Competitive Opportunities proceeding, approved
a four-year O&R Restructuring Plan. Under this plan, O&R has sold all of its
generating assets and has made retail access available to all of its electric
customers effective May 1, 1999. O&R's electric rates have been reduced by
approximately $32.4 million through rate reductions implemented in December 1997
and 1998. No further rate reductions are required under the plan. In 1998 and
1999 similar plans for O&R's utility subsidiaries in Pennsylvania and New Jersey
were approved by state regulators. The Pennsylvania plan provides for retail
access for all customers effective May 1999. The New Jersey plan provides for
rate reductions of $6.8 million effective August 1999, an additional reduction
of $2.7 million effective January 2001 and a final reduction of $6.3 million
effective August 2002.
In accordance with the April 1999 PSC order approving Con Edison's
acquisition of O&R, Con Edison of New York is accruing approximately $27 million
over the three-year period ending March 2002 for the future benefit of its
electric customers and has reduced its gas rates by approximately $2 million.
O&R reduced its electric rates by $6.1 million and its gas rates by
approximately $1.1 million.
ACCOUNTING POLICIES The accounting policies of Con Edison and its
subsidiaries conform to accounting principles generally accepted in the United
States. For regulated public utilities, like Con Edison of New York and O&R,
accounting principles generally accepted in the United States include Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation," and, in accordance with SFAS No. 71, the
accounting requirements and rate-making practices of the Federal Energy
Regulatory Commission (FERC) and the PSC.
The standards in SFAS No. 101, "Regulated Enterprises--Accounting for the
Discontinuation of Application of the Financial Accounting Standards Board
(FASB) Statement No. 71," apply to the non-nuclear electric supply portion of
Con Edison of New York's business that is being deregulated as a result of the
Restructuring Agreement (the Deregulated Business). The Deregulated Business
includes all of Con Edison of New York's fossil electric generating assets and
its NUG contracts and related regulatory assets and liabilities. The application
of SFAS No. 101 to the Deregulated Business had no material adverse effect on
the financial position or results of operations of Con Edison or Con Edison of
New York.
No impairment of Con Edison of New York's fossil generating assets has been
recognized under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," because most of these
assets have been sold at a gain (see Note I) and the estimated cash flows from
the operation and/or sale of the remaining generating assets, together with the
cash flows from the strandable cost recovery provisions of the Restructuring
Agreement, will not be less than the net carrying amount of the fossil
generating assets.
<PAGE>
Likewise, there has been no charge against earnings for the deferred charges
(regulatory assets--principally relating to future federal income taxes) and
deferred credits (regulatory liabilities) relating to the Deregulated Business
because recovery of regulatory assets net of regulatory liabilities is probable
under the Restructuring Agreement. At December 31, 1999 net regulatory assets
amounted to approximately $750 million. See Note J.
No loss has been accrued for Con Edison of New York's NUG contracts under
SFAS No. 5, "Accounting for Contingencies," because it is not probable that the
charges by NUGs under the contracts will exceed the cash flows from the sale by
Con Edison of New York of the electricity provided by the NUGs, together with
the cash flows provided pursuant to the Restructuring Agreement. See Note H.
UTILITY PLANT AND DEPRECIATION The capitalized cost of additions to utility
plant includes indirect costs such as engineering, supervision, payroll taxes,
pensions, other benefits and an allowance for funds used during construction
(AFDC). The original cost of property, together with removal cost, less salvage,
is charged to accumulated depreciation as property is retired. The cost of
repairs and maintenance is charged to expense, and the cost of betterments is
capitalized.
Rates used for AFDC include the cost of borrowed funds and a reasonable rate
on Con Edison of New York's own funds when so used, determined in accordance
with PSC and FERC regulations. The AFDC rate was 9.1 percent in 1999, 1998 and
1997. The rate was compounded semiannually, and the amounts applicable to
borrowed funds were treated as a reduction of interest charges.
The annual charge for depreciation is computed using the straight-line
method for financial statement purposes with rates based on average lives and
net salvage factors, with the exception of Indian Point 2, Con Edison of New
York's share of the jointly-owned Roseton generating station, certain leaseholds
and certain general equipment, which are depreciated using a remaining life
amortization method. Con Edison's depreciation rates averaged approximately 3.4
percent in 1999, 1998 and 1997.
Con Edison of New York has a 40 percent ownership interest in the 1,200-MW
Roseton electric generating station operated by Central Hudson Gas & Electric
Corp. This station is expected to be sold not later than July 2001.
Con Edison of New York's investment in the Roseton station at original cost
and as included on its balance sheet at December 31, 1999 and 1998 was:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Plant in service........................................ $147,194 $146,778
Construction work in progress........................... 391 262
Accumulated depreciation................................ (86,950) (80,944)
-------- --------
Net investment.......................................... $ 60,635 $ 66,096
======== ========
</TABLE>
NUCLEAR GENERATION For information about the accounting policies followed
for Con Edison of New York's nuclear generation, see Note G.
REVENUES Con Edison's utility subsidiaries recognize revenues for electric,
gas and steam service on a monthly billing cycle basis. O&R accrues revenues at
the end of each month for estimated energy usage not yet billed to customers,
while Con Edison of New York does not accrue such revenues. Con Edison of New
York defers for refund to firm gas sales and transportation customers over a
12-month period all net interruptible gas revenues not authorized by the PSC to
be retained by the company.
<PAGE>
RECOVERABLE FUEL COSTS Con Edison's utility subsidiaries' fuel, purchased
power and gas costs that are above the levels included in base rates are
recoverable under electric, gas and steam fuel adjustment clauses. If costs fall
below these levels, the difference is credited to customers. For electric and
steam, such costs are deferred until the period in which they are billed or
credited to customers (between one and two months after the costs are incurred).
For gas, the excess or deficiency is accumulated for refund or surcharge to
customers on an annual basis.
The electric fuel adjustment clauses provide for the utility subsidiaries to
share with customers any savings or excess costs resulting from the difference
between actual costs for electric fuel and purchased power and monthly target
amounts. The subsidiaries will retain or bear 10 to 30 percent of the savings or
excess costs, as the case may be.
TEMPORARY CASH INVESTMENTS Temporary cash investments are short-term, highly
liquid investments which generally have maturities of three months or less. They
are stated at cost which approximates market. Con Edison considers temporary
cash investments to be cash equivalents.
INVESTMENTS For 1999 and 1998, investments consisted primarily of the
external nuclear decommissioning trust fund and investments of Con Edison
Solutions and Con Edison Development. The nuclear decommissioning trust fund is
stated at market, net of federal income tax; investments of Con Edison Solutions
and Con Edison Development are recorded using the equity method. Earnings on the
nuclear decommissioning trust fund are not recognized in income but are included
in the accumulated depreciation reserve. See "Decommissioning" in Note G.
GAS HEDGING Con Edison of New York uses derivative instruments under its gas
hedging program in order to hedge its gas in storage and anticipated gas
purchases against adverse market price fluctuations. Con Edison of New York
defers the related hedging gains and losses until the underlying gas commodity
is withdrawn from storage or purchased from a supplier and then adjusts the cost
of its gas accordingly. All hedging gains or losses are credited or charged to
customers through Con Edison of New York's gas fuel adjustment clause.
Con Edison Solutions uses derivative instruments to hedge natural gas
transactions in order to minimize the risk of unfavorable market price
fluctuations. Gains or losses on these instruments are deferred until gas is
purchased, at which time gas expense is adjusted accordingly. At December 31,
1999, deferred gains or losses were not material.
Neither Con Edison nor any of its consolidated subsidiaries enters into
derivative transactions that do not meet the criteria for hedges and that do not
qualify for deferred accounting treatment. If for any reason a derivative
transaction were no longer classified as a hedge, the cost of gas in storage or
gas expense, as appropriate, would be adjusted for unrealized gains and losses
relating to the transaction.
NEW FINANCIAL ACCOUNTING STANDARDS SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was to be effective for fiscal years
beginning after June 15, 1999. In June 1999 the FASB issued SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133," that postponed the
effective date to fiscal years beginning after June 15, 2000. The application of
SFAS No. 133 is not expected to have a material effect on the financial position
or results of operations of Con Edison or materially change its current
disclosure practices.
FEDERAL INCOME TAX In accordance with SFAS No. 109, "Accounting for Income
Taxes," Con Edison's utility subsidiaries have recorded an accumulated deferred
federal income tax liability for substantially all temporary differences between
the book and tax bases of assets and liabilities at current tax rates. In
accordance with rate agreements, the utility subsidiaries have recovered amounts
from customers for a portion of the tax expense they will pay in the future as a
result of the reversal or "turn-around" of these temporary differences. As to
the remaining temporary differences, in
<PAGE>
accordance with SFAS No. 71, the utility subsidiaries have established
regulatory assets for the net revenue requirements to be recovered from
customers for the related future tax expense. (See Notes J and L.) In 1993 the
PSC issued an Interim Policy Statement proposing accounting procedures
consistent with SFAS No. 109 and providing assurances that these future
increases in taxes will be recoverable in rates. The final policy statement is
not expected to differ materially from the Interim Policy Statement.
Accumulated deferred investment tax credits are amortized ratably over the
lives of the related properties and applied as a reduction in future federal
income tax expense. Con Edison and its subsidiaries file a consolidated federal
income tax return. Income taxes are allocated to each company based on its
taxable income.
RESEARCH AND DEVELOPMENT COSTS Research and development costs relating to
specific construction projects are capitalized. All other such costs are charged
to operating expenses as incurred. Research and development costs in 1999, 1998
and 1997, amounting to $12.4 million, $20.3 million and $25.9 million,
respectively, were charged to operating expenses. No research and development
costs were capitalized in these years.
RECLASSIFICATION Certain prior year amounts have been reclassified to
conform with current year presentation.
ESTIMATES The accompanying consolidated financial statements reflect
judgments and estimates made in the application of the above accounting
policies.
<PAGE>
NOTE B CAPITALIZATION
CAPITALIZATION OF CON EDISON Con Edison's outstanding capitalization, on a
consolidated basis, consists of its common shareholders' equity and the
outstanding preferred stock and long-term debt of its utility subsidiaries. Con
Edison's authorized capitalization also includes six million authorized, but
unissued, Preferred Shares, $1.00 par value.
PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION Con Edison of New York
has the option to redeem its $5 cumulative preferred stock at $105 and its
cumulative preferred stock, Series C and Series D, at a price of $101 per share
(in each case, plus accrued and unpaid dividends).
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Con Edison of New York is
required to redeem its cumulative preferred stock, Series J shares on August 1,
2002. The redemption price is $100 per share (plus accrued and unpaid
dividends). Series J shares may not be called for redemption while dividends are
in arrears on outstanding shares of $5 cumulative preferred stock or other
cumulative preferred stock.
COMMON STOCK In May 1998 Con Edison commenced a repurchase program for up to
$1 billion of its common stock. Through December 31, 1999, a total of 21.4
million Con Edison shares were repurchased by Con Edison of New York, at a total
cost of $940.5 million. In January 2000 Con Edison announced the expansion of
its stock repurchase program by an additional $300 million.
DIVIDENDS Beginning in 1998, with the establishment of Con Edison as a
holding company, dividends on Con Edison's common shares depend primarily on the
dividends and other distributions that Con Edison of New York and Con Edison's
other subsidiaries pay to Con Edison and the capital requirements of Con Edison
and its subsidiaries. The Restructuring Agreement limits the dividends that Con
Edison of New York may pay to not more than 100 percent of Con Edison of New
York's income available for dividends, calculated on a two-year rolling average
basis. Excluded from the calculation of "income available for dividends" are
non-cash charges to income resulting from accounting changes or charges to
income resulting from significant unanticipated events. The restriction also
does not apply to dividends paid in order to transfer to Con Edison proceeds
from major transactions, such as asset sales, or to dividends reducing Con
Edison of New York's equity ratio to a level appropriate to its business risk.
Payment of Con Edison of New York's common stock dividends to Con Edison is
subject to certain additional restrictions. No dividends may be paid, or funds
set apart for payment, on Con Edison of New York's common stock until all
dividends accrued on the $5 cumulative preferred stock and other cumulative
preferred stock have been paid, or declared and set apart for payment, and
unless Con Edison of New York is not in arrears on its mandatory redemption
obligation for the Series J cumulative preferred stock. No dividends may be paid
on any of Con Edison of New York's capital stock during any period in which Con
Edison of New York has deferred payment of interest on its subordinated
deferrable interest debentures.
LONG-TERM DEBT Long-term debt maturing in the period 2000-2004 is as
follows:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------
<S> <C>
2000....................................................... $395
2001....................................................... 300
2002....................................................... 300
2003....................................................... 185
2004....................................................... 150
</TABLE>
Long-term debt of Con Edison's utility subsidiaries is stated at cost which,
as of December 31, 1999, approximates fair value (estimated based on current
rates for debt of the same remaining maturities).
<PAGE>
NOTE C SHORT TERM BORROWING
At December 31, 1999 Con Edison and its utility subsidiaries had commercial
paper programs, under which short-term borrowings are made at prevailing market
rates, totaling $950 million. These programs are supported by revolving credit
agreements with banks. At December 31, 1999, $495.4 million, at a weighted
average interest rate of 5.03 percent per annum, was outstanding under Con
Edison of New York's $500 million program. No amounts were outstanding at
December 31, 1999 under Con Edison's $350 million program or O&R's $100 million
program. No amounts were outstanding at December 31, 1998 under the Con Edison
or Con Edison of New York programs. During 1999, Con Edison expanded, and
subsequently reduced, its program by $600 million in connection with its July
1999 acquisition of O&R. In February 2000, the FERC authorized Con Edison of New
York to expand its program to $800 million.
Bank commitments under the revolving credit agreements may terminate upon a
change of control of Con Edison, and borrowings under the agreements are subject
to certain conditions, including that the ratio (calculated in accordance with
the agreements) of debt to total capital of the borrower not at any time exceed
0.65 to 1. At December 31, 1999 this ratio was .49 to 1 for Con Edison, .52 to 1
for Con Edison of New York and .55 to 1 for O&R.
<PAGE>
NOTE D PENSION BENEFITS
CON EDISON OF NEW YORK
Con Edison of New York has non-contributory pension plans that cover
substantially all of its employees and certain employees of other Con Edison
subsidiaries. The plans are designed to comply with the Employee Retirement
Income Security Act of 1974 (ERISA).
Investment gains and losses are recognized over five years and unrecognized
actuarial gains and losses are amortized over 10 years.
The company offered a special retirement program in 1999 providing enhanced
pension benefits for those employees who met specified eligibility requirements
and retired within specific time limits. These incentives fall within the
category of special termination benefits as described in SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." The increase in pension obligations
as a result of this program amounts to $45.0 million. These obligations have
been deferred for disposition by the PSC in accordance with the Restructuring
Agreement.
The components of the company's net periodic pension cost for 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Service cost--including administrative expenses* $105.1 $104.7 $111.4
Interest cost on projected benefit obligation............... 358.7 346.8 334.3
Expected return on plan assets.............................. (486.6) (445.1) (407.3)
Amortization of net actuarial (gain)........................ (90.1) (71.7) (42.0)
Amortization of prior service cost.......................... 10.5 10.3 10.2
Amortization of transition obligation....................... 3.0 3.0 3.0
------ ------ ------
Net periodic pension cost................................... (99.4) (52.0) 9.6
------ ------ ------
Amortization of regulatory asset**.......................... 2.2 2.2 2.2
------ ------ ------
Total pension cost.......................................... $(97.2) $(49.8) $ 11.8
------ ------ ------
Cost capitalized............................................ (19.2) (9.2) 2.5
Cost charged to operating expenses.......................... (78.0) (40.6) 9.3
</TABLE>
- ------------------------
* Effective January 1, 1998, an assumption for administrative expenses is
included as a component of service cost.
** Relates to $33.3 million increase in pension obligations from a 1993 special
retirement program.
<PAGE>
The funded status of the plans at December 31, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $5,384.1 $4,940.6 $4,703.0
Service cost--excluding administrative expenses............. 103.8 103.4 111.4
Interest cost on projected benefit obligation............... 358.7 346.8 334.3
Plan amendments............................................. 0.8 2.1 0.5
Actuarial (gain) loss....................................... (728.0) 192.6 (24.2)
Special termination benefits................................ 45.0 -- --
Benefits paid............................................... (249.3) (201.4) (184.4)
-------- -------- --------
Benefit obligation at end of year........................... $4,915.1 $5,384.1 $4,940.6
-------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $6,679.2 $5,988.7 $5,269.3
Actual return on plan assets................................ 1,017.2 903.3 886.9
Employer contributions...................................... 1.7 1.4 25.2
Benefits paid............................................... (249.3) (201.4) (184.4)
Administrative expenses..................................... (18.0) (12.8) (8.3)
-------- -------- --------
Fair value of plan assets at end of year.................... $7,430.8 $6,679.2 $5,988.7
-------- -------- --------
Funded status............................................... $2,515.7 $1,295.1 $1,048.1
Unrecognized net (gain)..................................... (2,491.6) (1,339.8) (1,157.4)
Unrecognized prior service costs............................ 72.5 82.2 90.4
Unrecognized net transition liability at January 1, 1987*... 5.3 8.3 11.3
-------- -------- --------
Prepaid (accrued) benefit cost.............................. $ 101.9 $ 45.8 $ (7.6)
======== ======== ========
</TABLE>
- ------------------------
* Being amortized over approximately 15 years.
The actuarial assumptions at December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate....................................... 8.00% 6.75% 7.25%
Expected return on plan assets...................... 8.50% 8.50% 8.50%
Rate of compensation increase....................... 4.80% 4.80% 5.80%
</TABLE>
PENSION BENEFITS
ORANGE AND ROCKLAND
Orange and Rockland (O&R) has a non-contributory defined benefit retirement
plan, covering substantially all employees. The plan is designed to comply with
the Employee Retirement Income Security Act of 1974 (ERISA).
Investment gains and losses are recognized over three years and unrecognized
actuarial gains and losses are amortized over 10 years.
During 1999, O&R sold its electric generating assets to Southern Energy.
Also during 1999, O&R offered a special retirement program providing enhanced
pension benefits for those employees who met specified eligibility requirements
and retired within specific time limits. Because of the relative number of O&R
employees who stopped accruing benefits in the plan as a result of these events,
a curtailment charge was recorded in accordance with SFAS No. 88. A portion of
this curtailment charge was recorded as a regulatory asset in accordance with
SFAS No. 71 and a portion was expensed.
<PAGE>
The acquisition of O&R by Con Edison in July 1999 triggered purchase
accounting requirements that are reflected in the net periodic pension cost.
Under such accounting O&R's accrued pension liability was adjusted to recognize
all previously unrecognized gains or losses arising from past experience
different from that assumed, all unrecognized prior service costs, and the
remainder of any unrecognized obligation or asset existing at the date of the
initial application of SFAS No. 87, "Employers' Accounting for Pensions." A
portion of these adjustments was recorded as a regulatory liability in
accordance with SFAS No. 71 and a portion was expensed.
O&R is currently allowed to recover in rates pension costs recognized under
SFAS No. 87. In accordance with the provisions of SFAS No. 71, the company
defers for future recovery any difference between expenses recognized under SFAS
No. 87 and the current rate allowance authorized by each regulatory jurisdiction
in which it operates.
The components of O&R's net periodic pension cost for 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost--including administrative expenses............. $ 5,824 $ 6,868 $ 6,535
Interest cost on projected benefit obligation............... 19,702 19,194 17,993
Expected return on plan assets.............................. (19,024) (17,480) (15,838)
Amortization of net actuarial (gain)........................ (2,725) (6,338) (4,688)
Amortization of prior service cost.......................... 2,128 4,251 3,822
Amortization of transition (asset).......................... (504) (1,009) (1,009)
Recognition of curtailment and termination benefits......... 7,321 -- --
Recognition of purchase accounting.......................... 3,229 -- --
------- ------- -------
Net periodic pension cost................................... $15,951 $ 5,486 $ 6,815
------- ------- -------
Amortized/(deferred and capitalized)........................ 66 90 (751)
------- ------- -------
Net expense*................................................ $16,017 $ 5,576 $ 6,064
======= ======= =======
</TABLE>
- ------------------------
* Net expense for the period July 1, 1999 through December 31, 1999 was $1.9
million. This amount is reflected in Con Edison's consolidated financial
statements and excludes the effects of curtailment, termination benefits,
and purchase accounting.
<PAGE>
The funded status of the plan at December 31, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $289,765 $260,306 $232,990
Service cost--excluding administrative expenses............. 5,825 6,868 6,535
Interest cost on projected benefit obligation............... 19,702 19,194 17,993
Plan amendments............................................. 54 -- 12,852
Actuarial loss.............................................. 22,551 18,375 2,387
Curtailment and termination benefits........................ 4,707 -- --
Benefits paid............................................... (16,132) (14,978) (12,451)
-------- -------- --------
Benefit obligation at end of year........................... $326,472 $289,765 $260,306
-------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $266,511 $247,523 $225,997
Actual return on plan assets................................ 29,811 34,640 34,526
Employer contributions...................................... 10,023 -- --
Benefits paid............................................... (14,799) (14,131) (11,637)
Administrative expenses..................................... (2,235) (1,521) (1,363)
-------- -------- --------
Fair value of plan assets at end of year.................... $289,311 $266,511 $247,523
-------- -------- --------
Funded status............................................... $(37,161) $(23,254) $(12,783)
Unrecognized net loss (gain)................................ 13,390 (57,031) (66,108)
Unrecognized prior service costs............................ -- 35,830 40,081
Unrecognized net transition asset at January 1, 1987*....... -- (3,026) (4,034)
-------- -------- --------
Prepaid (accrued) benefit cost.............................. $(23,771) $(47,481) $(42,844)
======== ======== ========
</TABLE>
- ------------------------
* Was being amortized over approximately 15 years.
The actuarial assumptions at December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate............................................. 8.00% 6.75% 7.50%
Expected return on plan assets............................ 8.50% 8.00% 8.00%
Rate of compensation increase
Hourly................................................ 3.00% 3.00% 3.00%
Management............................................ 1.00% 1.00% 1.00%
</TABLE>
<PAGE>
NOTE E POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (OPEB)
CON EDISON OF NEW YORK
Con Edison of New York has a contributory comprehensive hospital, medical
and prescription drug program for all retirees, their dependents and surviving
spouses. The company also has a contributory life insurance program for
bargaining unit employees. In addition the company provides basic life insurance
benefits up to a specified maximum at no cost to retired management employees.
Retired management employees must contribute to the cost of supplemental life
insurance benefits in excess of the specified maximum. Certain employees of
other Con Edison subsidiaries are eligible to receive benefits under these
programs. The company has reserved the right to amend or terminate these
programs.
Investment gains and losses are recognized over five years and unrecognized
actuarial gains and losses are amortized over 10 years.
The components of the company's postretirement benefit (health and life
insurance) costs for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Service cost................................................ $13.7 $14.9 $15.7
Interest cost on accumulated postretirement benefit
obligation................................................ 72.5 70.8 71.0
Expected return on plan assets.............................. (41.5) (38.2) (36.5)
Amortization of net actuarial loss.......................... 26.8 20.9 21.4
Amortization of prior service cost.......................... 1.4 -- --
Amortization of transition obligation....................... 17.4 21.5 25.9
----- ----- -----
Net periodic postretirement benefit cost.................... $90.3 $89.9 $97.5
----- ----- -----
Cost capitalized............................................ 17.8 16.7 20.0
Cost charged to operating expenses.......................... 72.5 73.2 77.5
===== ===== =====
</TABLE>
<PAGE>
The program's funded status at December 31, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $1,097.0 $ 964.1 $ 999.1
Service cost................................................ 13.7 14.9 15.7
Interest cost on accumulated postretirement benefit
obligation................................................ 72.5 70.8 71.0
Plan amendments............................................. -- (44.8) (66.5)
Actuarial (gain) loss....................................... (211.8) 133.7 (13.4)
Benefits paid and administrative expenses................... (58.1) (51.7) (50.2)
Participant contributions................................... 10.7 10.0 8.4
-------- -------- -------
Benefit obligation at end of year........................... $ 924.0 $1,097.0 $ 964.1
-------- -------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $ 665.8 $ 574.1 $ 444.2
Actual return on plan assets................................ 100.5 119.3 100.4
Employer contributions...................................... 115.5 14.1 71.3
Participant contributions................................... 10.7 10.0 8.4
Benefits paid............................................... (53.9) (47.7) (46.7)
Administrative expenses..................................... (4.2) (4.0) (3.5)
-------- -------- -------
Fair value of plan assets at end of year.................... $ 834.4 $ 665.8 $ 574.1
-------- -------- -------
Funded status............................................... $ (89.6) $ (431.2) $(390.0)
Unrecognized net (gain) loss................................ (224.6) 73.0 41.3
Unrecognized prior service costs............................ 11.2 12.6 --
Unrecognized transition obligation at January 1, 1993*...... 226.2 243.6 322.6
-------- -------- -------
Accrued postretirement benefit cost......................... $ (76.8) $ (102.0) $ (26.1)
======== ======== =======
</TABLE>
- ------------------------
* Being amortized over a period of 20 years.
The actuarial assumptions at December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate............................................. 8.00% 6.75% 7.25%
Expected return on plan assets
Tax-exempt assets..................................... 8.50% 8.50% 8.50%
Taxable assets........................................ 7.50% 7.50% 8.50%
</TABLE>
The health care cost trend rate assumed for 1999 was 7.5 percent; for 2000,
7.0 percent; and then declining one-half percent per year to 5 percent for 2004
and thereafter.
A one-percentage point change in the assumed health care cost trend rates
would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Effect on accumulated postretirement benefit obligation..... $113.4 $99.3
Effect on service cost and interest cost components......... $ 12.7 $10.8
</TABLE>
<PAGE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (OPEB)
ORANGE AND ROCKLAND
Orange and Rockland (O&R) has a contributory medical and prescription drug
program for all retirees, their dependents and surviving spouses. The company
also has a non-contributory life insurance program for retirees.
Investment gains and losses are recognized over three years and unrecognized
actuarial gains and losses are amortized over 10 years.
During 1999, O&R sold its electric generating assets to Southern Energy.
Because of the relative number of O&R employees who stopped accruing benefits in
the plan as a result of this event, a curtailment charge was recorded in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions."
The acquisition of O&R by Con Edison in July 1999 triggered purchase
accounting requirements that are reflected in the net periodic benefit cost.
Under purchase accounting O&R's accrued postretirement liability was adjusted to
recognize all previously unrecognized gains or losses arising from past
experience different from that assumed, all unrecognized prior service costs,
and the remainder of any unrecognized obligation or asset existing at the date
of the initial application of SFAS 106. The total of these adjustments along
with the curtailment charge discussed above were recorded as a regulatory asset
in accordance with SFAS No. 71.
O&R is currently allowed to recover in rates OPEB costs recognized under
SFAS No. 106. In accordance with the provisions of SFAS No. 71, the company
defers for future recovery any difference between expenses recognized under SFAS
No. 106 and the current rate allowance authorized by each regulatory
jurisdiction in which it operates.
The components of O&R's postretirement benefit (health and life insurance)
costs for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost................................................ $1,699 $ 1,463 $1,863
Interest cost on accumulated postretirement benefit
obligation................................................ 5,302 5,326 6,013
Expected return on plan assets.............................. (2,174) (1,654) (907)
Amortization of net actuarial loss.......................... 383 21 1,011
Amortization of prior service cost.......................... 4 9 84
Amortization of transition obligation....................... 1,213 2,427 2,572
------ ------- ------
Net periodic postretirement benefit cost.................... 6,427 7,592 10,636
------ ------- ------
Amortized/(deferred and capitalized)........................ (1,147) 3,169 (1,009)
------ ------- ------
Net expense................................................. $5,280 $10,761 $9,627
------ ------- ------
</TABLE>
- ------------------------
* Net expense for the period July 1, 1999 through December 31, 1999 was $2.3
million. This amount is reflected in Con Edison's consolidated financial
statements and excludes the effects of curtailment, termination benefits,
and purchase accounting.
<PAGE>
The program's funded status at December 31, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 80,477 $ 80,625 $ 82,999
Service cost................................................ 1,699 1,463 1,863
Interest cost on accumulated postretirement benefit
obligation................................................ 5,302 5,326 6,013
Plan amendments............................................. -- 98 (6,898)
Actual loss (gain).......................................... 6,314 (1,802) 1,230
Benefits paid and administrative expenses................... (5,405) (5,334) (4,582)
Participant contributions................................... 149 101 --
-------- -------- --------
Benefit obligation at end of year........................... $ 88,536 $ 80,477 $ 80,625
-------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $ 31,180 $ 22,238 $ 14,822
Actual return on plan assets................................ 3,512 2,086 735
Employer contributions...................................... 5,512 12,089 11,263
Participant contributions................................... 54 101 --
Benefits paid and administrative expenses................... (2,368) (5,334) (4,582)
-------- -------- --------
Fair value of plan assets at end of year.................... $ 37,890 $ 31,180 $ 22,238
-------- -------- --------
Funded status............................................... $(50,646) $(49,297) $(58,387)
Unrecognized net loss/(gain)................................ 9,008 5,016 6,393
Unrecognized prior service costs............................ -- 89 --
Unrecognized transition obligation at January 1, 1993*...... -- 34,601 37,027
-------- -------- --------
Accrued postretirement benefit cost......................... $(41,638) $ (9,591) $(14,967)
-------- -------- --------
</TABLE>
- ------------------------
* Being amortized over a period of 20 years.
The actuarial assumptions at December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate............................................. 8.00% 6.75% 7.50%
Expected return on plan assets
Tax-exempt assets....................................... 8.50% 6.25% 6.25%
Taxable assets.......................................... 7.50% 6.25% 6.25%
</TABLE>
The health care cost trend rate assumed for 1999 was 6.5 percent for health
care and 8.0 percent for prescription drug; for 2000, 7.0 percent; and then
declining one-half percent per year to 5 percent for 2004 and thereafter.
A one-percentage point change in the assumed health care cost trend rates
would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Effect on accumulated postretirement benefit obligation..... $9,431 $7,930
Effect on service cost and interest cost components......... $ 940 $ 770
</TABLE>
<PAGE>
NOTE F ENVIRONMENTAL MATTERS
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and
coal tar, have been used or generated in the course of operations of Con
Edison's utility subsidiaries and may be present in their facilities and
equipment.
The Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (Superfund) and similar state statutes impose joint and several
strict liability, regardless of fault, upon generators of hazardous substances
for resulting removal and remedial costs and environmental damages. Liabilities
under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may
have been lawful at the time they occurred.
At December 31, 1999, Con Edison had accrued a $38 million liability as its
best estimate of the utility subsidiaries' liability for sites as to which they
have received process or notice alleging that hazardous substances generated by
them (and, in most instances, other potentially responsible parties) were
deposited. There will be additional liability at these sites and other sites,
the amount of which is not presently determinable but may be material to Con
Edison's financial position, results of operations or liquidity.
Under Con Edison of New York's current electric, gas and steam rate
agreements, site investigation and remediation costs in excess of $5 million
annually incurred with respect to hazardous waste for which it is responsible is
to be deferred and subsequently reflected in rates. At December 31, 1999, $10
million of such costs had been deferred as a regulatory asset.
Suits have been brought in New York State and federal courts against Con
Edison's utility subsidiaries and many other defendants, wherein a large number
of plaintiffs sought large amounts of compensatory and punitive damages for
deaths and injuries allegedly caused by exposure to asbestos at various premises
of the utility subsidiaries. Many of these suits have been disposed of without
any payment by the utility subsidiaries, or for immaterial amounts. The amounts
specified in all the remaining suits total billions of dollars but Con Edison
believes that these amounts are greatly exaggerated, as were the claims already
disposed of. Based on the information and relevant circumstances known to Con
Edison this time, it does not believe that these suits will have a material
adverse effect on its financial position, results of operations or liquidity.
<PAGE>
NOTE G NUCLEAR GENERATION
Con Edison of New York owns the Indian Point 2 nuclear generating unit,
which has a capacity of approximately 1,000 MW, and the retired Indian Point 1
nuclear generating unit.
The book value of Indian Point 2, net of accumulated depreciation, was $382
million and $459 million at December 31, 1999 and 1998, respectively. The net
book value of Indian Point 2 was reduced by $50 million in 1999 as a result of
the use of a portion of the net after-tax gain from fossil plant sales to
increase its accumulated depreciation reserve (see Note I).
In 1999 Con Edison of New York announced its intention to explore
alternatives to its continued ownership and operation of Indian Point 2 and the
retired Indian Point 1. In February 2000 the company announced an auction
process for the Indian Point 2 unit, the retired Indian Point 1 unit and related
gas turbines. A proceeding initiated in 1998 by the PSC to consider the future
of nuclear generating facilities in New York State is continuing. The
Restructuring Agreement does not contemplate the divestiture of Indian Point 2,
and any such divestiture would be subject to regulatory approvals, including the
approvals of the PSC and the Nuclear Regulatory Commission.
OUTAGE ACCOUNTING Scheduled refueling and maintenance outages are generally
required after a cycle of approximately 22 months. Con Edison of New York's
electric rates reflect a charge for the cost of scheduled refueling and
maintenance outages. Under Con Edison of New York's current and previous
electric rate agreements, these charges have been deferred for recognition in
income during the period in which expenses are incurred for the outage. The
costs of unscheduled outages are expensed as incurred and are not reflected in
rates.
RATE RECOVERY Pursuant to the Restructuring Agreement, Con Edison of New
York is recovering its investment in Indian Point 2 and funds to decommission
Indian Point 1 and 2 in the rates it charges all its electric customers. Under
the Restructuring Agreement, following March 31, 2002, Con Edison of New York
will be given a reasonable opportunity to recover its remaining investment in
Indian Point 2 and additional funds needed to decommission Indian Point 1 and 2
through a non-bypassable charge to customers over a period that will extend no
longer than the end of Indian Point 2's operating license in 2013.
Reconciliation of estimated and actual decommissioning costs may be reflected in
rates after 2013.
DECOMMISSIONING Since 1975 Con Edison of New York has been collecting costs
of decommissioning from customers and accruing such amounts within its internal
accumulated depreciation reserve. Amounts collected to fund decommissioning of
the nuclear portions of the units have been deposited in external trust funds
and earnings on such funds have been accrued as additional accumulated
depreciation. The trust funds amounted to $305.7 million and $265.1 million,
respectively, at December 31, 1999 and 1998. See "Investments" in Note A.
Accumulated decommissioning provisions at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
AMOUNTS INCLUDED IN
ACCUMULATED
DEPRECIATION
-----------------------
1999 1998
-------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Nuclear.................................................. $305.7 $265.1
Non-nuclear.............................................. 55.4 56.7
------ ------
Total.................................................... $361.1 $321.8
====== ======
</TABLE>
The Restructuring Agreement continued in rates annual expense allowances of
$21.3 million and $1.8 million, respectively, to fund the estimated costs of
decommissioning the nuclear and non-nuclear portions of the Indian Point 1 and 2
units. These amounts were established pursuant to a 1995 electric rate agreement
based upon a 1994 site-specific study. The study estimated the decommissioning
costs to be approximately $657 million in 1993 dollars (assuming 2016 as the
midpoint for decommissioning expenditures), including $252 million for extended
storage of spent nuclear fuel. The minimum decommissioning fund estimate
calculated in accordance with Nuclear Regulatory Commission (NRC) regulations
was between $507 million and $862 million as of December 31, 1998. A new
site-specific study is currently underway.
The FASB is currently reviewing the utility industry's accounting treatment
of nuclear and certain other plant decommissioning costs. In an exposure draft
issued in February 1996, the FASB concluded that decommissioning costs should be
accounted for as a liability at expected present value, with a corresponding
asset in utility plant, rather than as a component of depreciation. The FASB
expects to issue a new exposure draft in the first quarter of 2000.
NUCLEAR FUEL Nuclear fuel assemblies and components are amortized to
operating expense based on the quantity of heat produced in the generation of
electricity. Nuclear fuel costs are recovered in revenues through base rates or
through the fuel adjustment clause.
Nuclear fuel costs include provisions for payments to the U.S. Department of
Energy (DOE) for future off-site storage of the spent fuel and for a portion of
the costs to decontaminate and decommission the DOE facilities used to enrich
uranium purchased by Con Edison of New York. Such payments amounted to $10.0
million in 1999.
The DOE has defaulted on its obligation to Con Edison of New York to begin
to take title to the spent nuclear fuel generated at Indian Point 2. Con Edison
of New York and a number of other utilities are pursuing their legal remedies
against the DOE. Con Edison of New York estimates that it has adequate on-site
capacity for interim storage of its spent fuel until 2005 after which, absent
regulatory or technological developments, additional on-site or other spent fuel
storage facilities would be required. The operation of Indian Point 2 would be
curtailed if appropriate arrangements for the storage of its spent fuel are not
made.
STEAM GENERATORS Nuclear generating units similar in design to Indian Point
2 have experienced problems that have required steam generator replacement.
Inspections of the Indian Point 2 steam generators since 1976 have revealed
various problems, some of which appear to have been arrested. The remaining
service life of the steam generators is uncertain. The projected service life of
the steam generators is reassessed periodically in the light of the inspections
made during scheduled outages of the unit. Based on the latest available data
and current NRC criteria, Con Edison of New York estimates that steam generator
replacement will not be required before 2002. On February 15, 2000 Con Edison of
New York shut down Indian Point 2 following a leak in one if its steam
generators. The cause of the leak is being investigated.
Con Edison of New York has replacement steam generators, which are stored at
the site. Replacement of the steam generators would require estimated additional
expenditures of up to $100 million (exclusive of replacement power costs) and an
outage of approximately three months. However, securing necessary permits and
approvals or other factors could require a substantially longer outage if steam
generator replacement is required on short notice.
NUCLEAR INSURANCE The insurance policies covering Con Edison of New York's
nuclear facilities for property damage, excess property damage, and outage costs
permit assessments under certain conditions to cover insurers' losses. As of
December 31, 1999, the highest amount that could be assessed for losses during
the current policy year under all of the policies was $18.6 million. While
assessments may also be made for losses in certain prior years, Con Edison of
New York is not aware of any losses in such years that it believes are likely to
result in an assessment. Under certain circumstances, in the event of nuclear
incidents at facilities covered by the federal government's third-party
liability indemnification program, Con Edison of New York could be assessed up
to $88.1 million per incident, of which not more than $10 million may be
assessed in any one year.
<PAGE>
NOTE H NON-UTILITY GENERATORS
Con Edison of New York has contracts with NUGs for approximately 2,100 MW
of electric generating capacity. Assuming performance by the NUGs, Con Edison of
New York is obligated over the terms of the contracts (which extend for various
periods, up to 2036) to make capacity and other fixed payments.
For the years 2000-2004, the capacity and other fixed payments under the
contracts are estimated to be $477 million, $485 million, $494 million, $503
million and $516 million. Such payments gradually increase to approximately $600
million in 2013, and thereafter decline significantly. For energy delivered
under these contracts, Con Edison of New York is obligated to pay variable
prices that are estimated to be approximately at market levels.
Under the terms of its Restructuring Agreement, Con Edison of New York is
recovering in rates the charges it incurs under contracts with NUGs (see
"Restructuring Agreements" in Note A). The Restructuring Agreement provides
that, following March 31, 2002, Con Edison of New York will be given a
reasonable opportunity to recover, through a non-bypassable charge to customers,
the amount, if any, by which the actual costs of its purchases under the
contracts exceed market value.
The Restructuring Agreement provided for a potential NUG contract
disallowance of the lower of (i) 10 percent of the above-market costs or (ii)
$300 million (in 2002 dollars). As contemplated by the Restructuring Agreement,
Con Edison of New York may offset the potential disallowance by NUG contract
mitigation and by 10 percent of the gross proceeds of any generating unit sales
to third parties. Con Edison of New York will be permitted a reasonable
opportunity to recover any costs subject to disallowance that are not offset by
these two factors if it makes good faith efforts in implementing provisions of
the Restructuring Agreement leading to the development of a competitive electric
market in its service territory, including providing a choice of suppliers to
its customers through its Retail Choice program and working to establish an
independent system operator, which would administer the wholesale electric
market in New York State.
In October 1998 the PSC allowed Con Edison of New York to offset the
potential disallowance by approximately $115 million (in 2002 dollars) as a
result of termination of NUG contracts for 42.5 MW of capacity. As permitted by
the PSC, Con Edison of New York has retained revenues relating to capacity costs
avoided as a result of the terminations. As a result, $92 million remained
available at December 31, 1999 to offset a potential NUG contract disallowance.
In June and August 1999, Con Edison of New York completed the sale of its
in-City fossil electric generating units to third parties for a total of $1.8
billion, resulting in an additional $180 million of credit against a possible
disallowance. Any additional NUG contract mitigation and 10 percent of the gross
proceeds of any additional generating unit sales, including the planned sale of
Con Edison of New York's share of the Roseton plant by Central Hudson Gas &
Electric, would further offset any potential disallowance. (See Note I.)
<PAGE>
NOTE I GENERATION DIVESTITURE
In 1999 Con Edison of New York completed the sales of almost 6,300 MW of
its approximately 8,300 MW of electric generating assets for an aggregate price
of $1.8 billion. The net book value of the assets sold was approximately $1
billion, and the net after-tax gain from the sales was $379 million, of which
$29 million of accumulated deferred taxes and investment tax credits relating to
the assets sold were recognized in income in 1999.
Consistent with the Restructuring Agreement, as amended by a July 1998 PSC
order relating to the divestiture, $50 million of the net after-tax gain has
been retained for shareholders, approximately $250 million has been deferred for
disposition by the PSC and $50 million was applied as an increase to the
accumulated depreciation reserve for Indian Point 2 (see Note G). The $50
million retained for shareholders will be recognized in income during the last
year of the Restructuring Agreement (12 months ending March 31, 2002) as a
partial offset to the rate reductions scheduled for that year, pursuant to the
Restructuring Agreement. (See "Restructuring Agreements" in Note A.)
The approximately 2,000 MW of electric generating assets that Con Edison of
New York continues to own include the 1,000 MW Indian Point 2 plant and its 480
MW interest in the jointly-owned Roseton generating station (see "Utility Plant
and Depreciation" in Note A).
O&R completed the sale of all of its generating assets prior to the
completion of Con Edison's purchase of O&R in July 1999.
The Restructuring Agreement and related PSC orders provide for the recovery
of the incremental cost of capacity and energy required by Con Edison of New
York to serve its remaining full-service customers. Con Edison of New York has
agreed to purchase capacity from the buyers of the generating assets it sold for
at least the period until the Installed Capacity (ICAP) market of the New York
Independent System Operator (NYISO) is operational, and has submitted a petition
to the PSC relating to the recovery of the incremental cost of this capacity.
Such incremental capacity costs, which are estimated will total about $75
million if the NYISO ICAP market commences operation as now scheduled in May
2000, are being deferred as a regulatory asset. (See Note J.) In the event of a
prolonged delay in the commencement of the NYISO ICAP market, additional
incremental capacity costs could be material. The cost of the electric energy
actually purchased from the buyers of the generating assets is recoverable under
the electric fuel adjustment clause. (See "Recoverable Fuel Costs" in Note A.)
<PAGE>
NOTE J REGULATORY ASSETS AND LIABILITIES
The utility subsidiaries of Con Edison have established various regulatory
assets to defer specific costs that the applicable regulatory agencies have
permitted or are expected to permit to be recovered in rates over time.
Similarly, certain regulatory liabilities have been established to defer
specific gains or credits to be refunded to customers over time. The principal
regulatory assets and liabilities included in the deferred charges at December
31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
REGULATORY ASSETS
Future federal income tax (See Note A)...................... $ 785,014 $ 951,016
Recoverable fuel costs (See Note A)......................... 95,162 22,013
Power contract termination costs (See Note H)............... 71,861 70,621
Accrued unbilled gas revenues (See Note A).................. 67,775 43,594
MTA business tax surcharge*................................. 60,712 66,274
O&R Pension/OPEB expenses (See Notes D and E)............... 57,630 2,774
Enlightened Energy program costs**.......................... 34,065 68,381
Other....................................................... 210,046 134,462
--------- ----------
Total Regulatory Assets..................................... 1,382,265 1,359,135
--------- ----------
REGULATORY LIABILITIES
Gain on divestiture (See Note I)............................ 306,867 --
Accumulated deferred investment tax credits (See Note A).... 139,838 154,970
NYPA rate increase (See Note A)............................. 25,630 16,175
O&R Pension expenses (See Note D)........................... 23,854 --
Interruptible sales credits (See Note A).................... 23,745 20,969
Nuclear refueling outage expenses (See Note G).............. 22,273 --
Electric rate decrease (See Note A)......................... 12,000 16,250
Other....................................................... 81,815 72,654
--------- ----------
Total Regulatory Liabilities................................ 636,022 281,018
--------- ----------
NET REGULATORY ASSETS/LIABILITIES........................... $ 746,243 $1,078,117
--------- ----------
</TABLE>
- ------------------------
* Business tax surcharge imposed by New York State to provide funds to the
Metropolitan Transit Authority; recovered from customers annually.
** Cost of demand-side management programs; recovered from customers
generally over a five-year period.
<PAGE>
NOTE K ORANGE AND ROCKLAND UTILITIES (O&R)
In July 1999 Con Edison completed its acquisition of O&R for $791.5 million
in cash. Con Edison is accounting for the acquisition under the purchase method
of accounting in accordance with generally accepted accounting principles. The
results of operations of O&R for the six months ended December 31, 1999 have
been included in the consolidated income statement of Con Edison for the year
ended December 31, 1999. Con Edison has recorded in its consolidated financial
statements all of the assets and liabilities of O&R. The fair value of O&R's
regulatory assets approximates book value. All other assets and liabilities of
O&R were adjusted to their estimated fair values. The $437 million excess of the
purchase price paid by Con Edison over the estimated fair value of net assets
acquired and liabilities assumed was recorded as goodwill (O&R Goodwill) and is
being amortized over 40 years. In accordance with regulatory settlements, costs
to achieve the merger have been deferred as regulatory assets and are being
amortized over a five-year period ending May 2004.
The unaudited pro forma consolidated Con Edison financial information shown
below has been prepared based upon the historical consolidated income statements
of Con Edison and O&R, giving effect to Con Edison's acquisition of O&R as if it
had occurred at the beginning of each period. The historical information has
been adjusted to reflect the amortization of O&R Goodwill for the entire period
and the after-tax cost Con Edison would have incurred for financing the
acquisition of O&R by issuing debt at the beginning of the period at an assumed
8.0 percent per annum interest rate. The pro forma information is not
necessarily indicative of the results that Con Edison would have had if its
acquisition of O&R had been completed prior to July 1999, or the results that
Con Edison will have in the future.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues............................................. $7,794,204 $7,719,152
Operating income..................................... 969,916 1,077,185
Net income........................................... 646,435 705,579
Non-recurring charges................................ 19,782 --
Adjusted net income.................................. 666,217 --
Average shares outstanding (000)..................... 223,442 234,308
Earnings per share................................... $ 2.98 $ 3.01
</TABLE>
<PAGE>
NOTE L FEDERAL INCOME TAX
The components of federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Charged to operations:
Current................................................. $836,783 $322,259 $354,112
Deferred--net........................................... (428,859) 94,090 32,440
Amortization of investment tax credit................... (8,208) (8,710) (8,830)
-------- -------- --------
Total charged to operations......................... 399,716 407,639 377,722
-------- -------- --------
Charged to other income:
Current................................................. 1,430 (3,279) 2,988
Deferred--net........................................... 851 1,050 (990)
Amortization of investment tax credit................... (164) -- --
Amortization of accumulated deferred investment tax
credits and excess income tax reserves associated with
divested generating plants............................ (29,008) -- --
-------- -------- --------
Total charged to other income....................... (26,891) (2,229) 1,998
-------- -------- --------
Total....................................................... $372,825 $405,410 $379,720
-------- -------- --------
</TABLE>
The tax effect of temporary differences which gave rise to deferred tax
assets and liabilities is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Liabilities:
Depreciation............................................ $1,284.6 $1,307.6 $1,188.7
Excess deferred federal income tax on depreciation...... 159.5 186.7 190.4
Advance refunding of long-term debt..................... 32.5 35.5 30.1
Other................................................... 204.2 86.9 118.3
-------- -------- --------
Total liabilities................................... 1,680.8 1,616.7 1,527.5
-------- -------- --------
Assets:
Unbilled revenues....................................... (86.1) (87.2) (98.3)
Federal income tax audit adjustments--1992-1994......... (30.5) -- --
Other................................................... (81.7) (87.7) (94.5)
-------- -------- --------
Total assets........................................ (198.3) (174.9) (192.8)
-------- -------- --------
Regulatory liability--future federal income taxes........... 785.0 951.0 973.1
-------- -------- --------
Net liability............................................... $2,267.5 $2,392.8 $2,307.8
-------- -------- --------
</TABLE>
<PAGE>
Reconciliation of the difference between federal income tax expenses and the
amount computed by applying the prevailing statutory income tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----------- ----------- -----------
(% OF PRE-TAX INCOME)
<S> <C> <C> <C>
Statutory tax rate.......................................... 35% 35% 35%
Changes in computed taxes resulting from:
Excess book over tax depreciation....................... 8% 7% 7%
Cost of removal......................................... -3% -2% -3%
Amortization of deferred federal income tax on
depreciation.......................................... -3% -3% -3%
Amortization of accumulated deferred investment tax
credits and excess income tax reserves associated with
divested generating plants............................ -3% -- --
Other................................................... -- -1% -1%
----------- ----------- -----------
Effective tax rate.......................................... 34% 36% 35%
----------- ----------- -----------
</TABLE>
<PAGE>
NOTE M STOCK-BASED COMPENSATION
Under Con Edison's Stock Option Plan, options may be granted to officers and
key employees for up to 10 million shares of Con Edison's common stock.
Generally, options become exercisable three years after the grant date and
remain exercisable until 10 years from the grant date. Options that were granted
in 1996 became exercisable in 1999.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," Con
Edison has elected to follow Accounting Principles Board Opinion No. 25 (APB 25)
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of Con Edison's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Disclosure of pro-forma information regarding net income and earnings per
share is required by SFAS No. 123. The information presented below is in regards
to the income and earnings per share of Con Edison. This information has been
determined as if Con Edison had accounted for its employee stock options under
the fair value method of that statement. The fair values of 1999, 1998 and 1997
options are $7.90, $4.76 and $2.84 per share, respectively. They were estimated
at the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................ 5.24% 5.61% 6.46%
Expected lives--in years............................... 8 8 8
Expected stock volatility.............................. 18.76% 12.68% 14.08%
Dividend yield......................................... 4.46% 4.98% 6.67%
</TABLE>
The following table reflects pro forma net income and earnings per share had
Con Edison elected to adopt the fair value approach of SFAS 123 (income in
millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported........................................ $ 701 $ 713 $ 694
Pro forma.......................................... 697 711 694
Diluted earnings per share:
As reported........................................ $3.13 $3.04 $2.95
Pro forma.......................................... 3.11 3.03 2.95
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. For 1999
the number of total shares after giving effect to the dilutive common stock
equivalents is 223,890,546.
<PAGE>
A summary of the status of Con Edison's Stock Option Plan as of December 31,
1999, 1998 and 1997 and changes during those years is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at 12/31/96.................................. 697,200 $27.875
Granted.............................................. 834,600 31.500
Exercised............................................ 0 0
Forfeited............................................ (14,100) 29.620
--------- ------
Outstanding at 12/31/97.................................. 1,517,700 29.850
Granted.............................................. 901,650 42.605
Exercised............................................ 0 0
Forfeited............................................ (20,600) 37.055
--------- ------
Outstanding at 12/31/98.................................. 2,398,750 34.584
Granted.............................................. 1,279,000 47.938
Exercised............................................ (113,440) 27.875
Forfeited............................................ (74,800) 37.559
--------- ------
Outstanding at 12/31/99.................................. 3,489,510 $39.632
</TABLE>
The following summarizes the Plan's stock options outstanding:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE SHARES
EXERCISE OUTSTANDING REMAINING
PLAN YEAR PRICE AT 12/31/99 CONTRACTUAL LIFE
- --------- -------- ----------- ----------------
<S> <C> <C> <C>
1999......................................... $47.938 1,261,000 9 years
1998......................................... $42.605 871,350 8 years
1997......................................... $31.500 798,200 7 years
1996......................................... $27.875 558,960 6 years
</TABLE>
<PAGE>
CONSOLIDATED EDISON, INC.
NOTE N FINANCIAL INFORMATION BY BUSINESS SEGMENT (a)
<TABLE>
<CAPTION>
ELECTRIC STEAM
------------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues.................... $ 5,792,673 $ 5,674,446 $ 5,635,575 $ 340,026 $ 321,932 $ 391,799
Intersegment revenues................. 150,488 53,464 11,341 1,667 1,655 1,619
Depreciation and amortization......... 433,203 439,869 429,407 17,996 17,361 16,239
Income tax expense.................... 339,630 351,088 311,878 2,910 5,057 8,442
Operating income...................... 858,681 905,976 855,061 19,450 19,416 36,080
Total assets.......................... 10,670,017 10,919,857 10,972,735 565,945 575,018 557,607
Construction expenditures............. $ 530,068 $ 465,258 $ 504,644 $ 28,488 $ 30,512 $ 29,905
</TABLE>
<TABLE>
<CAPTION>
GAS UNREGULATED AND OTHER
--------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues.................. $1,000,083 $ 959,609 $ 1,093,880 $ 358,541 $ 137,061 $ 74,898
Intersegment revenues............... 2,812 2,460 2,177 -- 290 --
Depreciation and amortization....... 66,262 60,596 57,133 8,721 688 676
Income tax expense.................. 60,598 58,665 62,590 (3,422) (7,171) (5,188)
Operating income.................... 152,212 141,680 154,247 (10,544) (13,747) (10,068)
Total assets........................ 2,097,200 1,795,567 1,730,048 2,198,314 1,090,961 1,462,128
Construction expenditures........... $ 119,601 $ 123,074 $ 119,672 $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------------------------------
1999 1998 1997
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating revenues....................................... $ 7,491,323 $ 7,093,048 $ 7,196,152
Intersegment revenues.................................... 154,967 57,869 15,137
Depreciation and amortization............................ 526,182 518,514 503,455
Income tax expense....................................... 399,716 407,639 377,722
Operating income......................................... 1,019,799 1,053,325 1,035,320
Total assets............................................. 15,531,476 14,381,403 14,722,518
Construction expenditures................................ $ 678,157 $ 618,844 $ 654,221
</TABLE>
- ------------------------
(a) For a description of Con Edison, see "Con Edison" appearing before Note A.
EXHIBIT 99.2 TO FORM 8-K REPORT
Report of Independent Accountants
To the Stockholders and Board of Directors of Consolidated Edison, Inc.:
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of retained earnings, of capitalization, and of cash flows
included in Exhibit 99.1 of this Current Report on Form 8-K presents fairly, in
all material respects, the financial position of Consolidated Edison, Inc. and
its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, NY
February 17, 2000
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis relates to the accompanying consolidated
financial statements of Consolidated Edison, Inc. (Con Edison) and should be
read in conjunction with the consolidated financial statements and the notes
thereto.
CON EDISON'S BUSINESS
Con Edison is a holding company that provides a wide range of energy-related
services to its customers through its regulated and unregulated subsidiaries.
Con Edison's core business is energy distribution and it is also pursuing
related growth opportunities in competitive businesses.
Con Edison's principal subsidiary is Consolidated Edison Company of New
York, Inc. (Con Edison of New York), a regulated utility which provides electric
service to over three million customers and gas service to over a million
customers in New York City and Westchester County. It also provides steam
service in parts of Manhattan.
Orange and Rockland Utilities, Inc. (O&R) is also a regulated utility
subsidiary of Con Edison. O&R, along with its regulated utility subsidiaries,
provides electric service to over 275,000 customers and gas service to over
100,000 customers in southeastern New York and in adjacent sections of New
Jersey and northeastern Pennsylvania.
In October 1999, Con Edison agreed to acquire Northeast Utilities
(Northeast), which, through its three regulated utility subsidiaries, provides
electric service to over 1.7 million customers in Connecticut, New Hampshire and
western Massachusetts and, following completion of its acquisition of Yankee
Energy System, Inc., will provide gas service to over 185,000 customers in
Connecticut.
SIGNIFICANT DEVELOPMENTS
Several significant developments in 1999 materially affected Con Edison's
financial condition and results of operations. In July 1999 Con Edison completed
its $791.5 million acquisition of O&R. See Note K to the financial statements.
In June and August 1999, Con Edison of New York completed the sales of almost
6,300 Megawatts (MW) of its approximately 8,300 MW electric generating capacity,
for a total of $1.8 billion. See Note I to the financial statements. During
1999, Con Edison substantially completed its $1 billion common stock repurchase
program. See "Liquidity and Capital Resources--Stock Repurchases," below.
Significant developments are also expected in 2000, including the completion
of the acquisition of Northeast for an estimated aggregate price of not more
than $3.8 billion and additional purchases of common stock under a $300 million
expansion of the repurchase program. See "Liquidity and Capital
Resources--Northeast Utilities Merger and Stock Repurchases," below. The company
has also announced that it will conduct an auction for the possible sale of the
Indian Point 2 nuclear generating unit. See "Nuclear Generation," below.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND SHORT-TERM BORROWING
Cash and temporary cash investments and commercial paper outstanding at
December 31, 1999 and 1998 were:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(MILLION OF DOLLARS)
<S> <C> <C>
Cash and temporary cash investments...................... $485.1 $102.3
Commercial paper......................................... $495.4 --
</TABLE>
1
<PAGE>
The 1999 amounts reflect short-term borrowing in December 1999 in
anticipation of January 2000 cash requirements. Con Edison's cash requirements
are subject to substantial fluctuations due to seasonal variations in cash flow
and generally peak in January and July of each year when semi-annual payments of
New York City property taxes are due.
Con Edison's average daily commercial paper outstanding in 1999 was $125
million compared to $35 million in 1998. The weighted average interest rate was
approximately 5.0 percent in 1999 compared to approximately 5.6 percent in 1998.
The increased commercial paper issuance during 1999 reflects temporary
short-term borrowing to complete the O&R acquisition and to continue the common
stock repurchase program. This borrowing was repaid with cash proceeds from the
generation divestiture. The increased borrowing also reflects Con Edison's plan
to maintain commercial paper as a cost-effective component of its capital
structure.
For additional information about Con Edison's commercial paper programs, see
Note C to the financial statements.
CASH FLOWS FROM OPERATIONS
Net cash flows from operating activities for years 1997 through 1999 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net cash flows from operating activities............ $1,205 $1,390 $1,286
Common stock dividends.............................. (477) (493) (494)
------ ------ ------
Net cash flows...................................... $ 728 $ 897 $ 792
</TABLE>
Net cash flows from operations in 1999 were lower than in 1998 due to higher
capacity charges and other cash flow effects of the generation divestiture. Net
cash flows in 1998 were higher than in 1997 due principally to higher electric
sales revenue from warmer than normal summer weather and an improved New York
City economy.
Customer accounts receivable, less allowance for uncollectible accounts,
increased at December 31, 1999 compared to December 31, 1998, primarily because
of Con Edison's acquisition of O&R and increased sales by Con Edison's
unregulated subsidiaries. See "Unregulated Subsidiaries," below. For Con Edison
of New York, the equivalent number of days of revenue outstanding (ENDRO) of
customer accounts receivable was 28.8 days at December 31, 1999, compared with
28.0 days at December 31, 1998. For O&R, the ENDRO was 40.4 days at December 31,
1999.
Net utility plant decreased at December 31, 1999 compared to December 31,
1998 reflecting the net effect of generation divestiture and the acquisition of
O&R. Accounts payable was higher at December 31, 1999 primarily because of
increased purchased power billings and the acquisition of O&R. Other receivables
were higher at December 31, 1999 primarily because of the acquisition of O&R.
Materials and supplies decreased at December 31, 1999 reflecting the sale of
inventory along with the generating plants.
Prepayments at December 31, 1999 reflect cumulative credits to pension
expense of $116.0 million compared with $62.0 million at December 31, 1998,
resulting primarily from the amortization of past investment gains. See Note D
to the financial statements.
For information about regulatory assets and liabilities, see Note J to the
financial statements.
CAPITAL RESOURCES
Con Edison expects to finance its operations, capital requirements (other
than those relating to its pending acquisition of Northeast) and the payment of
dividends to its shareholders primarily from
2
<PAGE>
dividends and other distributions it receives from its subsidiaries and through
external borrowings, including commercial paper. For information about
restrictions on the payment of dividends by Con Edison of New York, see Note B
to the financial statements. For information about Con Edison's capital
requirements relating to its pending acquisition of Northeast, see "Northeast
Utilities Merger," below.
In February 2000 Con Edison of New York and O&R requested the New York State
Public Service Commission (PSC) to authorize additional long-term debt issuances
of up to $1.5 billion and $150 million, respectively, prior to 2003. The PSC has
already authorized Con Edison of New York to issue securities for the refunding
of its outstanding debt and preferred stock from time to time prior to the year
2003. O&R has requested similar authorization to refund its outstanding debt
securities.
Con Edison's ratio of earnings to fixed charges for 1999, 1998 and 1997 and
common equity ratio at December 31, 1999, 1998 and 1997 were:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Earnings to fixed charges (SEC basis)..................... 4.04 4.29 4.09
Common equity............................................. 53.1 58.4 56.8
</TABLE>
The changes in interest coverage in these years reflect changes in pre-tax
income and changes in interest charges due to debt issuances and refundings. The
decrease in the equity ratio for 1999 reflects the $1 billion common stock
repurchase program and debt issuances. Con Edison expects that these ratios will
decrease in 2000 when it expects to complete the acquisition of Northeast and
continue to repurchase its common stock. Con Edison's interest coverage and
equity ratio are currently among the highest in the industry.
Con Edison of New York issued $275 million aggregate principal amount of
40-year 7.35% debentures in June 1999 and $200 million aggregate principal
amount of 10-year 7.15% debentures in December 1999. In addition, it repaid at
maturity $150 million of floating rate taxable debentures in July 1999 and $75
million of 7-year 6.5 percent debentures in September 1999.
Con Edison of New York issued $292.7 million of 35-year adjustable rate
tax-exempt debt in July 1999, the proceeds of which, along with other funds,
were used in August 1999 to redeem $150 million of 7 1/4 percent Series 1989 C
tax-exempt debt and $150 million of 7 1/2 percent Series 1990 A tax-exempt debt.
In 1998, it issued $385 million of debentures with interest rates ranging from
6.15 to 7.10 percent to refund debentures and tax-exempt debt with interest
rates ranging from 7 1/8 to 8.05 percent and $75 million of 30-year 6.90 percent
debentures to redeem three series of preferred stock.
The commercial paper of Con Edison and its utility subsidiaries is rated P-1
and A-1, respectively, by Moody's Investor Service (Moody's) and Standard and
Poor's Rating Group (S&P). S&P has assigned an issuer rating of A to Con Edison,
which has not yet issued any long-term debt. The debentures of Con Edison's
utility subsidiaries are rated A1 and A+, respectively, by Moody's and S&P. The
rating agencies are reviewing these ratings in light of Con Edison's pending
acquisition of Northeast.
3
<PAGE>
CAPITAL REQUIREMENTS
The following table compares Con Edison's capital requirements, other than
requirements relating to its stock repurchases and pending Northeast
acquisition, for the years 1997 through 1999 and estimated amounts for 2000 and
2001:
<TABLE>
<CAPTION>
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Utility construction expenditures...................... $ 908 $ 829 $ 678 $619 $654
Investment in unregulated subsidiaries................. 293 221 165 56 86
Nuclear decommissioning trust.......................... 21 21 21 21 21
Nuclear fuel........................................... 47 28 17 7 15
Retirement of long-term debt at maturity............... 300 395 525 200 106
------ ------ ------ ---- ----
Total.............................................. $1,569 $1,494 $1,406 $903 $882
</TABLE>
The increased utility construction expenditures in 2000 and 2001 reflect
expenditures to repower Con Edison of New York's East River steam-electric
generating plant, expenditures related to meeting load growth on the
distribution system and the construction programs of O&R. The repowering will
provide additional, more efficient and lower-cost steam capacity, and will allow
for the retirement and sale of the Waterside generating station. See "Regulatory
Matters--Steam," below.
The increased investment in unregulated subsidiaries in 2000 and 2001
reflects plans to invest in electric generation and telecommunications. See
"Unregulated Subsidiaries," below.
STOCK REPURCHASES
During 1999 18.7 million shares of Con Edison common stock were repurchased
at an average price of $43.82 per share, and a total cost of $819.7 million
under the previously announced $1 billion repurchase program. Through December
31, 1999, a total of 21.4 million shares were purchased under the program at an
average price of $44.03 per share, and a total cost of $940.5 million.
In January 2000 Con Edison announced the expansion of its stock repurchase
program by an additional $300 million. Con Edison expects that purchases will be
made from time to time on the open market, as determined by market conditions
and Con Edison's other financial needs.
Con Edison purchased 432,400 shares of its common stock (at an aggregate
cost of approximately $19.8 million) in April and May 1999 to be used for
exercises of options under its 1996 Stock Option Plan. At December 31, 1999,
approximately 318,960 of these shares remained available for future option
exercises. Shares of Con Edison common stock to be issued upon the exercise of
options may be either purchased on the market or newly issued shares. See Note M
to the financial statements.
NORTHEAST UTILITIES MERGER
In October 1999 Con Edison agreed to acquire Northeast Utilities for an
estimated aggregate purchase price of not more than $3.8 billion, payable 50
percent in cash and 50 percent in common stock (subject to election and
proration procedures). Con Edison expects that, following receipt of all
required shareholder and regulatory approvals, it will complete the merger in
2000.
In January 2000 Con Edison and Northeast submitted filings relating to the
merger with the relevant federal and state agencies, including the Federal
Energy Regulatory Commission (FERC), Securities and Exchange Commission (SEC),
Department of Justice and Nuclear Regulatory Commission (NRC).
Con Edison has not yet entered into any agreements or made any arrangements
with respect to financing the cash portion of the merger consideration. Con
Edison expects to meet this need with a combination of cash on hand and issuance
of long-term or short-term debt, and does not expect to experience any
difficulty in obtaining the requisite financing. See "Financial Market Risks,"
below.
4
<PAGE>
For additional information about the merger, see "Northeast Utilities
Merger" which precedes Note A in the footnotes to the financial statements.
UNREGULATED SUBSIDIARIES
Con Edison's unregulated subsidiaries provide competitive gas and electric
supply and energy-related products and services (Con Edison Solutions); invest
in and manage energy infrastructure projects (Con Edison Development); market
specialized energy supply services to wholesale customers (Con Edison Energy);
and invest in telecommunications infrastructure (Con Edison Communications).
These subsidiaries operate primarily in the New England and Mid-Atlantic states.
Con Edison's investment in these subsidiaries was $284.4 million at
December 31, 1999. See "Capital Requirements," above.
Northeast also has unregulated subsidiaries that provide telecommunications,
energy management and marketing and other energy related services.
The unregulated subsidiaries participate in new unregulated energy supply
and services businesses that are subject to competition and different investment
risks than those involved in the businesses of the regulated utility
subsidiaries.
REGULATORY MATTERS
Federal and state initiatives have resulted in a fundamental restructuring
of Con Edison and the rest of the utility industry by promoting the development
of competition in the sale of electricity and gas. These initiatives "unbundle,"
or separate, the integrated supply and delivery services that utilities have
traditionally provided, and enable customers to purchase electric and gas supply
from others for delivery by the utilities over their electric and gas systems.
ELECTRIC
In 1996 the FERC issued its Order 888 requiring electric utilities to make
their transmission facilities available to wholesale sellers and buyers of
electric energy and allow utilities to recover related legitimate and verifiable
stranded costs subject to FERC's jurisdiction. In November 1999 following FERC
approval, the New York State Independent System Operator (ISO) commenced
operations and began controlling and operating most electric transmission
facilities in New York as an integrated system. Con Edison's utility
subsidiaries continue to own and maintain, but not operate, their transmission
facilities and receive fees for use of the facilities.
In 1996 the PSC, in its Competitive Opportunities proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry.
In September 1997 the PSC approved a restructuring agreement between Con
Edison of New York, the PSC staff and certain other parties. The restructuring
agreement provides for:
- cumulative rate reductions of approximately $1 billion;
- "retail choice" for all electric customers;
- the divestiture of electric generation capacity; and
- a reasonable opportunity for recovery of "strandable costs."
Con Edison of New York reduced electric rates by $129 million in 1998 and
$80 million in April 1999 as part of the restructuring agreement's rate plan.
5
<PAGE>
Under this plan, the revenues that the company receives over the five-year
transition period ending in March 2002 are reduced by $1 billion from the amount
that would have been received had the March 1997 rate levels remained in effect.
Additional rate reductions of approximately $103 million and $209 million are
scheduled to take effect in April 2000 and 2001, respectively.
At December 31, 1999, approximately 70,000 Con Edison of New York customers
representing approximately 20 percent of the aggregate customer load were
purchasing electricity from other suppliers under the electric Retail Choice
program. In February 2000 the PSC issued an order requiring Con Edison of New
York to make available the program to all of its electric customers by November
2000. Con Edison of New York delivers electricity to customers in this program
through its regulated transmission and distribution system. In general, Con
Edison of New York's delivery rates for Retail Choice customers are equal to the
rates applicable to other comparable Con Edison of New York customers, less an
amount representing the cost of the energy and capacity it avoids by not
supplying these customers. In its February 2000 order, the PSC reduced the
delivery rate for large electric Retail Choice customers and authorized Con
Edison of New York to recover the resulting lost revenues by recognizing a
portion of the deferred generation divestiture gain (see Note I to the financial
statements).
Con Edison's utility subsidiaries have sold most of their electric
generating assets (see Note I to the financial statements). Con Edison of New
York still owns about 2,000 MW of generating assets and has contracts with
non-utility generators (NUGs) for approximately 2,100 MW of electric generating
capacity (see Note H to the financial statements). Con Edison's utility
subsidiaries use these remaining generating resources, and energy and capacity
purchased from the buyers of the generating assets sold and others, to supply
electricity to their full-service customers (i.e., those customers who are not
participants in the electric retail access program) and to other suppliers who
supply electricity under the retail access programs.
Con Edison's utility subsidiaries no longer earn an equity return on the
generating assets that were sold. Instead, the utility subsidiaries purchase
electricity from the buyers of the generating assets sold and recover the cost
of the electricity either in base rates or pursuant to applicable fuel
adjustment clauses. (See Note A--Recoverable Fuel Costs and Note I to the
financial statements).
Con Edison does not expect its utility subsidiaries to add long-term
electric generation resources other than in connection with the repowering of
the East River generating plant, which will add incremental electric capacity of
250 MW. In a July 1998 order, the PSC indicated that it "agree(s) generally that
Con Edison of New York need not plan on constructing new generation as the
competitive market develops," but considers "overly broad" and did not adopt its
request for a declaration that, solely with respect to providing generating
capacity, it will no longer be required to engage in long-range planning to meet
potential demand and, in particular, that it will no longer have the obligation
to construct new generating facilities, regardless of the market price of
capacity. Con Edison's unregulated subsidiaries, which at December 31, 1999 have
invested in 450 MW of electric generating assets, may invest in additional
generating assets.
Con Edison of New York's potential electric strandable costs are those prior
utility investments and commitments that may not be recoverable in a competitive
electric supply market, including the unrecovered book cost of its remaining
electric generating plants, including its Indian Point 2 nuclear generating
unit, the future cost of decommissioning Indian Point 2 and its retired Indian
Point 1 nuclear generating unit and charges under contracts with NUGs. Con
Edison of New York is recovering potential electric strandable costs in the
rates it charges all customers, including those customers purchasing electricity
from others. Pursuant to the restructuring agreement, following March 31, 2002,
Con Edison of New York will be given a reasonable opportunity to recover,
through a non-bypassable charge to customers, any remaining strandable costs,
including a reasonable return on investments. For any remaining strandable costs
relating to fossil-fueled generating assets, the recovery period will be
6
<PAGE>
10 years. For additional information about nuclear generation and NUG-related
strandable costs, see Notes G and H to the financial statements.
O&R has entered into settlement agreements or similar arrangements with the
PSC and the New Jersey and Pennsylvania public utility commissions which also
provide for a transition to a competitive electric market, including the
divestiture of its generating assets. See "Restructuring Agreements" in Note A
to the financial statements.
GAS
Under Con Edison of New York's gas Retail Choice program, which began in
1996, all of its gas customers may purchase gas from other suppliers. At
December 31, 1999, approximately 22,000 Con Edison of New York customers
representing approximately 25 percent of aggregate firm customer load were
participating in the program. The delivery of gas continues to be through Con
Edison of New York's distribution system.
In January 1997 the PSC approved a four-year gas rate settlement agreement
with the following major provisions: base rates will, with limited exceptions,
remain at September 1996 levels through September 2000; Con Edison of New York
will share in net revenue from interruptible gas sales (previously used only to
reduce firm customer gas costs) by retaining in each rate year the first $7.0
million of net revenue from such sales above 8.5 million dekatherms and 50
percent of additional net revenues; and 86 percent of any increase in property
taxes above levels implicit in rates will be recovered by offsetting amounts, if
any, that would otherwise be returned to customers. Con Edison of New York will
share with customers 50 percent of earnings above a 13 percent rate of return on
gas common equity. No amounts were deferred for earnings sharing in 1999, 1998
or 1997.
In December 1999, O&R filed with the PSC a request to increase gas rates by
$12 million over a four year period.
STEAM
In a December 1999 order, the PSC concurred with Con Edison of New York that
a competitive steam market is not currently feasible.
In 1999, Con Edison of New York began a project to repower its East River
steam-electric generating plant (see "Capital Requirements," above). The
repowering of the East River plant will provide enhanced reliability and lower
costs to steam customers and permit the company to sell its Waterside generating
station as part of a nine-acre development site in midtown Manhattan along the
East River. The sale of the nine acre site and the disposition of the expected
net after-tax gain from the sale will be subject to PSC approval.
In November 1999 Con Edison of New York filed a steam rate plan with the PSC
requesting a cumulative rate increase of $33.1 million over a four-year period
ending September 2004. The current three-year steam rate agreement between Con
Edison of New York and the PSC staff, which expires in October 2000, provided
for a $16 million rate increase.
FINANCIAL MARKET RISKS
Con Edison's primary market risks associated with activities in derivative
financial instruments, other financial instruments and derivative commodity
instruments, are interest rate risk and commodity price risk.
The interest rate risk relates primarily to new debt financing needed to
fund capital requirements, including utility construction expenditures, maturing
debt securities and the pending Northeast acquisition, and to variable rate
debt. See "Capital Requirements" and "Northeast Utilities Merger," above.
7
<PAGE>
In general, the rates Con Edison's utility subsidiaries charge customers for
electric, gas and steam service are not subject to change for fluctuations in
the cost of capital during the respective terms of the current rate agreements.
The utility subsidiaries manage interest rate risk through the issuance of
mostly fixed-rate debt with varying maturities and through opportunistic
refundings of debt through optional redemptions and tender offers. In addition,
Con Edison of New York, has from time to time, entered into derivative financial
instruments to hedge interest rate risk.
At December 31, 1999, neither Con Edison nor any of its subsidiaries had
derivative or other financial instruments outstanding for purposes of hedging
its interest rate risk.
Derivative instruments are used by the company to hedge flowing gas and gas
in storage. In addition, Con Edison Solutions and Con Edison Energy use
derivatives to hedge its gas purchases to meet future load requirements. The
utility subsidiaries do not generally use derivatives to hedge purchases of
electricity and fuel because the related commodity price risks are mitigated by
the fuel adjustment provisions of their current rate agreements (see Note A to
the financial statements). At December 31, 1999 neither the fair value of the
hedged positions outstanding nor potential, near-term derivative losses from
reasonably possible near-term changes in market prices were material to the
financial position, results of operations or liquidity of Con Edison.
NUCLEAR GENERATION
Con Edison of New York, which has operated its approximately 1,000 MW Indian
Point 2 nuclear generating unit since 1973, is exploring alternatives to its
continued ownership and operation of Indian Point 2. In February 2000, the
company announced an auction process for the Indian Point 2 unit, the retired
Indian Point 1 unit and related gas turbines. The company has reserved the right
to reject any and all proposals, to terminate the auction process, and/or to
decline to sell all or any part of the assets being auctioned. Any sale would be
subject to the approval of the PSC and the NRC.
For information about the recovery of Con Edison of New York's investment in
Indian Point 2, decommissioning Indian Point 2 and additional information about
nuclear generation, see Note G to the financial statements.
ENVIRONMENTAL MATTERS
For information concerning potential liabilities arising from laws and
regulations protecting the environment, including the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (Superfund), and
from claims relating to alleged exposure to asbestos, see Note F to the
financial statements.
IMPACT OF INFLATION
Con Edison is affected by the decline in the purchasing power of the dollar
caused by inflation. Regulation permits Con Edison's utility subsidiaries to
recover through depreciation only the historical cost of their plant assets even
though in an inflationary economy the cost to replace the assets upon their
retirement will substantially exceed historical costs. The impact is, however,
partially offset by the repayment of the utility subsidiaries' long-term debt in
dollars of lesser value than the dollars originally borrowed.
FORWARD-LOOKING STATEMENTS
This discussion and analysis includes forward-looking statements, which are
statements of future expectation and not facts. Words such as "estimates,"
"expects," "anticipates," "intends," "plans" and similar expressions identify
forward-looking statements. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as
8
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competition and industry restructuring, the Northeast merger, technological
developments, changes in economic conditions, changes in historical weather
patterns, changes in laws, regulations or regulatory policies, developments in
legal or public policy doctrines, and other presently unknown or unforeseen
factors.
RESULTS OF OPERATIONS
Con Edison's earnings per share in 1999 were $3.14 ($3.13 on a diluted basis).
Earnings per share in 1998 and 1997 were $3.04 and $2.95, respectively, on both
basic and diluted bases. See "Liquidity and Capital Resources - Stock
Repurchases."
Earnings for the years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Con Edison of New York...................................... $ 698.3 $728.1 $704.0
O&R*........................................................ 22.2 -- --
Unregulated subsidiaries.................................... (10.9) (18.4) (9.5)
Other**..................................................... (9.0) 3.0 --
------- ------ ------
Con Edison................................................ $ 700.6 $712.7 $694.5
------- ------ ------
</TABLE>
- ------------------------
* O&R earnings are for the period subsequent to its acquisition in July 1999.
**Includes parent company expenses and inter-company eliminations.
Con Edison's earnings for 1999, compared to 1998, decreased $12.1 million. The
principal components of the decrease were: $42.3 million of electric rate
reductions; $41.9 million of lost equity return on generating assets that were
divested; and $8.5 million of higher distribution expenses relating to Hurricane
Floyd and a July 1999 heat wave, offset by $22.2 million of O&R earnings
reflecting the acquisition of O&R in July 1999 and approximately $65.7 million
of lower nuclear and pension expenses. Earnings also reflect the levels of
electric, gas and steam sales discussed below.
Con Edison's earnings for 1998, compared to 1997, increased $18.2 million as the
result of higher electric revenues of $36.5 million from warmer than normal
summer weather and an improving New York City economy, net of rate reductions,
offset, in part, by expenses of $19.3 million from an extended Indian Point 2
maintenance outage.
Con Edison's operating revenues in 1999, compared to 1998, increased by $398.3
million, and its operating income decreased by $33.5 million. Operating revenues
in 1998, compared to 1997, decreased from the prior year by $103.1 million, and
operating income increased by $18.0 million.
A discussion of Con Edison's operating revenues and operating income by business
segment follows. Con Edison's principal business segments are its electric, gas
and steam utility businesses. For additional information about Con Edison's
business segments, see Note N to the financial statements.
Electric
Con Edison's electric operating revenues in 1999 increased $118.2 million, from
1998 and in 1998 increased $38.9 million from 1997. The increases reflect
increased sales volumes, offset by electric rate reductions of approximately $65
million in 1999 and $102 million in 1998. The 1999 increase also reflects $258.1
million of O&R electric operating revenues.
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Electricity sales volume in Con Edison of New York's service territory increased
3.9 percent in 1999 and 3.1 percent in 1998.
The increases in sales volume reflect both the continued strength of the New
York City economy and warmer than normal summer weather. Con Edison's electric
sales vary seasonally in response to weather, and peak in the summer.
After adjusting for variations, principally weather and billing days, in each
period, electricity sales volume in Con Edison of New York's service territory
increased 2.7 percent in 1999 and 2.5 percent in 1998. Weather-adjusted sales
represent an estimate of the sales that would have been made if historical
average weather conditions had prevailed.
Con Edison's electric operating income decreased $47.3 million in 1999 compared
to 1998. The principal components of the decrease were: $41.9 million of lost
equity return on generating assets that were divested; approximately $8.5
million of increased distribution expenses relating to Hurricane Floyd and a
July 1999 heat wave; and $42.3 million of electric rate reductions, offset, in
part, by approximately $65 million of reduced expenses at Indian Point 2 (which
had an extended maintenance outage in 1998) and decreased pension costs; and
$28.4 million of electric operating income attributable to O&R.
Con Edison's 1998 electric operating income increased $50.9 million compared to
1997 primarily as a result of increased electric revenues of $36.5 million and
decreased pension expenses of $28.6 million, partly offset by increased expenses
of $19.3 million at Indian Point 2.
Gas
Con Edison's gas operating revenues and gas operating income increased $40.5
million and $10.5 million, respectively, in 1999 and decreased $134.3 million
and $12.6 million, respectively, in 1998. These changes reflect gas sales and
transportation volumes. The 1999 increases also reflect O&R gas operating
revenues of approximately $56.4 million and O&R gas operating income of
approximately $0.3 million.
Gas sales and transportation volume to firm customers of Con Edison of New York
increased 5.8 percent in 1999 compared to 1998 and decreased 9.7 percent in 1998
compared to 1997.
Con Edison's gas sales and transportation vary seasonally in response to
weather, and peak in the winter. The increase in volumes from 1998 reflects the
colder 1999 winter compared to 1998. The decrease in 1998 compared to 1997
reflects the relatively warm 1998 winter.
After adjusting for variations, principally weather and billing days, in each
period, gas sales and transportation volume to firm customers increased 1.3
percent in 1999 and decreased 0.1 percent in 1998.
A weather-normalization provision that applies to Con Edison's utility
subsidiaries of New York's gas business moderates, but does not eliminate, the
effect of weather-related changes on gas operating income.
Steam
Con Edison's steam operating revenues and steam operating income increased $18.1
million and $0.1 million, respectively, in 1999, but decreased $69.9 million and
$16.7 million, respectively in 1998, primarily because of changes in steam sales
volume.
Steam sales volume increased 6.1 percent in 1999 and decreased 8.8 percent in
1998.
Con Edison's steam sales vary seasonally in response to weather, and peak in the
winter. The increase in volume for steam sales from 1998 reflects the colder
1999 winter compared to 1998. The decrease in 1998 compared to 1997 reflects the
relatively warm 1998 winter.
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After adjusting for variations, principally weather and billing days, in each
period, steam sales volume decreased 1.4 percent in 1999 and decreased 1.7
percent in 1998.
Taxes, Other Than Federal Income Tax
At $1.2 billion, taxes other than federal income tax remain one of Con Edison's
utility subsidiaries' largest operating expenses.
The principal components of and variations in operating taxes were:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
1999 1999 1998
AMOUNT OVER 1998 OVER 1997
-------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Property taxes.............................................. $ 606.2 $(12.2) $27.7
State and local taxes on revenues........................... 470.7 4.9 (9.0)
Payroll taxes............................................... 59.6 2.9 (2.6)
Other taxes................................................. 43.3 (23.9) 10.9
-------- ------ -----
Total....................................................... $1,179.8* $(28.3) $27.0
-------- ------ -----
</TABLE>
*Including sales taxes on customers' bills, total taxes, other than federal
income taxes, billed to customers in 1999 were $1,458.2 million.
Other Income
Other income increased $29.7 million in 1999 due principally to deferred federal
income tax credits realized as a result of the generation divestiture. See Notes
I and L to the financial statements. Other income decreased $8.3 million in 1998
due principally to the write-off of a $10 million investment made by an
unregulated subsidiary.
Net Interest Charges
Net interest charges increased $11.7 million in 1999, compared to 1998,
reflecting the addition of $15.4 million of O&R debt expense and $3.4 million of
increased interest on short-term borrowing, partially offset by refunding of
long-term debt and favorable tax audit adjustments. Net interest charges
decreased $7.2 million in 1998, reflecting the interest savings from the
refunding of long-term debt in 1998.
Federal Income Tax
Federal income tax decreased $32.6 million in 1999 and increased $25.7 million
in 1998, reflecting the changes each year in income before tax and in tax
credits. See Note L to the financial statements.
February 17, 2000
