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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 29, 1996
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
New York 1-1217 13-5009340
(State of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
4 Irving Place, New York, NY 10003
(Address of principal executive offices)
Registrant's telephone number: (212) 460-4600
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On February 29, 1996, the Company entered into an
underwriting agreement with Lehman Brothers Inc., as
representative of the underwriters named therein, for the sale of
$275 million aggregate principal amount of the Company's 7 3/4%
Quarterly Income Capital Securities (Series A Subordinated
Deferrable Interest Debentures) (the "Offered Securities"). The
Offered Securities were registered under the Securities Act of
1933 pursuant to certain Registration Statements on Form S-3
(Nos. 33-62266, declared effective May 11, 1993, and 33-64657,
declared effective December 8, 1995) relating to $1.205 billion
aggregate principal amount of unsecured debt securities of the
Company, of which $605 million have been sold in previous
offerings of debt securities.
It is expected that the net proceeds to be received by the
Company from the sale of the Offered Securities, along with other
funds of the Company, will be applied to purchase and retire
preferred stock tendered and accepted for payment pursuant to the
Company's Offer to Purchase, dated January 29, 1996; to redeem
other series of the Company's preferred stock; and to pay related
expenses.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
1 Underwriting Agreement relating to the Offered
Securities.
4 Form of Offered Securities.
8 Tax Opinion of Reid & Priest LLP, dated February 29,
1996.
12 Statement of computation of ratio of earnings to fixed
charges for the years ended December 31, 1995, 1994,
1993, 1992 and 1991.
23.1 Consent of Reid & Priest LLP. (Included as part of
Exhibit 8.)
23.2 Consent of Price Waterhouse LLP.
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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, 1995 and 1994, 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, 1995, and the notes
thereto, of Consolidated Edison Company of New York,
Inc. and its subsidiaries ("1995 Financial Statements").
99.2 Report of Price Waterhouse LLP, dated February 27, 1996,
relating to the 1995 Financial Statements.
99.3 Management's Discussion and Analysis of Financial
Condition and Results of Operations, dated February 27,
1996 ("MD&A") relating to the 1995 Financial Statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
By: RAYMOND J. MCCANN
Raymond J. McCann
Executive Vice President
and Chief Financial Officer
DATE: February 29, 1996
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Index to Exhibits
Sequential Page
Number at which
Exhibit Description Exhibit Begins
1 Underwriting Agreement relating
to Offered Securities.
4 Form of Offered Securities.
8 Tax Opinion of Reid & Priest LLP,
dated February 29, 1996.
12 Statement of computation of ratio of
earnings to fixed charges for the years
ended December 31, 1995, 1994, 1993, 1992
and 1991.
23.1 Consent of Reid & Priest LLP. (Included
as part of Exhibit 8.)
23.2 Consent of Price Waterhouse 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 1995 Financial Statements.
99.2 Report of Price Waterhouse LLP, dated
February 27, 1996 relating to the
1995 Financial Statements.
99.3 MD&A relating to the 1995 Financial Statements.
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UNDERWRITING AGREEMENT
February 29, 1996
To the Representative Named
on the Signature Page Hereof:
Dear Sirs:
Subject to the terms and conditions stated or
incorporated by reference herein, Consolidated Edison Company of
New York, Inc. (the "Company") hereby agrees to sell to the
Underwriters named in Schedule I hereto (the "Underwriters") and
the Underwriters hereby agree to purchase, severally and not
jointly, the principal amount set forth opposite their names in
Schedule I hereto of the securities specified in Schedule II
hereto (the "Designated Securities").
The representative named on the signature page hereof
(the "Representative") represents that the Underwriters have
authorized the Representative to enter into this Underwriting
Agreement and to act hereunder on their behalf.
Except as otherwise provided in Schedule II hereto each
of the provisions of the Company's Underwriting Agreement Basic
Provisions, dated April 16, 1992, as filed as Exhibit 1(b) to
Registration Statement No. 33-47261 (the "Basic Provisions"), is
incorporated herein by reference in its entirety, and shall be
deemed to be a part of this Agreement to the same extent as if
such provisions had been set forth in full herein. Unless
otherwise defined herein, terms defined in the Basic Provisions
are used herein as therein defined.
Payment for the Designated Securities will be made
against delivery thereof to the Representative for the accounts
of the respective Underwriters at the time and place and at the
purchase price to the Underwriters set forth in Schedule II
hereto.
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If the foregoing is in accordance with your
understanding, please sign and return to us counterparts hereof,
and upon acceptance hereof by you, on behalf of each of the
Underwriters, this letter and such acceptance hereof, including
the Basic Provisions incorporated herein by reference, shall
constitute a binding agreement between each of the Underwriters
and the Company.
Very truly yours,
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
By:RAYMOND J. MCCANN
Raymond J. McCann
Executive Vice President
and Chief Financial Officer
Confirmed and Accepted as of the date hereof on behalf of itself
and each other Underwriter:
LEHMAN BROTHERS INC.
By: ROBERT D. CRAIG
Robert D. Craig
Attorney in fact
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SCHEDULE I
Principal Amount of
Designated Securities
Underwriter to be Purchased
Lehman Brothers Inc. ....................... $ 30,625,000
Dean Witter Reynolds Inc. .................. 30,000,000
A.G. Edwards & Sons, Inc. .................. 30,000,000
Merrill Lynch, Pierce,
Fenner & Smith Incorporated ........... 30,000,000
PaineWebber Incorporated ................... 30,000,000
Prudential Securities Incorporated ......... 30,000,000
Smith Barney Inc. .......................... 30,000,000
Bear, Stearns & Co. Inc .................... 3,125,000
J.C. Bradford & Co. ........................ 3,125,000
Dillon, Read & Co. Inc. .................... 3,125,000
Everen Securities, Inc. .................... 3,125,000
Goldman, Sachs & Co......................... 3,125,000
Legg Mason Wood Walker, Incorporated ....... 3,125,000
J.P. Morgan Securities Inc. ................ 3,125,000
Piper Jaffray Inc. ......................... 3,125,000
Advest, Inc. ............................... 1,125,000
Robert W. Baird & Co. Incorpoprated......... 1,125,000
M.R. Beal & Company ........................ 1,125,000
J.W. Charles Securities, Inc................ 1,125,000
Coast Partners Securities, Inc.............. 1,125,000
Cowen & Company ............................ 1,125,000
Craigie Incorporated ....................... 1,125,000
Dain Bosworth Incorporated ................. 1,125,000
Davenport & Co. of Virginia, Inc. .......... 1,125,000
Doft & Co., Inc. ........................... 1,125,000
Fahnstock & Co. Inc. ....................... 1,125,000
First Albany Corporation ................... 1,125,000
First Southwest Company ................. 1,125,000
Furman Selz LLC ........................... 1,125,000
Gruntal & Co., Incorporated ................ 1,125,000
J.J.B. Hilliard, W.L. Lyons, Inc. .......... 1,125,000
Interstate/Johnson Lane Corporation ........ 1,125,000
Janey Montgomery Scott Inc. ................ 1,125,000
McDonald & Company Securities, Inc. ........ 1,125,000
McGinn, Smith & Co., Inc. .................. 1,125,000
Morgan Keegan & Company, Inc. .............. 1,125,000
The Ohio Company ........................... 1,125,000
Olde Discount Corporation .................. 1,125,000
Principal Financial Securities, Inc. ....... 1,125,000
Pryor, McClendon, Counts & Co., Inc. ....... 1,125,000
Rauscher Pierce Refsnes, Inc. .............. 1,125,000
Raymond James & Associates, Inc. ........... 1,125,000
The Robinson-Humphrey Company, Inc. ........ 1,125,000
Muriel Siebert & Co., Inc. ................. 1,125,000
Stephens Inc................................ 1,125,000
Sterne, Agee & Leach, Inc. ................. 1,125,000
U.S. Clearing Corp.......................... 1,125,000
Wedbush Morgan Securities .................. 1,125,000
Wheat, First Securities, Inc. .............. 1,125,000
B.C. Ziegler & Company .............. 1,125,000
Total. . . . . . . . . . . . . $275,000,000
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SCHEDULE II
Title of Designated Securities:
7 3/4% Quarterly Income Capital Securities
(Series A Subordinated Deferrable Interest Debentures)
Aggregate principal amount:
$275,000,000.
Price to Public:
Initially $25.00 for each $25.00 principal amount of the
Designated Securities (each such principal amount of the
Designated Securities is referred to herein as a "Capital
Security"), thereafter at market prices prevailing at the
time of sale or at negotiated prices.
Purchase Price by Underwriters:
$24.2125 per Capital Security, except that for sales to
institutions considered as such under investment banking
industry practice the purchase price will be $24.50 per
Capital Security.
Specified funds for, and manner of, payment of purchase price:
Two Federal Reserve Bank checks payable in immediately
available funds. One check shall be payable to the
order of "The Chase Manhattan Bank, N.A., as Securities
Depositary." The other check shall be payable to the order
of "Consolidated Edison Company of New York, Inc." The
checks shall be in such amounts, as Con Edison shall advise
the Representative, provided that the aggregate amount of
the checks shall equal the Purchase Price by Underwriters.
Indenture:
Indenture, dated as of December 1, 1990, between the Company
and The Chase Manhattan Bank (National Association), as
Trustee, as to be amended and supplemented by a First
Supplemental Indenture to be entered into between Company,
and the Trustee substantially in the form filed as Exhibit
4.2 to the Company's Registration Statement on Form S-3 (No.
33-64657; declared effective by the SEC on December 8,
1995).
Maturity:
March 31, 2031.
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Interest Rate:
As set forth in the prospectus supplement, dated February
29, 1996, for the Designated Securities (the "Prospectus
Supplement") to the prospectus, dated December 8, 1995
(the "Prospectus") filed with the Securities and Exchange
Commission (the "SEC") pursuant to Rule 424(b)(2) under the
Securities Act of 1933, as amended, as part of the
Registration Statement.
Interest Payment Dates:
As set forth in the Prospectus Supplement, including the
terms upon which the Company may elect to not pay interest
on an interest payment date.
Redemption Provisions:
As set forth in the Prospectus Supplement.
Sinking Fund Provisions:
None.
Subordination Provisions:
As set forth in the Prospectus Supplement.
Time of Delivery:
10:00 a.m., on March 6, 1996.
Closing Location:
Room 1810-S at the Company, 4 Irving Place, New York, NY
10003.
Information furnished by or on behalf of the Underwriters for use
in the Prospectus for the Designated Securities:
1. The paragraphs regarding stabilization on page 2 of the
Prospectus and page S-3 of the Prospectus Supplement.
2. The final paragraph of the front cover of the
Prospectus Supplement.
3. The third and fourth paragraphs (except for the second
sentence in the fourth paragraph) of the section
entitled "Underwriting" in the Prospectus Supplement.
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Address of Representative:
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Attention: James C. Penrose
Captions in the Prospectus referred to in Section 6(c)(xi) of the
Basic Provisions:
Description of Securities
Certain Terms of the Capital Securities
Modifications of Basic Provisions:
1. Delete Section 3 of the Basic Provisions in its
entirety and substitute the following:
"One or more Global Securities (as defined in the
Indenture specified in the Underwriting agreement) for
the Designated Securities in the aggregate principal
amount of the Designated Securities shall be registered
in the name of Cede & Co. and delivered to The
Depository Trust Company with instructions to credit
the Designated Securities to the account of, or as
otherwise instructed by, the Representative against
payment by the Representative of the purchase price
therefor in the amount, the funds and manner specified
in the Underwriting Agreement, at the place, time and
date specified in the Underwriting Agreement or at such
other place, time and date as the Representative and
the Company may agree in writing, said time and date
being herein referred to as the "Time of Delivery" for
said Designated Securities.
2. Delete Section 6(c)(ii) of the Basic Provisions in its
entirety and substitute the following:
"(ii) The Company has authorized equity capitalization
as set forth, or incorporated by reference, in the
Prospectus;"
3. In Sections 1(g) and 6(c)(iii) of the Basic Provisions,
insert "law or" immediately before the phrase
"principles of public policy."
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4. In Section 7(a) of the Basic Provisions, insert
"promptly as such expenses are incurred" immediately
before the phrase "; provided, however,".
5. In Section 7(e) of the Basic Provisions, add at the
end: The foregoing provisions regarding contribution
shall apply except as otherwise required by applicable
law.
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[Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Company or its agent for registration
of transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.]
REGISTERED REGISTERED
Consolidated Edison Company of New York, Inc.
7 3/4% QUARTERLY INCOME CAPITAL SECURITIES
(SERIES A SUBORDINATED DEFERRABLE INTEREST DEBENTURES)
INTEREST RATE MATURITY DATE CUSIP
7 3/4% Per annum March 31, 2031 209111 84 8
REGISTERED HOLDER: [Cede & Co.]
PRINCIPAL SUM: [_______________________ DOLLARS ($___,___,___)]
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York
corporation (hereinafter called the "Company", which term
includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to
pay to the registered holder named above or registered assigns,
on the maturity date stated above, unless redeemed prior thereto
as hereinafter provided, the principal sum stated above and to
pay interest thereon from March 6, 1996, or from the most recent
interest payment date through which interest has been duly paid
or provided for, on March 31, 1996 and thereafter quarterly on
March 31, June 30, September 30 and December 31 of each year, at
the interest rate stated above, until the date on which the
payment of such principal sum has been made or duly provided for;
provided, however, that during an Extension Period (hereinafter
defined) all interest otherwise payable on such principal sum
during such Extension Period (together, to the extent permitted
by applicable law, with interest thereon at the interest rate
stated above) will be payable on the interest payment date that
occurs on the last day of the Extension Period.
This security is one of a duly authorized series of an issue
of unsecured debt securities of the Company designated as its
7 3/4% Quarterly Income Capital Securities (Series A Subordinated
Deferrable Interest Debentures) (herein called the "Capital
Securities"), issued and to be issued under an Indenture, dated
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as of December 1, 1990, between the Company and The Chase
Manhattan Bank (National Association), Trustee (hereinafter
called the "Trustee", which term includes any successor trustee
thereto) (the "Basic Indenture"), as amended and supplemented by
a First Supplemental Indenture, dated March 6, 1996, between the
Company and the Trustee (together with the Basic Indenture, the
"Indenture"). Reference is made to the Indenture and any
supplemental indenture thereto for the provisions relating, among
other things, to the respective rights of the Company, the
Trustee and the holders of the Capital Securities, and the terms
on which the Capital Securities are, and are to be, authenticated
and delivered.
The Company may at any time and from time to time during the
term of the Capital Securities extend the interest payment period
to a period not exceeding 20 consecutive quarters (an "Extension
Period") by electing to not pay interest on the Capital
Securities on an interest payment date. During any such
Extension Period, the Company shall not declare or pay any
dividend on, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of its capital stock. Prior to the
end of any such Extension Period, the Company may further extend
the interest payment period, provided that such Extension Period,
together with all such previous and further extensions thereof,
may not exceed 20 consecutive quarters or extend beyond the
maturity of the Capital Securities. Upon the end of any
Extension Period and the payment of all amounts then due, the
Company may initiate a new Extension Period, provided that such
new Extension Period, together with any extension thereof, may
not exceed 20 consecutive quarters or extend beyond the maturity
of the Capital Securities. Other than on the last day thereof,
no interest on the Capital Securities shall be due and payable
during an Extension Period and the failure to pay interest during
any such period shall not be an Event of Default (as defined in
the Indenture).
The Company shall give the holders of the Capital Securities
notice of its initiation or extension of any such Extension
Period not later than ten Business Days (as defined herein) prior
to the earlier of (i) the record date for the first interest
payment that, absent such initiation or extension, would
otherwise be due, or (ii) if applicable, the date the Company is
required to give notice to the New York Stock Exchange or other
self-regulatory organization of such record date.
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The interest payable on the Capital Securities on any
interest payment date, including any interest payable with
respect to an Extension Period, shall be computed on the basis of
a 360-day year of twelve 30-day months, and will be paid to the
registered holder of the Capital Securities at the close of
business on the fifteenth day of the month in which such interest
payment date occurs, except as otherwise provided in the
Indenture.
In the event that any interest payment date is not a
Business Day, then payment of the interest payable on such date
will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such interest payment date. A
"Business Day" shall mean any day other than a day on which
banking institutions in New York City are authorized or obligated
by law to close.
The principal of this Capital Security, when due and
payable, shall, upon presentation and surrender hereof, be paid
at the principal office of the Company. The interest on this
Capital Security, when due and payable, shall be paid at the
principal office of the Company, or at the option of the Company,
by check mailed to the address of the registered holder hereof or
registered assigns as such address shall appear in the Security
Register. All such payments shall be made in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
The Company may redeem the Capital Securities, as a whole at
any time, or in part from time to time, on or after March 31,
2001 at 100% of the principal amount of the Capital Securities to
be redeemed together with unpaid accrued interest thereon to the
date fixed for redemption.
At any time after the occurrence of a Tax Event, the Company
may redeem the Capital Securities, in whole but not in part, at
100% of the principal amount of the Capital Securities together
with unpaid accrued interest to the date fixed for redemption.
"Tax Event" means the receipt by the Company of an opinion of
counsel experienced in such matters to the effect that, as a
result of (a) any amendment to, clarification of, or change
(including any announced prospective change) in, the laws or
treaties (or any regulations thereunder) of the United States or
any taxing authority thereof or therein affecting taxation, (b)
any judicial decision or any official administrative
pronouncement, ruling, regulatory procedure, notice or
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announcement (including any notice or announcement of intent to
issue or adopt any such administrative pronouncement, ruling,
regulatory procedure or regulation) (each, an "Administrative
Action"), or (c) any amendment to, clarification of, or change in
the official position or the interpretation of any such
Administrative Action or judicial decision or any interpretation
or pronouncement that provides for a position with respect to
such Administrative Action or judicial decision that differs from
the theretofore generally accepted position, in each case by any
legislative body, court, governmental authority or regulatory
body, irrespective of the manner in which such amendment,
clarification or change is made known, which amendment,
clarification or change is effective, which Administrative Action
is taken or which judicial decision is issued, in each case on or
after the date of issuance of the Capital Securities, there is
more than an insubstantial risk that interest payable by the
Company on the Capital Securities is not, or will not be, fully
deductible for United States federal income tax purposes.
The obligations of the Company under the Capital Securities
are subordinate and junior in right of payment to Senior
Indebtedness (as defined in the Indenture), and this Capital
Security is issued subject to the provisions of the Indenture
with respect thereto. Holders of Capital Securities, by
accepting same, (a) agree to be bound by such subordination
provisions, (b) authorize and direct the Trustee on their behalf
to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided, and (c)
appoint the Trustee their attorney-in-fact for any and all such
purposes. Holders of Capital Securities, by accepting same,
hereby waive all notice of the acceptance of the subordination
provisions by each holder of Senior Indebtedness, whether now
outstanding or hereinafter incurred, and waive reliance by each
such holder upon such provisions.
If an Event of Default shall have occurred and be
continuing, with respect to the Capital Securities, the principal
hereof may be declared, and upon such declaration shall become,
due and payable, in the manner, with the effect and subject to
the conditions provided in the Indenture. Any such declaration
may be rescinded by holders of a majority in principal amount of
the outstanding Capital Securities if all Events of Default with
respect to the Capital Securities (other than the non-payment of
principal of the Capital Securities which shall have become due
by such declaration) shall have been remedied.
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The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of the Capital Securities
at the time outstanding, evidenced as in the Indenture provided,
to execute supplemental indentures adding any provisions to the
Indenture or to any supplemental indenture with respect to the
Capital Securities, or modifying in any manner the rights of the
holders of the Capital Securities; provided, however, that no
such supplemental indenture shall (i) extend the maturity of any
Capital Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon
or make the principal thereof or interest thereon payable in any
coin or currency other than that in the Capital Securities
provided, without the consent of the holder of each Capital
Security so affected, or (ii) reduce the aforesaid principal
amount of Capital Securities, the holders of which are required
to consent to any such supplemental indenture without the consent
of the holders of all Capital Securities then outstanding.
The Capital Securities are issuable as registered Capital
Securities only, in the denomination of $25 and any integral
multiples thereof approved by the Company, such approval to be
evidenced by the execution thereof.
This Capital Security is transferable by the registered
holder hereof in person or by his attorney duly authorized in
writing on the books of the Company at the office or agency to be
maintained by the Company for that purpose, but only in the
manner, subject to the limitations and upon payment of any tax or
governmental charge for which the Company may require
reimbursement as provided in the Indenture, and upon surrender
and cancellation of this Capital Security. Upon any registration
of transfer, a new registered Capital Security or Capital
Securities, of authorized denomination or denominations, and in
the same aggregate principal amount, will be issued to the
transferee in exchange therefor.
The Company, the Trustee, any paying agent and any Security
registrar may deem and treat the registered holder hereof as the
absolute owner of this Capital Security (whether or not this
Capital Security shall be overdue and notwithstanding any
notations of ownership or other writing hereon made by anyone
other than the Security registrar) for the purpose of receiving
payment of or on account of the principal hereof and interest due
hereon as herein provided and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any Security
registrar shall be affected by any notice to the contrary.
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No recourse shall be had for the payment of the principal of
or interest on this Capital Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect
of the Indenture or any indenture supplemental thereto, against
any incorporator or against any past, present or future
stockholder, officer or member of the Board of Trustees, as such,
of the Company, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty
or otherwise, all such liability being, by the acceptance hereof
and as part of the consideration for the issue hereof, expressly
waived and released.
This Capital Security shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of the State of
New York.
This Capital Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose
until the certificate of authentication on the face hereof is
manually signed by the Trustee.
IN WITNESS WHEREOF, the Company has caused this Capital
Security to be signed by the manual or facsimile signatures of a
Vice President and the Treasurer of the Company, and a facsimile
of its corporate seal to be affixed or reproduced hereon.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
By Executive Vice President
and Chief Financial Officer
By Treasurer
[SEAL]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein
issued under the Indenture described herein.
THE CHASE MANHATTAN BANK
(National Association),
as Trustee
By
Authorized Officer
<PAGE>
<PAGE>
February 29, 1996
Consolidated Edison Company
of New York, Inc.
4 Irving Place
New York, New York 10003
Ladies and Gentlemen:
We refer you to the prospectus supplement, dated February
29, 1996, (the "Prospectus Supplement") and the prospectus, dated
December 8, 1995, to be used in connection with the offering of
the Company's Quarterly Income Capital Securities (Series A
Subordinated Deferrable Interest Debentures) (the "Capital
Securities") and to the Registration Statements on Form S-3 (Nos.
33-62266 and 33-64657), declared effective by the Securities and
Exchange Commission ("SEC") on May 11, 1993 and December 8, 1996,
respectively (the "Registration Statements").
We have acted as your special tax counsel with respect to
the Capital Securities. We are of the opinion that the
statements under the caption "Certain United States Federal
Income Tax Consequences" in the Prospectus Supplement constitute
an accurate description, in general terms, of certain of the
material Federal income tax consequences that may be relevant to
prospective purchasers of the Capital Securities.
We hereby consent to the use of our name under the
captions "Certain United States Federal Income Tax Consequences"
and "Legal Matters" in the Prospectus Supplement and the filing
of this opinion with the SEC in connection with the Registration
Statements.
Very truly yours,
REID & PRIEST LLP
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
Computation in Support of
Ratio of Earnings to Fixed Charges
Years 1991 to 1995
(Thousands of Dollars)
<CAPTION>
1995 1994 1993 1992 1991
</CAPTION>
<S> <C> <C> <C> <C> <C>
EARNINGS
Net Income $723,850 $734,270 $658,522 $604,088 $566,910
Federal Income Tax 328,600 374,500 270,800 252,600 209,900
Federal Income Tax Deferred 78,330 73,710 106,470 81,670 94,950
Investment Tax Credits Deferred (9,310) (9,620) (12,260) (13,800) (13,800)
Total Earnings Before
Federal Income Tax 1,121,470 1,172,860 1,023,532 924,558 857,960
Fixed Charges* 350,254 327,352 320,554 315,305 314,661
Total Earnings Before
Federal Income Tax
and Fixed Charges $1,471,724 $1,500,212 $1,344,086 $1,239,863 $1,172,621
*FIXED CHARGES
Interest on Long-Term Debt $287,842 $277,684 $272,781 $270,468 $269,420
Amortization of Debt Discount,
Premium and Expenses 14,075 11,376 8,975 3,974 1,941
Interest Component of Rentals 19,383 18,439 19,077 19,175 20,778
Other Interest 28,954 19,853 19,721 21,688 22,522
Total Fixed Charges $350,254 $327,352 $320,554 $315,305 $314,661
Ratio of Earnings
to Fixed Charges 4.20 4.58 4.19 3.93 3.73
</TABLE>
<PAGE>
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference of our report
dated February 27, 1996, included as Exhibit 99.2 to the
Consolidated Edison Company of New York, Inc. Form 8-K dated
February 29, 1996 in the following filings: (a) Prospectus
Supplement constituting part of the Registration Statements on
Form S-3 (Nos. 33-64657 and 33-62266); (b) Prospectus
constituting part of the Registration Statement on Form S-3 (No.
33-51157); and (c) Prospectus constituting part of the
Registration Statement on Form S-8 (No. 33-15725). Such Form 8-K
includes the financial statements of Consolidated Edison Company
of New York, Inc. as of December 31, 1995 and 1994 and for each
of the three years in the period ended December 31, 1995.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
New York, New York
February 29, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS
SUMMARY FINANCIAL
INFORMATION EXTRACTED
FROM CONSOLIDATED
BALANCE SHEET, STATEMENT OF
CAPITALIZATION, INCOME
STATEMENT, RETAINED EARNINGS
STATEMENT AND STATEMENT OF
CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
AND THE NOTES THERETO
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> YEAR
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,814,403
<OTHER-PROPERTY-AND-INVEST> 145,646
<TOTAL-CURRENT-ASSETS> 1,247,842
<TOTAL-DEFERRED-CHARGES> 699,739
<OTHER-ASSETS> 1,042,260
<TOTAL-ASSETS> 13,949,890
<CAPITAL-SURPLUS-PAID-IN> 838,308
<RETAINED-EARNINGS> 4,097,035
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,522,734
<COMMON> 587,391
100,000
539,917
<LONG-TERM-DEBT-NET> 3,917,244
<SHORT-TERM-NOTES> 0
<PAGE>
<PAGE>
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 183,524
0
<CAPITAL-LEASE-OBLIGATIONS> 45,250
<LEASES-CURRENT> 2,555
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,638,666
<TOT-CAPITALIZATION-AND-LIAB> 13,949,890
<GROSS-OPERATING-REVENUE> 6,536,897
<INCOME-TAX-EXPENSE> 396,560
<OTHER-OPERATING-EXPENSES> 5,098,958
<TOTAL-OPERATING-EXPENSES> 5,495,518
<OPERATING-INCOME-LOSS> 1,041,379
<OTHER-INCOME-NET> 11,520
<INCOME-BEFORE-INTEREST-EXPEN> 1,052,899
<TOTAL-INTEREST-EXPENSE> 329,049
<NET-INCOME> 723,850
35,565
<EARNINGS-AVAILABLE-FOR-COMM> 688,285
<COMMON-STOCK-DIVIDENDS> 479,262
<TOTAL-INTEREST-ON-BONDS> 301,917
<CASH-FLOW-OPERATIONS> 1,276,458
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
</TABLE>
<PAGE>
<PAGE> - 1 -
CONSOLIDATED BALANCE SHEET
Consolidated Edison Company of New York, Inc.
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
At December 31 (Thousands of Dollars) 1995 1994
- --------------------------------------------------------------------------------
Utility plant, at original cost (Notes A and B)
Electric $11,319,622 $10,956,187
Gas 1,537,296 1,437,071
Steam 462,975 430,848
General 1,085,795 1,083,705
- --------------------------------------------------------------------------------
Total 14,405,688 13,907,811
Less: Accumulated depreciation 4,036,954 3,828,646
- --------------------------------------------------------------------------------
Net 10,368,734 10,079,165
Construction work in progress 360,457 389,630
Nuclear fuel assemblies and components, less
accumulated amortization 85,212 92,413
- --------------------------------------------------------------------------------
Net utility plant 10,814,403 10,561,208
================================================================================
Current assets
Cash and temporary cash investments (Note A) 342,292 245,221
Accounts receivable--customers, less allowance for
uncollectible accounts of $21,600 in 1995 and 1994 497,215 440,496
Other receivables 45,558 61,853
Regulatory accounts receivable (Note A) (6,481) 26,346
Fuel, at average cost 40,506 50,883
Gas in storage, at average cost 26,452 50,698
Materials and supplies, at average cost 221,026 229,744
Prepayments 66,148 56,283
Other current assets 15,126 13,262
- --------------------------------------------------------------------------------
Total current assets 1,247,842 1,174,786
================================================================================
Investments and nonutility property 145,646 111,523
================================================================================
Deferred charges (Note A)
Enlightened Energy program costs 144,282 170,201
Unamortized debt expense 133,812 138,428
Power contract termination costs 105,408 180,506
Other deferred charges 316,237 285,721
- --------------------------------------------------------------------------------
Total deferred charges 699,739 774,856
================================================================================
Regulatory asset -- future federal income taxes
(Notes A and H) 1,042,260 1,105,991
================================================================================
Total $13,949,890 $13,728,364
================================================================================
<PAGE>
<PAGE> - 2 -
================================================================================
Capitalization and Liabilities
- --------------------------------------------------------------------------------
At December 31 (Thousands of Dollars) 1995 1994
- --------------------------------------------------------------------------------
Capitalization (see Consolidated Statement of
Capitalization)
Common shareholders' equity $ 5,522,734 $ 5,312,997
Preferred stock subject to mandatory redemption
(Note B) 100,000 100,000
Other preferred stock 539,917 540,310
Long-term debt 3,917,244 4,030,464
- --------------------------------------------------------------------------------
Total capitalization 10,079,895 9,983,771
================================================================================
Noncurrent liabilities
Obligations under capital leases 45,250 47,805
Other noncurrent liabilities 75,907 72,561
- --------------------------------------------------------------------------------
Total noncurrent liabilities 121,157 120,366
================================================================================
Current liabilities
Long-term debt due within one year (Note B) 183,524 10,889
Accounts payable 420,852 374,469
Customer deposits 158,366 161,455
Accrued taxes 24,374 9,821
Accrued interest 89,374 84,544
Accrued wages 76,459 73,611
Other current liabilities 168,477 179,611
- --------------------------------------------------------------------------------
Total current liabilities 1,121,426 894,400
================================================================================
Provisions related to future federal income taxes
and other deferred credits (Notes A and H)
Accumulated deferred federal income tax 2,296,284 2,266,458
Accumulated deferred investment tax credits 181,420 191,524
Other deferred credits 149,708 271,845
- --------------------------------------------------------------------------------
Total deferred credits 2,627,412 2,729,827
================================================================================
Contingencies (Note F)
================================================================================
Total $13,949,890 $13,728,364
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> - 3 -
CONSOLIDATED INCOME STATEMENT
Consolidated Edison Company of New York, Inc.
===============================================================================
Year Ended December 31 (Thousands of Dollars) 1995 1994 1993
- --------------------------------------------- ---- ---- ----
Operating revenues (Note A)
Electric $5,389,408 $5,140,472 $5,131,665
Gas 813,356 890,107 808,389
Steam 334,133 342,507 325,340
- -------------------------------------------------------------------------------
Total operating revenues 6,536,897 6,373,086 6,265,394
===============================================================================
Operating expenses
Fuel 504,104 567,764 605,213
Purchased power 1,107,223 787,455 812,616
Gas purchased for resale 259,789 341,204 289,708
Other operations 1,139,732 1,146,094 1,106,966
Maintenance 512,102 506,179 570,794
Depreciation and amortization (Note A) 455,776 422,356 403,730
Taxes, other than federal income tax 1,120,232 1,127,691 1,159,283
Federal income tax (Notes A and H) 396,560 438,160 366,020
- -------------------------------------------------------------------------------
Total operating expenses 5,495,518 5,336,903 5,314,330
===============================================================================
Operating income 1,041,379 1,036,183 951,064
- -------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A) 16,966 10,601 4,934
Allowance for equity funds used during
construction (Note A) 3,763 8,354 7,222
Other income less miscellaneous deductions (8,149) (15,201) (7,565)
Federal income tax (Notes A and H) (1,060) (430) 1,010
- --------------------------------------------------------------------------------
Total other income 11,520 3,324 5,601
================================================================================
Income before interest charges 1,052,899 1,039,507 956,665
- --------------------------------------------------------------------------------
Interest on long-term debt 301,917 289,060 281,756
Other interest 28,954 19,853 19,721
Allowance for borrowed funds used during
construction (Note A) (1,822) (3,676) (3,334)
- --------------------------------------------------------------------------------
Net interest charges 329,049 305,237 298,143
================================================================================
Net income 723,850 734,270 658,522
Preferred stock dividend requirements 35,565 35,587 35,617
- -------------------------------------------------------------------------------
Net income for common stock $ 688,285 $ 698,683 $ 622,905
================================================================================
Earnings per common share based on average
number of shares outstanding during each
year (234,930,301; 234,753,901; and
233,981,369) $2.93 $2.98 $2.66
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> - 4 -
CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Edison Company of New York, Inc.
<TABLE>
<CAPTION>
====================================================================================
Year Ended December 31 (Thousands of Dollars) 1995 1994 1993
<S> <C> <C> <C>
Operating activities
Net income $ 723,850 $ 734,270 $ 658,522
Principal non-cash charges (credits) to
income
Depreciation and amortization 455,776 422,356 403,730
Federal income tax deferred 69,020 64,090 94,210
Common equity component of allowance for
funds used during construction (3,546) (7,876) (6,795)
Other non-cash charges (47,555) 65,669 (20,578)
Changes in assets and liabilities
Accounts receivable--customers, less allowance
for uncollectibles (56,719) 18,765 (34,912)
Regulatory accounts receivable 32,827 70,771 70,814
Materials and supplies, including fuel and gas
in storage 43,341 17,306 60,554
Prepayments, other receivables and other
current assets 4,566 21,317 (32,236)
Enlightened Energy program costs 25,919 (30,144) (59,297)
Power contract termination costs 55,387 (62,376) (68,380)
Accounts payable 46,383 (18,074) 19,007
Other--net (72,791) (46,175) (59,374)
- ------------------------------------------------------------------------------------
Net cash flows from operating activities 1,276,458 1,249,899 1,025,265
====================================================================================
Investing activities including construction
Construction expenditures (692,803) (757,530) (789,068)
Nuclear fuel expenditures (12,840) (47,071) (14,092)
Contributions to nuclear decommissioning trust (18,893) (14,586) (19,247)
Common equity component of allowance for
funds used during construction 3,546 7,876 6,795
- ------------------------------------------------------------------------------------
Net cash flows from investing activities
including construction (720,990) (811,311) (815,612)
====================================================================================
Financing activities including dividends
Issuance of common stock -- 14,650 11,881
Issuance of long-term debt 228,285 400,000 1,378,475
Retirement of long-term debt (10,889) (133,639) (177,897)
Advance refunding of long-term debt (155,699) -- (1,069,732)
Issuance and refunding costs (5,269) (5,988) (108,562)
Common stock dividends (479,262) (469,561) (453,902)
Preferred stock dividends (35,563) (35,585) (35,614)
- ------------------------------------------------------------------------------------
Net cash flows from financing activities
including dividends (458,397) (230,123) (455,351)
====================================================================================
Net increase (decrease) in cash and temporary
cash investments 97,071 208,465 (245,698)
====================================================================================
Cash and temporary cash investments at
January 1 245,221 36,756 282,454
====================================================================================
Cash and temporary cash investments at
December 31 $ 342,292 $ 245,221 $ 36,756
====================================================================================
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 309,953 $ 269,839 $ 265,475
Income taxes 344,754 385,355 280,122
====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> - 5 -
CONSOLIDATED STATEMENT OF CAPITALIZATION
Consolidated Edison Company of New York, Inc.
<TABLE>
<CAPTION>
=======================================================================================================
At December 31 (Thousands of Dollars) 1995 1994
Shares outstanding
-----------------------------------
December 31, 1995 December 31, 1994
-----------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity (Note B)
Common stock, $2.50 par value,
authorized 340,000,000 shares 234,956,299 234,905,235 $1,464,305 $1,463,913
Retained earnings 4,097,035 3,888,010
Capital stock expense (38,606) (38,926)
- ------------------------------------------------------------------------------------------------------
Total common shareholders' equity 5,522,734 5,312,997
======================================================================================================
Preferred stock (Note B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
7.20% Series I 500,000 500,000 50,000 50,000
6 1/8% Series J 500,000 500,000 50,000 50,000
- ------------------------------------------------------------------------------------------------------
Total subject to mandatory redemption 100,000 100,000
- ------------------------------------------------------------------------------------------------------
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*
5 3/4% Series A 600,000 600,000 60,000 60,000
5 1/4% Series B 750,000 750,000 75,000 75,000
4.65% Series C 600,000 600,000 60,000 60,000
4.65% Series D 750,000 750,000 75,000 75,000
5 3/4% Series E 500,000 500,000 50,000 50,000
6.20% Series F 400,000 400,000 40,000 40,000
Cumulative Preference, $100 par value,
authorized 2,250,000 shares
6% Convertible Series B 49,174 53,102 4,917 5,310
- ------------------------------------------------------------------------------------------------------
Total other preferred stock 539,917 540,310
- ------------------------------------------------------------------------------------------------------
Total preferred stock $ 639,917 $ 640,310
======================================================================================================
</TABLE>
*Represents total authorized shares of cumulative preferred stock, $100 par
value, including preferred stock subject to mandatory redemption.
<PAGE>
<PAGE> - 6 -
<TABLE>
<CAPTION>
=======================================================================================================
<S> <C> <C> <C> <C>
At December 31 (Thousands of Dollars) 1995 1994
Long-term debt (Note B)
Maturity Interest Rate Series
First and Refunding Mortgage Bonds (open-end mortgage):
1996 5% CC $ 100,000 $ 100,000
1996 5.90 DD 75,000 75,000
- ---------------------------------------------------------------------------------------------------------
Total mortgage bonds 175,000 175,000
Debentures:
1997 5.30% 1993 E 100,000 100,000
1998 6 1/4 1993 A 100,000 100,000
1998 5.70 1993 F 100,000 100,000
1999 6 1/2 1992 D 75,000 75,000
1999 * 1994 B 150,000 150,000
2000 7 3/8 1992 A 150,000 150,000
2000 7.60 1992 C 125,000 125,000
2001 6 1/2 1993 B 150,000 150,000
2002 6 5/8 1993 C 150,000 150,000
2003 6 3/8 1993 D 150,000 150,000
2004 7 5/8 1992 B 150,000 150,000
2005 7 3/8 1992 E 75,000 75,000
2005 6 5/8 1995 A 100,000 --
2023 7 1/2 1993 G 380,000 380,000
2025 9.70 1990 A -- 27,414
2026 9 3/8 1991 A 95,329 95,329
2027 8.05 1992 F 100,000 100,000
2029 7 1/8 1994 A 150,000 150,000
- ---------------------------------------------------------------------------------------------------------
Total debentures 2,300,329 2,227,743
- ---------------------------------------------------------------------------------------------------------
Tax-exempt debt--notes issued to New York State Energy Research and
Development Authority for Facilities Revenue Bonds:
2020 9 % 1985 A -- 128,285
2020 6.10 1995 A 128,285 --
2020 5 1/4 1993 B 127,715 127,715
2021 7 1/2 1986 A 150,000 150,000
2022 7 1/8 1987 A 100,855 100,855
2022 9 1/4 1987 B 29,385 29,385
2022 5 3/8 1993 C 19,760 19,760
2024 7 3/4 1989 A 150,000 150,000
2024 7 3/8 1989 B 100,000 100,000
2024 7 1/4 1989 C 150,000 150,000
2025 7 1/2 1990 A 150,000 150,000
2026 7 1/2 1991 A 128,150 128,150
2027 6 3/4 1992 A 100,000 100,000
2027 6 3/8 1992 B 100,000 100,000
2028 6 1993 A 101,000 101,000
2029 7 1/8 1994 A 100,000 100,000
- ---------------------------------------------------------------------------------------------------------
Total tax-exempt debt 1,635,150 1,635,150
- ---------------------------------------------------------------------------------------------------------
Other long-term debt:
Liens on purchased gas turbines 13,327 22,779
Other long-term debt 5,836 9,007
Unamortized debt discount (28,874) (28,326)
- ---------------------------------------------------------------------------------------------------------
Total 4,100,768 4,041,353
Less: Long-term debt due within one year 183,524 10,889
- ---------------------------------------------------------------------------------------------------------
Total long-term debt 3,917,244 4,030,464
- ---------------------------------------------------------------------------------------------------------
Total capitalization $10,079,895 $9,983,771
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* This rate is reset quarterly. For the fourth quarter of 1995 it was 6.125%.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> - 7 -
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Consolidated Edison Company of New York, Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31 (Thousands of Dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $3,888,010 $3,658,886 $3,489,880
Net income for the year 723,850 734,270 658,522
- ----------------------------------------------------------------------------------------------------------
Total 4,611,860 4,393,156 4,148,402
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Dividends declared on capital stock
Cumulative Preferred, at required annual rates 35,259 35,259 35,259
Cumulative Preference, 6% Convertible Series B 304 326 355
Common, $2.04, $2.00 and $1.94 per share 479,262 469,561 453,902
- ----------------------------------------------------------------------------------------------------------
Total dividends declared 514,825 505,146 489,516
- ----------------------------------------------------------------------------------------------------------
Balance, December 31 $4,097,035 $3,888,010 $3,658,886
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> - 8 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------
Note A Summary of Significant Accounting Policies
- -----------------------------------------------------------------
Regulation. The Company is subject to regulation by the New York
Public Service Commission (PSC) and the Federal Energy Regulatory
Commission (FERC). The Company's accounting policies conform to
generally accepted accounting principles, as applied in the case
of regulated public utilities, and to the accounting requirements
and rate-making practices of these regulatory authorities.
The PSC is conducting a generic "competitive opportunities"
proceeding to investigate whether and how to introduce increased
competition into the electric utility industry in the State. It
is not possible to predict the outcome of the proceeding or its
impact upon the Company. The outcome could adversely affect the
Company's eligibility to apply Statement of Financial Accounting
Standards ("SFAS") No. 71, "Accounting for the Effects of Certain
Types of Regulation," which could then require a material
write-down of assets, the amount of which is not presently
determinable. SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
requires long-lived and certain other assets to be reviewed for
impairment if the carrying amount of an asset may not be
recoverable. SFAS No. 121 also amends SFAS No. 71 to require that
regulatory assets (which include certain deferred charges) be
charged to earnings if such assets are no longer considered
probable of recovery. The Company will implement SFAS No. 121 in
1996. Absent a change in regulation as a result of competition as
discussed above, the Company does not expect that the application
of SFAS No. 121, with respect to either its long-lived assets or
its regulatory assets, will have a material adverse effect on the
Company's financial position and results of operations.
Principles of Consolidation. The accompanying consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany transactions have been
eliminated.
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.
<PAGE>
<PAGE> - 9 -
Rates used for AFDC include the cost of borrowed funds used
for construction purposes and a reasonable rate on the Company's
own funds when so used, determined in accordance with PSC and
FERC regulations. The AFDC rate was 9.1 percent in 1995, 9.4
percent in 1994 and 9.5 percent in 1993. 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 on the
straight-line method for financial statement purposes using rates
based on average lives and net salvage factors, with the
exception of the Indian Point 2 nuclear unit, the Company's share
of the Roseton generating station, certain leaseholds and
certain general equipment, which are depreciated on a remaining
life amortization method. Depreciation rates averaged
approximately 3.3 percent in 1995, 3.2 percent in 1994 and 3.1
percent in 1993. Depreciation expense includes the amortization
of certain deferred charges authorized by the PSC.
The Company is a joint owner of two 1,200-megawatt electric
generating stations: (1) Bowline Point, operated by Orange and
Rockland Utilities, Inc. with the Company owning a two-thirds
interest and (2) Roseton, operated by Central Hudson Gas &
Electric Corp. with the Company owning a 40 percent interest.
Central Hudson has the option to acquire the Company's interest
in the Roseton station in 2004. The Company's share of the
investment in these stations at original cost and as included in
its balance sheet at December 31, 1995 and 1994 was:
- ----------------------------------------------------------------
(Thousands of Dollars) 1995 1994
- ----------------------------------------------------------------
Bowline Point: Plant in service $203,360 $196,065
Construction work in progress 2,340 10,351
Roseton: Plant in service 145,207 141,487
Construction work in progress 2,089 4,283
- -----------------------------------------------------------------
The Company's share of accumulated depreciation for the
Roseton station at December 31, 1995 and 1994 was $64.8 million
and $61.6 million, respectively. A separate depreciation account
is not maintained for the Company's share of the Bowline Point
station. The Company's share of operating expenses for these
stations is included in its income statement.
<PAGE>
<PAGE> - 10 -
Nuclear Decommissioning. Depreciation charges include a
provision for decommissioning both the Indian Point 2 and the
retired Indian Point 1 nuclear units. Decommissioning costs are
being accrued ratably over the Indian Point 2 license period
which extends to the year 2013. The Company has been accruing for
the costs of decommissioning within the internal depreciation
reserve since 1975. In 1989 the PSC permitted the Company to
establish an external trust fund for the costs of decommissioning
the nuclear portions of the plants pursuant to NRC regulations.
Accordingly, beginning in 1989 the Company has made contributions
to such a trust. The external trust fund is discussed below under
"Investments" in this Note A.
Accumulated decommissioning provisions at December 31, 1995
and 1994, which include earnings on funds externally invested,
were as follows:
- ----------------------------------------------------------------
Amounts Included in
Accumulated Depreciation
------------------------
(Millions of Dollars) 1995 1994
- -----------------------------------------------------------------
Nuclear $134.4 $102.2
Non-Nuclear 55.3 53.7
---------------------------
Total $189.7 $155.9
- -----------------------------------------------------------------
Prior to April 1995 the Company was providing annual expense
allowances of $11.7 million and $3.1 million, respectively, for
decommissioning the nuclear and non-nuclear portions of the
plants. These amounts, which were recovered from customers
through billings, were approved by the PSC in the 1992 electric
rate agreement, and were designed to fund decommissioning costs
which had been estimated at approximately $300 million in 1993
dollars. In 1994 a site-specific decommissioning study was
prepared for both the Indian Point 2 and the retired Indian Point
1 nuclear units. Based upon this study, the estimated
decommissioning cost in 1993 dollars is approximately $657
million, of which $252 million is for extended on-site storage of
spent nuclear fuel. Using a 3.25 percent annual escalation
factor, the estimated cost in 2016, the assumed midpoint for
decommissioning expenditures, is approximately $1,372 million.
Under the 1995 electric rate agreement, effective April 1995, the
Company revised the annual decommissioning expense allowance for
the nuclear and non-nuclear portions of the plants to $21.3
million and $1.8 million, respectively, to fund the future
estimated costs of decommissioning. The annual expense allowance
assumes a 6 percent after-tax annual return on fund assets.
<PAGE>
<PAGE> - 11 -
The Financial Accounting Standards Board (FASB) is currently
reviewing the utility industry's accounting treatment of nuclear
and certain other plant decommissioning costs. The FASB has
preliminarily concluded that decommissioning costs should be
accounted for at present value as a liability, with a
corresponding asset in utility plant, rather than as a component
of depreciation. An exposure draft regarding this matter was
issued in February 1996.
Nuclear Fuel. Nuclear fuel assemblies and components are
amortized to operating expenses based on the quantity of heat
produced for the generation of electricity. Fuel costs also
include a provision for payments to the U.S. Department of Energy
for the future off-site storage of the spent fuel, based on the
kilowatt-hours of electricity generated. Nuclear fuel costs are
recovered in revenues through base rates or through the fuel
adjustment clause.
Leases. In accordance with SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," those leases that meet
the criteria for capitalization are capitalized for accounting
purposes. For rate-making purposes, all leases have been treated
as operating leases.
Revenues. Revenues for electric and steam service are recognized
on a monthly billing cycle basis. Pursuant to the three-year
electric rate agreements, effective April 1, 1992 and 1995,
actual electric net revenues (operating revenues less fuel and
purchased power costs and revenue taxes) are adjusted by accrual
to target levels established under the agreements in accordance
with the electric revenue adjustment mechanism (ERAM). The 1995
agreement introduced the revenue per customer mechanism (RPC)
which modified the ERAM. Under the RPC, revenues are increased
(or decreased) to reflect variations from target levels in the
numbers of customers in the various service classes. Revenues are
also increased (or decreased) each month to reflect incentives
(or penalties) earned for the Enlightened Energy program and for
customer service activities. The agreements provide that the net
regulatory asset (or liability) thus accrued in each rate year is
to be reflected in customers' bills in the following rate year.
The October 1994 gas rate agreement provides for revenues to
be increased (or decreased) each month to reflect incentives (or
penalties) earned for meeting gas customer service and system
improvement targets.
<PAGE>
<PAGE> - 12 -
In accordance with a PSC rate order, the Company began phasing
in recognition of unbilled gas revenues over a 4 1/4 year period
effective October 1989. Pursuant to the gas rate decision in
October 1991, this recognition of unbilled gas revenues was
modified so as to be fully phased in by September 30, 1994 to the
extent provided in rates.
Revenues from the fuel adjustment clauses are not recorded
until billed.
Recoverable Fuel Costs. Fuel and purchased power 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 (40 days for
electric, 30 days for steam). For gas, the excess or deficiency
is accumulated for refund or surcharge to customers on an annual
basis.
Effective April 1992 a partial pass-through fuel adjustment
clause (PPFAC) was implemented with monthly targets for electric
fuel and purchased power costs. The Company retains for
stockholders 30 percent of any savings in actual costs below the
target amount, but must bear 30 percent of any excess of actual
costs over the target. For each rate year of the 1995 electric
rate agreement there is a $35 million cap on the maximum increase
or decrease in fuel billings, with a limit (within the $35
million) of $10 million for costs associated with generation at
the Company's Indian Point 2 nuclear unit.
The PSC has allowed the Company to recover in rates certain
deferred recoverable fuel costs that were affected by shortening
the billing lag period or changing the cost of fuel in base
rates. If there were any further such revisions, the Company
believes that deferred recoverable fuel costs affected thereby
would be recovered.
<PAGE>
<PAGE> - 13 -
Regulatory Accounts Receivable. Regulatory accounts receivable
at December 31, 1995 amounted to a net credit to be refunded to
customers of $6.5 million, reflecting accruals under the 1992 and
1995 electric rate agreements and 1994 gas rate agreement for
incentives related to the Company's Enlightened Energy program
($19.7 million), for incentives related to electric customer
service activities ($4.0 million), for the amounts to be billed
under the PPFAC ($1.9 million), for incentives related to gas
system improvement ($4.6 million), for incentives related to gas
customer service ($1.0 million) and for net electric sales
revenues in accordance with the ERAM and Modified ERAM (a refund
of $37.7 million). The revenues accrued in a given twelve-month
period under the ERAM and Modified ERAM and for incentives
related to the Enlightened Energy program, electric customer
service activities and the Company's gas business are being
recovered from or refunded to customers over an ensuing
twelve-month period. The amounts accrued under the PPFAC are
billed to customers on a monthly basis through the electric fuel
adjustment clause.
Enlightened Energy Program Costs. In accordance with PSC
directives, the Company defers the costs for its Enlightened
Energy (demand side management) program for future recovery from
ratepayers. Such deferrals amounted to $144.3 million at December
31, 1995 and $170.2 million at December 31, 1994. In accordance
with the 1992 and 1995 electric rate agreements, the Company is
generally recovering its Enlightened Energy program costs over a
five-year period.
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. The Company considers temporary cash
investments to be cash equivalents.
Investments. Investments consist primarily of an external
nuclear decommissioning trust fund. At December 31, 1995 and 1994
the trust fund amounted to $134.4 million and $102.2 million,
respectively. Investments are stated at market. Earnings on the
trust fund are not recognized in income but are included in the
accumulated depreciation reserve. See "Nuclear Decommissioning"
in this Note A.
Federal Income Tax. The Company provides for deferred federal
income taxes with respect to certain benefits realized from
depreciation deductions utilized for tax purposes, deferred fuel
accounting, unbilled revenues (electricity, gas and steam)
included in taxable income, deferrals arising from the rate
agreements, and certain other specific items, when approved by
the PSC.
<PAGE>
<PAGE> - 14 -
For rate-making purposes, accumulated deferred federal
income taxes previously collected from customers are deducted
from rate base and amortized or otherwise applied as a reduction
in federal income tax expense in future years. 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.
In accordance with SFAS 109, "Accounting for Income Taxes,"
the Company is required to record a deferred income tax liability
for substantially all temporary differences between book and tax
bases of assets and liabilities at current tax rates, including
differences for which deferred taxes have not previously been
provided. For regulated enterprises, a regulatory asset is
recognized for the latter if the criteria of SFAS 71 are met,
that is, it is probable that future revenues will be allowed
sufficient in amount to recover the costs for which deferred
taxes have not previously been provided. The regulatory asset,
stated at the revenue requirement level, amounted to $1,042.3
million and $1,106.0 million at December 31, 1995 and 1994,
respectively. These amounts which are included in accumulated
deferred federal income tax (see Note H), are not reflected in
rate base for rate-making purposes. In 1993 the PSC
issued an interim policy statement proposing accounting
procedures consistent with SFAS 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.
The Company 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 1995, 1994 and 1993, amounting
to $45.0 million, $46.8 million and $48.0 million, respectively,
were charged to operating expenses. No research and development
costs were capitalized in these years.
Estimates. The accompanying consolidated financial statements
reflect judgments and estimates made in the application of the
above accounting policies.
<PAGE>
<PAGE> - 15 -
- --------------------------------------------------------------
Note B Capitalization
- --------------------------------------------------------------
Common Stock and Preferred Stock Not Subject to Mandatory
Redemption. Each share of Series B preference stock is
convertible into 13 shares of common stock at a conversion price
of $7.69 per share. During 1995, 1994 and 1993, 3,928 shares,
4,176 shares and 5,208 shares of Series B preference stock were
converted into 51,064 shares, 54,288 shares and 67,704 shares of
common stock, respectively.
At December 31, 1995, 639,262 shares of unissued common
stock were reserved for conversion of preference stock. The
preference stock is subordinate to the $5 Cumulative Preferred
Stock and Cumulative Preferred Stock with respect to dividends
and liquidation rights.
Redemption prices of preferred stock other than Series I and
Series J (in each case, plus accrued dividends) are as follows:
- ----------------------------------------------------------------
$5 Cumulative Preferred Stock $105.00
- ----------------------------------------------------------------
Cumulative Preferred Stock:
Series A $102.00
Series B 102.00
Series C 101.00
Series D 101.00
Series E 101.00
Series F 102.50
- -----------------------------------------------------------------
Cumulative Preference Stock:
6% Convertible Series B $100.00
- -----------------------------------------------------------------
Preferred Stock Subject to Mandatory Redemption. The Company is
required to redeem 25,000 of the Series I shares on May 1 of each
year in the five-year period commencing with the year 2002 and to
redeem the remaining Series I shares on May 1, 2007. The Company
is required to redeem the Series J shares on August 1, 2002. In
each case, the redemption price is $100 per share plus accrued
and unpaid dividends to the redemption date. In addition, the
Company may redeem Series I shares at a redemption price of
$105.04 per share, plus accrued dividends, if redeemed prior to
May 1, 1996 (and thereafter at prices declining annually to $100
per share, plus accrued dividends, after April 30, 2002);
provided, however, that prior to May 1, 1997, the Company may not
redeem any Series I shares with borrowed funds or proceeds from
certain securities issuances having a cost to the Company of less
than 7.20 percent per annum.
<PAGE>
<PAGE> - 16 -
Neither Series I nor Series J shares may be called for
redemption while dividends are in arrears on outstanding shares
of $5 Cumulative Preferred Stock or Cumulative Preferred Stock.
Nevertheless, the mandatory redemption obligation of the Company
with respect to such shares is cumulative and if the redemption
requirement is in arrears the Company may not purchase or redeem
or pay any dividends on the common stock or any other stock
ranking junior as to dividends or assets to the Cumulative
Preferred Stock, except for payments or distributions in common
stock or such junior stock.
Preferred Stock Refunding. In January 1996 the Company commenced
a tender offer for all of its preferred stock except for the
Series E and F and the 6% convertible Series B. On February 27,
1996 the tender offer expired (except as to the $5 Cumulative
Preferred for which the offer had been terminated) and the
Company's Board of Trustees authorized the redemption of the
Series E and F. Pursuant to the tender offer, approximately $227
million of preferred stock was tendered. The Company intends to
fund the purchase and the redemption by issuing subordinated
debentures.
Long-Term Debt. Total long-term debt maturing in the period
1996-2000 is as follows:
- ----------------------------------------
1996 $183,524,000
1997 106,256,000
1998 200,000,000
1999 225,000,000
2000 275,000,000
- ----------------------------------------
Substantially all properties and franchises of the Company,
other than expressly excepted property, are subject to the liens
securing the Company's First and Refunding Mortgage Bonds and the
mortgage bonds of acquired companies.
- -----------------------------------------------------------------
Note C Lines of Credit
- -----------------------------------------------------------------
The Company has bank lines of credit for 1996 amounting to $150
million. The credit lines require average compensating balances
of 2.5 percent of the credit lines, with interest on any
borrowings to be at prevailing market rates. There are no legal
restrictions applicable to the Company's cash balances resulting
from its obligation to maintain compensating balances.
<PAGE>
<PAGE> - 17 -
- ----------------------------------------------------------------
Note D Pension Plans
- ----------------------------------------------------------------
The pension plans for management and bargaining unit employees
cover substantially all employees of the Company and are designed
to comply with the Employee Retirement Income Security Act of
1974 (ERISA). Contributions are made solely by the Company based
on an actuarial valuation, and are not less than the minimum
amount required by ERISA. The Company's policy is to fund the
actuarially computed net pension cost as such cost accrues.
Benefits for management and bargaining unit employees are
generally based on a final five-year average pay formula.
In accordance with SFAS 87, "Employers' Accounting for
Pensions," the Company uses the projected unit credit method for
determining pension cost. Pension costs for 1995, 1994 and 1993
amounted to $11.4 million, $38.7 million and $46.8 million,
respectively, of which $8.9 million for 1995, $30.3 million for
1994 and $37.1 million for 1993 was charged to operating expense.
In accordance with SFAS 88, "Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," as modified by SFAS 71, pension cost
for 1993 included $4.4 million in connection with the special
retirement program discussed below. Pension cost for 1995
includes $2.2 million for the amortization of the special
retirement program regulatory asset also discussed below, and an
actuarially determined credit of $7.3 million representing a
prepayment on one of the plans.
Effective January 1, 1993 the Company adopted the PSC's
"Statement of Policy and Order Concerning the Accounting and
Ratemaking Treatment for Pensions and Postretirement Benefits
Other Than Pensions" (the PSC Policy). The PSC Policy requires
certain departures from SFAS 87, including actuarial recognition
of investment gains and losses over five years and a 10-year
period for amortization of recognized actuarial gains and losses.
The Company offered a special retirement program in 1993
providing enhanced pension benefits for those employees who met
certain eligibility requirements and retired within specific time
limits. The incentives offered by the Company fall within the
category of special termination benefits as described in SFAS 88.
The increase in pension obligations as a result of this program
amounted to $33.3 million. In accordance with SFAS 71, the
Company charged the equivalent of the first two years of the
amortization ($4.4 million) to pension expense in 1993 and
established a liability and offsetting regulatory asset for the
$28.9 million allocable to future periods. Under an agreement
with the PSC, the Company is amortizing the remaining liability
over a 13-year period. This is reflected in current rates.
<PAGE>
<PAGE> - 18 -
The components of net periodic pension cost for 1995, 1994
and 1993 were as follows:
- -----------------------------------------------------------------
(Millions of Dollars) 1995 1994 1993
- -----------------------------------------------------------------
Service cost--benefits earned
during the period $ 98.2 $ 103.9 $ 103.2
Interest cost on projected
benefit obligation 296.7 278.2 252.7
Actual return on plan assets (865.8) (3.4) (500.0)
Unrecognized investment
gain (loss) deferred 521.6 (322.6) 201.5
Net amortization (41.5) (17.4) (15.0)
----------------------------------
Net periodic pension cost 9.2* 38.7 42.4
----------------------------------
Special retirement program cost -- -- 33.3
Decrease (increase) in
regulatory asset 2.2 -- (28.9)
---------------------------------
Net special retirement program
cost 2.2 -- 4.4
---------------------------------
Total pension cost $ 11.4 $ 38.7 $ 46.8
- -----------------------------------------------------------------
* Includes a prepayment credit of $7.3 million.
<PAGE>
<PAGE> - 19 -
The funded status of the pension plans as of December 31,
1995, 1994 and 1993 was as follows:
- -----------------------------------------------------------------
(Millions of Dollars) 1995 1994 1993
- -----------------------------------------------------------------
Actuarial present value of
benefit obligation:
Vested $3,319.2 $2,813.0 $2,731.9
Nonvested 267.9 189.6 212.6
-----------------------------------
Accumulated to date 3,587.1 3,002.6 2,944.5
Effect of projected future
compensation levels 1,070.3 786.0 841.5
----------------------------------
Total projected obligation 4,657.4 3,788.6 3,786.0
Plan assets at fair value 4,775.8 4,046.7 4,154.3
----------------------------------
Plan assets less projected
benefit obligation 118.4 258.1 368.3
Unrecognized net gain (240.3) (401.1) (522.9)
Unrecognized prior service cost* 85.3 93.9 102.5
Unrecognized net transition
liability at January 1, 1987* 17.2 20.2 23.2
---------------------------------
Accrued pension cost** $ (19.4) $ (28.9 ) $ (28.9)
- -----------------------------------------------------------------
* Being amortized over approximately 15 years.
** Accrued liability for special retirement program less
prepayment credit in 1995.
To determine the present value of the projected benefit
obligation in 1995, 1994 and 1993, discount rates of 7 percent,
8 percent and 7.5 percent, respectively, were assumed. A weighted
average rate of increase in future compensation levels of 5.8
percent and a long-term rate of return on plan assets of 8.5
percent were assumed for all years.
The pension plan assets consist primarily of corporate
common stock and bonds, group annuity contracts and debt of the
United States government and its agencies.
<PAGE>
<PAGE> - 20 -
- -----------------------------------------------------------------
Note E Postretirement Benefits Other Than Pensions (OPEB)
- -----------------------------------------------------------------
The Company has a contributory comprehensive hospital, medical
and prescription drug program for all retirees, their dependents
and surviving spouses. The Company also provides life insurance
benefits for approximately 6,400 retired employees. All of the
Company's employees become eligible for these benefits upon
retirement except that the amount of life insurance is limited
and is available only to management employees and to those
bargaining unit employees who participated in the optional
program prior to retirement. The Company has reserved the right
to amend or terminate these programs.
The Company adopted the provisions of SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions",
effective January 1, 1993. It contains specific rules for
determining the cost of postretirement health and life insurance
benefits. These rules require accrual of the obligation for
previously unrecognized retiree benefit cost over a shorter
period than previous methods.
The Company's policy is to fund in external trusts the
actuarially determined annual costs for retiree health and life
insurance subject to statutory maximum (and minimum) limits. Rate
allowances that are not funded to an external trust accrue
interest at the pre-tax rate of return. As of December 31, 1993
the Company had accrued $6.9 million in interest on an unfunded
liability of $28.5 million. In 1994 the Company funded both
amounts in addition to $0.9 million of interest accrued in 1994.
The retiree health and life insurance expense for 1995, 1994
and 1993 was determined in accordance with the PSC Policy (see
Note D) which requires the Company to defer the difference
between the rate allowance for OPEB expense and the OPEB expense
determined in accordance with SFAS 106, amortize the transition
obligation over 20 years and recognize all gains and losses over
a 10-year period in determining the SFAS 106 expense. Current
electric, gas and steam rates reflect the increase in expense
resulting from the adoption of SFAS 106.
<PAGE>
<PAGE> - 21 -
The cost to the Company for retiree health benefits for
1995, 1994 and 1993 amounted to $65.5 million, $67.1 million and
$66.3 million, respectively, of which $51.6 million for 1995,
$52.7 million for 1994 and $52.5 million for 1993 was charged to
operating expense. The cost of the retiree life insurance plan
for 1995, 1994 and 1993 amounted to $18.0 million, $21.6 million
and $22.3 million, respectively, of which $14.2 million for 1995,
$17.0 million for 1994 and $17.7 million for 1993 was charged to
operating expense.
The components of postretirement benefit (health and life
insurance) costs for years 1995, 1994 and 1993 were as follows:
- ----------------------------------------------------------------
(Millions of Dollars) 1995 1994 1993
- ----------------------------------------------------------------
Service cost--benefits earned
during the period $ 10.7 $11.5 $11.1
Interest cost on accumulated
postretirement benefit
obligation 61.2 56.9 52.2
Actual return on plan assets (60.8) (8.4) (8.5)
Unrecognized investment gain
(loss) deferred 40.4 (5.7) 2.9
Amortization of transition
obligation and unrecognized
net loss 32.0 34.4 30.9
---------------------------------
Net periodic postretirement
benefit cost $ 83.5 $88.7 $88.6
- -----------------------------------------------------------------
<PAGE>
<PAGE> - 22 -
The following table sets forth the program's funded status
at December 31, 1995, 1994 and 1993:
- ----------------------------------------------------------------
(Millions of Dollars) 1995 1994 1993
- -----------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ 447.7 $ 413.9 $ 413.2
Employees eligible to retire 250.7 167.2 144.2
Employees not eligible to
retire 305.6 204.5 221.5
-----------------------------------
Total projected obligation 1,004.0 785.6 778.9
Plan assets at fair value 322.2 219.1 130.8
-----------------------------------
Plan assets less accumulated
postretirement benefit
obligation (681.8) (566.5) (648.1)
Unrecognized net loss 240.8 11.1 33.4
Unrecognized net transition
liability at January 1, 1993* 441.0 555.4 586.2
----------------------------------
Accrued postretirement
benefit cost $ 0 $ 0 $ (28.5)
- -----------------------------------------------------------------
* Being amortized over a period of 20 years.
To determine the accumulated postretirement benefit
obligation in 1995, 1994 and 1993, discount rates of 7 percent, 8
percent and 7.5 percent, respectively, were assumed. The assumed
long-term rate of return on plan assets was 8.5 percent for these
years. The health cost trend rate assumed for year 1995 was 10
percent, for the year 1996, 9 percent, and then declining
one-half percent per year to 5 percent for year 2004 and
thereafter. If the assumed health care cost trend rate were to be
increased by one percentage point each year, the accumulated
postretirement benefit obligation would increase by approximately
$130.9 million and the service cost and interest component of the
net periodic postretirement benefit cost would increase by $9.8
million.
Postretirement plan assets consist of corporate common
stock and bonds, group annuity contracts, debt of the United
States government and its agencies and short-term securities.
<PAGE>
<PAGE> - 23 -
- ----------------------------------------------------------------
Note F Contingencies
- ----------------------------------------------------------------
Indian Point. Nuclear generating units similar in design to the
Company's Indian Point 2 unit have experienced problems of
varying severity in their steam generators, which in a number of
instances have required steam generator replacement. Inspections
of the Indian Point 2 steam generators since 1976 have revealed
various problems, some of which appear to have been arrested, but
the remaining service life of the steam generators is uncertain
and may be shorter than the unit's life. 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, the Company estimates
that steam generator replacement will not be required before
1999, and possibly not until some years later. To avoid
procurement delays in the event replacement is necessary, the
Company purchased replacement steam generators, which are stored
at the site. If replacement of the steam generators is required,
such replacement is presently estimated (in 1995 dollars) to
require additional expenditures of approximately $107 million
(exclusive of replacement power costs) and an outage of
approximately six 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 the Company'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, 1995 the highest
amount which could be assessed for losses during the current
policy year under all of the policies was $31.5 million. While
assessments may also be made for losses in certain prior years,
the Company is not aware of any losses in such years which it
believes are likely to result in an assessment.
Under certain circumstances, in the event of nuclear
incidents at facilities covered by the federal government's
third-party liability indemnification program, the Company could
be assessed up to $79.3 million per incident of which not more
than $10 million may be assessed in any one year. The
per-incident limit is to be adjusted for inflation not later than
1998 and not less than once every five years thereafter.
The Company participates in an insurance program covering
liabilities for injuries to certain workers in the nuclear power
industry. In the event of such injuries, the Company is subject
to assessment up to an estimated maximum of approximately $3.1
million.
<PAGE>
<PAGE> - 24 -
Environmental Matters. The normal course of the Company's
operations necessarily involves activities and substances that
expose the Company to potential liabilities under federal, state
and local laws protecting the environment. Such liabilities can
be material and in some instances may be imposed without regard
to fault, or may be imposed for past acts, even though such past
acts may have been lawful at the time they occurred. Sources of
such potential liabilities include (but are not limited to) the
Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund), a 1994 settlement with the New
York State Department of Environmental Conservation (DEC),
asbestos, and electric and magnetic fields (EMF).
Superfund. By its terms, Superfund imposes joint and several
strict liability, regardless of fault, upon generators of
hazardous substances for resulting removal and remedial costs and
environmental damages. The Company has received process or notice
concerning possible claims under Superfund or similar state
statutes relating to a number of sites at which it is alleged
that hazardous substances generated by the Company (and, in most
instances, a large number of other potentially responsible
parties) were deposited.
Estimates of the investigative, removal, remedial and
environmental damage costs (if any) the Company will be obligated
to pay with respect to each of these sites range from extremely
preliminary to highly refined. Based on these estimates, the
Company had accrued a liability at December 31, 1995 of
approximately $14.7 million. However, it is possible that
material additional costs in amounts not presently determinable
may be incurred with respect to these and other sites.
DEC Settlement. In November 1994 the Company agreed to a consent
order settling a civil administrative proceeding instituted by
the DEC in 1992, alleging environmental violations by the
Company. Pursuant to the consent order, the Company has conducted
an environmental management systems evaluation and is conducting
an environmental compliance audit. The Company also must
implement "best management practices" plans for certain
facilities and undertake a remediation program at certain sites.
At December 31, 1995 the Company had an accrued liability of
$19.3 million for these sites. Expenditures for
environment-related projects in the five years 1996-2000,
including expenditures to comply with the consent order, are
currently estimated at $155 million. There will be additional
costs, including costs arising out of the compliance audit, the
materiality of which is not presently determinable.
<PAGE>
<PAGE> - 25 -
Asbestos Claims. Suits have been brought in New York State and
federal courts against the Company and many other defendants,
wherein several thousand plaintiffs sought large amounts of
compensatory and punitive damages for deaths and injuries
allegedly caused by exposure to asbestos at various premises of
the Company. Many of these suits have been disposed of without
any payment by the Company, or for immaterial amounts. The
amounts specified in all the remaining suits total billions of
dollars but the Company believes that these amounts are greatly
exaggerated, as were the claims already disposed of. Based on the
information and relevant circumstances known to the Company at
this time, it is the opinion of the Company that these suits will
not have a material adverse effect on the Company's financial
position.
EMF. Electric and magnetic fields are found wherever electricity
is used. Several scientific studies have raised concerns that EMF
surrounding electric equipment and wires, including power lines,
may present health risks. The Company is the defendant in several
suits claiming property damage or personal injury allegedly
resulting from EMF. In the event that a causal relationship
between EMF and adverse health effects is established, or
independently of any such causal determination, in the event of
adverse developments in related legal or public policy doctrines,
there could be a material adverse effect on the electric utility
industry, including the Company.
- -----------------------------------------------------------------
Note G Independent Power Producers (IPPs)
- -----------------------------------------------------------------
The Company has contracts with IPPs for 1,798 MW of electric
generating capacity already in commercial operation, and
commitments for 186 MW of capacity expected to commence operation
in 1996 and about 70 MW of capacity expected to commence
operation after 1996. Under the three-year electric rate
agreement effective April 1, 1995, payments by the Company under
these contracts are reflected in rates. Assuming performance by
the IPPs, the Company is obligated over the terms of these
contracts (which extend for various periods, up to 2034) to make
capacity and other fixed (non-energy) payments. In addition, for
energy delivered under certain of these contracts, the Company is
obligated to pay variable prices that will exceed market prices
for energy.
For the 1,798 MW of capacity in commercial operation,
capacity and other fixed (non-energy) payments are estimated for
the years 1996-2000 to be $282 million, $287 million, $293
million, $309 million and $432 million. Such payments gradually
increase to approximately $500 million in 2013, and thereafter
decline significantly.
<PAGE>
<PAGE> - 26 -
Energy payments under the contracts for the years 1996-1999
(assuming performance by the IPPs) will exceed market prices by
an average estimated $200 million each year. Beginning in the
year 2000, the prices that the Company will be obligated to pay
for energy will approximate market levels.
- -----------------------------------------------------------------
Note H Federal Income Tax
- -----------------------------------------------------------------
In the case of regulated utilities, SFAS 109 requires recognition
in the balance sheet of the revenue requirements to meet the
costs of future federal income taxes for temporary differences
for which deferred taxes had not previously been provided. The
net revenue requirements related to future federal income taxes
at December 31, 1995 and 1994 are shown on the following table.
- -----------------------------------------------------------------
(Millions of Dollars) 1995 1994
- -----------------------------------------------------------------
Future federal income tax liability
Temporary differences between the book
and tax bases of assets and liabilities:
Property related $5,513.3 $5,389.1
Reserve for injuries and damages (49.2) (43.9)
Other 54.5 24.4
----------------------
Total 5,518.6 5,369.6
----------------------
Future federal income tax computed
at statutory rate - 35% 1,931.5 1,879.4
Less: Accumulated deferred federal income
taxes previously provided 1,254.0 1,160.5
--------------------
Net future federal income tax expense for
which deferred taxes have not been provided 677.5 718.9
-------------------
Net revenue requirements for above
(Regulatory asset--future federal
income taxes)* 1,042.3 1,106.0
Add: Accumulated deferred federal
income taxes previously provided 1,254.0 1,160.5
-------------------
Total accumulated deferred
federal income tax $2,296.3 $2,266.5
- -----------------------------------------------------------------
* Net revenue requirements will be offset by the amortization to
federal income tax expense of accumulated deferred investment tax
credits. Including the full effect therefrom, the net revenue
requirements related to future federal income taxes at December
31, 1995 and 1994 are $860.8 million and $914.5 million,
respectively.
<PAGE>
<PAGE> - 27 -
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Note H Federal Income Tax, continued
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31 (Thousands of Dollars) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Charged to: Operations $ 396,560 $ 438,160 $ 366,020
Other income 1,060 430 (1,010)
- ------------------------------------------------------------------------------------------------------------------
Total federal income tax 397,620 438,590 365,010
- ------------------------------------------------------------------------------------------------------------------
Reconciliation of reported net income with taxable income
Federal income tax--current 328,600 374,500 270,800
Federal income tax--deferred 78,330 73,710 106,470
Investment tax credits deferred (9,310) (9,620) (12,260)
- ------------------------------------------------------------------------------------------------------------------
Total federal income tax 397,620 438,590 365,010
Net income 723,850 734,270 658,522
- ------------------------------------------------------------------------------------------------------------------
Income before federal income tax 1,121,470 1,172,860 1,023,532
- ------------------------------------------------------------------------------------------------------------------
Effective federal income tax rate 35.5% 37.4% 35.7%
- ------------------------------------------------------------------------------------------------------------------
Adjustments decreasing (increasing) taxable income
Tax depreciation in excess of book depreciation:
Amounts subject to normalization 202,230 218,181 226,442
Other (85,538) (94,813) (90,428)
Deferred recoverable fuel costs 61,937 (20,132) (3,873)
Regulatory accounts receivable (32,827) (70,771) (70,814)
Enlightened Energy program costs (25,880) 29,677 59,297
Advance refunding of long-term debt (4,268) (6,814) 86,346
Other--net 34,240 44,263 34,155
- ------------------------------------------------------------------------------------------------------------------
Total 149,894 99,591 241,125
- ------------------------------------------------------------------------------------------------------------------
Taxable income 971,576 1,073,269 782,407
- ------------------------------------------------------------------------------------------------------------------
Federal income tax--current
Amount computed at statutory rate--35%* 340,052 375,644 273,842
Tax credits (11,452) (1,144) (3,042)
- ------------------------------------------------------------------------------------------------------------------
Total 328,600 374,500 270,800
- ------------------------------------------------------------------------------------------------------------------
Charged to: Operations 328,200 374,160 271,140
Other income 400 340 (340)
- ------------------------------------------------------------------------------------------------------------------
Total 328,600 374,500 270,800
- ------------------------------------------------------------------------------------------------------------------
Federal income tax--deferred
Provisions for deferred federal income taxes consist of the
following tax effects of timing differences between tax
and book income:
Tax depreciation in excess of book depreciation 66,133 72,597 76,193
Deferred recoverable fuel costs 21,678 (7,046) (1,356)
Regulatory accounts receivable (11,489) (24,770) (24,785)
Enlightened Energy program costs (9,058) 10,387 20,754
Advance refunding of long-term debt (1,494) (2,385) 30,221
Other--net 12,560 24,927 5,443
- ------------------------------------------------------------------------------------------------------------------
Total 78,330 73,710 106,470
- ------------------------------------------------------------------------------------------------------------------
Charged to: Operations 77,670 73,620 107,140
Other income 660 90 (670)
- ------------------------------------------------------------------------------------------------------------------
Total $ 78,330 $ 73,710 $ 106,470
- ------------------------------------------------------------------------------------------------------------------
* Under rate agreements, the effect of the increase in the statutory rate from 34% to 35% effective January 1, 1993
was deferred until such effect could next be reflected in rates. The deferrals applicable to gas and steam operations
were amortized over a twelve-month period which began October 1, 1993 when new rates became effective. For electric
operations, deferrals for the year 1993 and the first three months of 1994 were amortized over a twelve-month period
which began April 1, 1994 when new electric rates became effective.
</TABLE>
<PAGE>
<PAGE> - 28 -
- --------------------------------------------------------------------------------
Note I Financial Information by Business Segments(a) (Thousands of Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Electric Steam
---------------------------------------- -----------------------------------------
1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues* $5,401,524 $5,152,351 $5,145,010 $ 335,694 $ 343,916 $ 326,888
- -------------------------------------------------------------------------------- -----------------------------------------
Operating expenses
Fuel 354,086 410,173 446,578 150,018 157,591 158,635
Purchased power 1,107,223 787,455 812,616 -- -- --
Other operations and maintenance* 1,372,715 1,372,865 1,403,022 79,929 80,035 78,787
Depreciation and amortization 393,382 364,988 350,590 13,064 10,961 9,909
Taxes, other than federal income 951,095 955,850 994,174 45,788 46,178 46,090
Federal income tax 339,863 379,584 322,076 12,598 11,577 4,966
- -------------------------------------------------------------------------------- -----------------------------------------
Total operating expenses* 4,518,364 4,270,915 4,329,056 301,397 306,342 298,387
- -------------------------------------------------------------------------------- -----------------------------------------
Operating income 883,160 881,436 815,954 34,297 37,574 28,501
- -------------------------------------------------------------------------------- -----------------------------------------
Construction expenditures 538,454 587,189 626,494 27,559 44,957 36,612
- -------------------------------------------------------------------------------- -----------------------------------------
Net utility plant** 9,027,031 8,874,341 8,592,187 399,028 378,748 337,713
Fuel 40,444 50,821 53,681 62 62 74
Other identifiable assets 1,724,005 1,899,182 1,970,998 51,969 48,141 50,555
- -------------------------------------------------------------------------------- -----------------------------------------
*Intersegment rentals included in segments' income but eliminated for total Company
Operating revenues $12,116 $11,879 $13,345 $ 1,561 $ 1,409 $ 1,548
Operating expenses 2,513 2,331 2,726 13,102 12,733 14,139
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION> Gas Total Company
---------------------------------------- -----------------------------------------
1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------- -----------------------------------------
Operating revenues* $ 815,307 $ 891,897 $ 810,377 $ 6,536,897 $ 6,373,086 $ 6,265,394
- -------------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses
Fuel -- -- -- 504,104 567,764 605,213
Purchased power -- -- -- 1,107,223 787,455 812,616
Gas purchased for resale 259,789 341,204 289,708 259,789 341,204 289,708
Other operations and maintenance* 214,818 214,451 212,832 1,651,834 1,652,273 1,677,760
Depreciation and amortization 49,330 46,407 43,231 455,776 422,356 403,730
Taxes, other than federal income 123,349 125,663 119,019 1,120,232 1,127,691 1,159,283
Federal income tax 44,099 46,999 38,978 396,560 438,160 366,020
- -------------------------------------------------------------------------------- -----------------------------------------
Total operating expenses* 691,385 774,724 703,768 5,495,518 5,336,903 5,314,330
- -------------------------------------------------------------------------------- -----------------------------------------
Operating income 123,922 117,173 106,609 1,041,379 1,036,183 951,064
- -------------------------------------------------------------------------------- -----------------------------------------
Construction expenditures 126,790 125,384 125,962 692,803 757,530 789,068
- -------------------------------------------------------------------------------- -----------------------------------------
Net utility plant** 1,388,344 1,308,119 1,226,256 10,814,403 10,561,208 10,156,156
Fuel and gas in storage 26,452 50,698 49,091 66,958 101,581 102,846
Other identifiable assets 177,374 151,628 172,790 1,953,348 2,098,951 2,194,343
Other corporate assets 1,115,181 966,624 804,020
- -------------------------------------------------------------------------------- -----------------------------------------
Total assets $13,949,890 $13,728,364 $13,257,365
- -------------------------------------------------------------------------------- -----------------------------------------
*Intersegment rentals included in segments' income but eliminated for total Company
Operating revenues $ 1,951 $ 1,790 $ 1,988 $15,628 $15,078 $16,881
Operating expenses 13 14 16 15,628 15,078 16,881
</TABLE>
** General Utility Plant was allocated to Electric and Gas on the basis of the
departmental use of such plant. Pursuant to PSC requirements the Steam
department is charged an interdepartmental rent for General Plant used in
Steam operations which is credited to the Electric and Gas departments.
- --------------------------------------------------------------------------------
(a) The Company supplies electric service in all of New York City (except part
of Queens) and most of Westchester County. It also supplies gas in
Manhattan, The Bronx and parts of Queens and Westchester, and steam in
part of Manhattan.
<PAGE>
<PAGE>
Report of Independent Accountants
To the Board of Trustees and Stockholders of
Consolidated Edison Company of New York, Inc.
In our opinion, the consolidated financial statements included in
Exhibit 99.1 of this Current Report on Form 8-K, dated the date
hereof, present fairly, in all material respects, the financial
position of Consolidated Edison Company of New York, Inc. and its
subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards 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.
Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, N.Y. 10036
February 27, 1996
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY Cash and temporary cash investments were
$342.3 million at December 31, 1995 compared with $245.2 million
at December 31, 1994 and $36.8 million at December 31, 1993. The
Company's cash balances reflect, among other things, the timing
and amounts of external financing. The Company's cash
requirements are subject to substantial fluctuations during the
year due to seasonal variations in cash flow and peak in January
and July of each year when the semi-annual payments of New York
City property taxes are due. In July 1995 the Company issued $100
million of 6 5/8% 10-year debentures. The cash balance at
December 31, 1995 was used on January 2, 1996 for redemption at
maturity of the $100 million 5% Series CC mortgage bonds and for
a $224 million semi-annual New York City property tax payment.
In the first quarter of 1994 pursuant to its amended
dividend reinvestment plan, the Company issued 478,016 shares of
common stock for $14.7 million. The Company amended the plan in
1993 to permit, at the option of the Company, the use of new
shares or outstanding shares purchased in the market.
In February 1994 the Company issued $150 million of 35-year
debentures. In July 1994 the Company issued $150 million of
five-year floating-rate debentures, the interest rate on which is
reset quarterly. In December 1994 the Company issued $100 million
of 35-year tax-exempt debt through the New York State Energy
Research and Development Authority (NYSERDA).
In April 1993 the Company issued $101 million of 35-year
tax-exempt debt through NYSERDA. The Company issued 373,227
shares of common stock in December 1993 for $11.9 million
pursuant to the Company's amended dividend reinvestment plan.
In June 1993 the Company issued $380 million of 30-year
debentures of which approximately $80 million was used to meet
1993 capital requirements and the balance was used to retire
higher cost debt securities.
<PAGE>
<PAGE> - 2 -
Advance Refundings. Since 1992 the Company has taken the
opportunity of generally declining interest rates to reduce costs
by redeeming outstanding securities in advance of maturity dates
and replacing them with new securities bearing lower interest or
dividend rates. In August 1995 the Company issued $128.3 million
of 25-year 6.10% tax-exempt debt through NYSERDA, the proceeds of
which were used to redeem a like amount of outstanding 9%
tax-exempt debt. In December 1995 the Company redeemed, in
advance of maturity, $27.4 million of 9.70% Series 1990A
debentures representing the balance of this issue outstanding.
Excluding the preferred stock transactions discussed below,
approximately $1.9 billion of securities have been refunded,
producing aggregate first-year savings in interest and preferred
dividends of about $25 million, with continued savings in
subsequent years.
Tender Offer. In January 1996 the Company commenced a tender
offer for certain series of its preferred stock. Shareholders
tendered approximately $227 million of such preferred stock
pursuant to the offer, which expired on February 27, 1996. The
Company expects to call $90 million of its other preferred stock
for redemption and to issue subordinated debentures (interest
payments on which, unlike preferred stock dividends, are tax
deductible) to fund the purchase of the tendered stock and the
redemptions. The Company's current expectation is that these
transactions will produce revenue-equivalent present value
savings of approximately $42 million. Under generally accepted
accounting principles, the net gain realized from these
transactions as a result of acquiring preferred stock below its
book value will be included in the calculation of period earnings
per share, but not in net income. In accordance with an order of
the New York State Public Service Commission (PSC), the Company,
consistent with its objective of reducing potentially strandable
costs (discussed below), will apply the net gain, which is
presently estimated to be approximately $14 million, to reduce
net utility plant by an additional provision for depreciation.
While 1996 net income will be reduced by the amount of the
additional provision for depreciation, due to the treatment of
the net gain, earnings per share will be unaffected.
In 1994 and 1993 the Company borrowed from banks for short
periods; in 1995 there were no short-term borrowings. For 1996
the Company has arranged for bank credit lines amounting to $150
million. Borrowings thereunder would bear interest at prevailing
market rates.
Customer accounts receivable, less allowance for
uncollectible accounts, amounted to $497.2 million, $440.5
million and $459.3 million at December 31, 1995, 1994 and 1993,
respectively. In terms of equivalent days of revenue outstanding,
these amounts represented 27.6, 27.1 and 27.6 days, respectively.
<PAGE>
<PAGE> - 3 -
Regulatory accounts receivable at December 31, 1995 amounted
to a net credit to be refunded to customers of $6.5 million. Net
regulatory accounts receivable recoverable from customers
amounted to $26.3 million and $97.1 million at December 31, 1994
and 1993, respectively. See Note A to the financial statements.
The following is a summary of the balances and activity in
regulatory accounts receivable in 1995:
<TABLE>
<CAPTION>
1995
Balance Recoveries Balance
Dec. 31, 1995 from Dec. 31,
(Millions of Dollars) 1994* Accruals* Customers** 1995*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ERAM/Modified ERAM $(56.4) $(35.3) $ 54.0 $(37.7)
Electric Incentives
Enlightened Energy
program 70.1 32.7 (83.1) 19.7
Customer service 6.7 5.7 (8.4) 4.0
Fuel and purchased power 5.9 19.2 (23.2) 1.9
Gas Incentives
System improvement -- 6.1 (1.5) 4.6
Customer service -- 1.3 (0.3) 1.0
----------------------------------------------------
Total $ 26.3 $ 29.7 $(62.5) $ (6.5)
- -------------------------------------------------------------------------------------
</TABLE>
* Negative amounts are refundable; positive amounts
recoverable.
** Negative amounts were recovered; positive amounts refunded.
The components of the balance in regulatory accounts
receivable at December 31, 1995 will be refunded to or recovered
from customers during 1996 and 1997 as discussed in Note A to the
financial statements. The incentives are discussed below under
"1992 Electric Rate Agreement," "1995 Electric Rate Agreement"
and "Gas and Steam Rate Agreements."
Deferred charges for Enlightened Energy (demand side
management) program costs amounted to $144.3 million, $170.2
million and $140.1 million at December 31, 1995, 1994 and 1993,
respectively. These costs are being recovered in rates, as
discussed below under the "1992 Electric Rate Agreement" and
"1995 Electric Rate Agreement."
The Company's earnings include an allowance for funds used
during construction which, as a percent of net income for common
stock, was 0.8 percent in 1995 and 1.7 percent in 1994 and 1993.
<PAGE>
<PAGE> - 4 -
Interest coverage on the SEC book basis was 4.20, 4.58 and
4.19 times for 1995, 1994 and 1993, respectively. The decline in
interest coverage in 1995 was due to lower earnings and higher
interest charges. The improvement in interest coverage in 1994
was due to debt refundings and increased earnings. The Company's
interest coverage continues to be high compared with the electric
utility industry generally.
The Company's senior debt (first mortgage bonds) is rated
Aa3, A+ and AA- by Moody's Investors Service (Moody's), Standard
& Poor's (S&P) and Duff and Phelps, Inc., respectively. Moody's
and S&P revised their ratings during 1995 from Aa2 and AA-,
respectively. Major factors for the revision were the uncertain
implications of New York's transition towards a more
market-oriented energy industry and the Company's obligations
under contracts with independent power producers (IPPs) (see
"Electric Capacity Resources" below and Note G to the financial
statements). The Company has not issued first mortgage bonds
since 1974; as of December 31, 1995 $175 million of first
mortgage bonds were outstanding, all of which mature in 1996. The
Company's unsecured debt securities (debentures and tax-exempt
debt) are rated A1, A+ and A+ by Moody's, S&P and Duff and
Phelps, Inc., respectively.
Cash flows from operating activities for years 1993 through
1995 were as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash flows from operating activities $1,276 $1,250 $1,025
Less: Dividends on common and preferred stock 515 505 490
----------------------
Net after dividends $ 761 $ 745 $ 535
- ------------------------------------------------------------------------
</TABLE>
Net cash flows in 1995 were favorably affected by incentive
billings of $116.5 million, offset by the refund to customers of
$54.0 million of revenues under the ERAM. Net cash flows in 1994
were favorably affected by incentive billings of $92.3 million,
ERAM billings of $28.9 million and labor productivity
improvements resulting in costs estimated to be approximately $51
million less than reflected in rates. See the table above for
balances in regulatory accounts receivable at December 31, 1995
to be refunded to or recovered from customers in future periods.
<PAGE>
<PAGE> - 5 -
CAPITAL REQUIREMENTS The following table compares the Company's
capital requirements for the years 1993 through 1995 and
estimated amounts for 1996 and 1997:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995 1994 1993
- ----------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Construction expenditures $ 671 $ 678 $ 693 $ 758 $ 789
Enlightened Energy program
costs less recoveries/(a)/ (33) (15) (26) 30 59
Power contract termination
costs - net/(a)/ (39) (31) (55) 62 68
Nuclear decommissioning
trust/(a)//(b)/ 21 21 19 15 19
Nuclear fuel 44 24 13 47 14
Investment in gas marketing
subsidiary 10 10 2 7 1
-------------- ----------------------
Subtotal 674 687 646 919 950
Retirement of long-term debt
and preferred stock/(c)/ 106 184 11 134 178
-------------- ----------------------
Total $ 780 $ 871 $ 657 $1,053 $1,128
- -----------------------------------------------------------------------
</TABLE>
/(a)/ See discussion below of electric rate agreements.
/(b)/ See Note A to the financial statements for discussion of nuclear
decommissioning costs.
/(c)/ Does not include refundings in advance of maturity, nor the preferred
stock refunding in 1996 discussed above. For details of securities
maturing after 1997, see Note B to the financial statements.
Capital requirements shown above for 1995 were met from
internally generated funds. The Company expects to meet these
capital requirements for 1996 and 1997, including $290 million of
maturing securities, from cash balances, internally generated
funds and external financings of about $150 million, which would
likely be debt issues. In 1996 and 1997 the Company may, from
time to time, make short-term borrowings.
ELECTRIC CAPACITY RESOURCES Electric peak load in the Company's
service area, adjusted for historical design weather conditions,
grew by 150 MW (1.4 percent) in 1995. The growth was due
primarily to unusually high use of existing and new air
conditioners by customers during the exceptionally humid summer.
The growth in peak load has been moderated by the Company's
Enlightened Energy program, introduced in 1990, which helps the
Company's customers purchase and install energy-efficient
equipment and encourages the efficient use of energy resources.
This program continues to be modified for future years, based on
the Company's experience to date, so as to obtain energy
efficiency benefits at lower program costs.
<PAGE>
<PAGE> - 6 -
In response to federal and state regulatory policies and
requirements for utilities to contract with IPPs, the Company by
December 1992 had entered into contracts for the supply of
substantial capacity from facilities of IPPs. Plants with 1,798
MW of such capacity are in commercial operation, and the related
charges are reflected in the Company's rates. Approximately 186
MW of additional capacity is expected to be in operation and in
rates in 1996. Thereafter, additional capacity totalling about 70
MW is expected.
After 1992 estimates of future market prices for power
decreased significantly as excess generating capacity developed
in the Northeast. During 1993 and 1994, the Company entered into
agreements to terminate IPP contracts involving approximately 720
MW at a cost of $211 million (exclusive of interest) to be paid
over a period of several years. These costs (including interest)
are already reflected in rates. See "1995 Electric Rate
Agreement" below.
The Company's current resource plans, which reflect the
uncertainty as to the future industry structure in New York, do
not include the addition of long-term capacity resources to its
electric system during the next 20 years, other than the IPPs
discussed above.
COMPETITION No federal or New York State law presently requires
the Company to permit other sellers of electricity to use the
Company's facilities to make sales to the Company's retail
customers in New York City and Westchester County. However, in
recent years, federal and New York State legislation have
promoted the development of non-utility electric generating
capacity and competition at the wholesale level for electric
capacity and energy sales. A number of states, including New
York, are now considering whether to require electric utilities
to deliver electricity from other sellers directly to electricity
consumers, referred to as "retail wheeling."
Retail Wheeling. The most likely targets for retail wheeling are
large industrial customers and, to a lesser extent, governmental
customers. Almost all of the Company's customers are residential
or commercial, with sales to industrial customers comprising
about 2 percent of the Company's 1995 electric sales. Most
governmental customers in the Company's service area are, and for
many years have been, served by the New York Power Authority
(NYPA). However, if retail wheeling were permitted, the Company's
<PAGE>
<PAGE> - 7 -
large-usage commercial customers would also be targets. In any
case, competition would be mitigated by the limited capacity of
the existing transmission facilities for importing power and
energy into the Company's service area. Nevertheless, in a
competitive environment, the Company could be disadvantaged by
the relatively high costs of its generating facilities and the
Company's substantial commitments under its IPP contracts
relative to electric prices in a competitive market. Assuming
performance by the IPPs, the Company is obligated over the terms
of these contracts (which extend for various periods, up to 2034)
to make payments that currently are, and are projected to be,
uneconomic. See Note G to the financial statements.
Competitive Strategy. The Company's strategy for dealing with
competition includes ongoing cost reductions, increased
productivity, pursuit of growth opportunities and strengthening
of customer relations by providing value-added services. Another
major element of the strategy which the Company is promoting with
government and regulators is a "level playing field" on which the
Company could compete without unfair burdens of regulation or
taxation. For example, taxes other than federal income tax
represent 21 cents of every dollar the Company bills customers.
PSC Proceeding. The PSC is conducting a generic "competitive
opportunities" proceeding to investigate whether and how to
introduce increased competition into the electric utility
industry in the State.
In June 1995 the PSC adopted principles in this proceeding,
which among other things, state that "The current industry
structure, in which most power plants are vertically integrated
with natural monopoly transmission and distribution, must be
thoroughly examined to ensure that it does not impede or obstruct
development of effective wholesale or retail competition." With
respect to so-called "strandable costs", another principle states
"Utilities should have a reasonable opportunity to recover
prudent and verifiable expenditures and commitments made pursuant
to their legal obligations, consistent with these principles."
The principles also indicate that utilities should take all
practicable measures to mitigate transition costs.
In October 1995 the investor-owned utility companies of New
York State (including the Company) filed a proposal in this
proceeding that would restructure the State's electric industry
in a carefully planned transition to competition in the wholesale
market where bulk electricity would be bought and sold. Numerous
other parties, including the PSC staff, have submitted proposals
in this proceeding, some of which, if adopted by the PSC, could
adversely affect the Company.
<PAGE>
<PAGE> - 8 -
In December 1995 the administrative law judge (ALJ)
submitted her recommended decision to the PSC. She called for
competition to be implemented at the wholesale level with the
goal of introducing retail access as quickly as possible, but
with caution. The ALJ recommended that utilities be entitled to
present a case showing why it would be reasonable for recovery of
strandable costs to be allowed. She also advocated a "reasonable
opportunity" for consumers to realize savings and pay lower
prices.
A PSC order in this proceeding is expected in 1996. The
order is not expected to conclude the PSC's review of competition
and related issues. It is not possible to predict the outcome of
the proceeding or its impact upon the Company. See Note A to the
financial statements.
Federal Proceeding. In March 1995 the Federal Energy Regulatory
Commission (FERC) proposed new rules under which the Company and
other electric utilities would be required to file
non-discriminatory open access transmission tariffs that would be
available to wholesale sellers and buyers of electric energy, and
that would also apply to the Company's and other electric
utilities' own wholesale sales of electric energy. As proposed,
the new rules would allow utilities to recover legitimate and
verifiable wholesale stranded costs. FERC would follow this
policy with regard to costs subject to its jurisdiction and urged
the states to follow the same policy with regard to costs subject
to their jurisdictions.
It is not possible to predict the outcome of this
proceeding. The Company participates in the wholesale electric
market primarily as a buyer, and in this regard should benefit if
rules are adopted which result in lower wholesale prices for its
purchases of electricity for its retail customers.
1992 ELECTRIC RATE AGREEMENT In April 1992 the PSC approved an
electric rate agreement covering the three-year period April 1,
1992 through March 31, 1995. Under the agreement annual electric
rates were increased by $250.5 million (5.0 percent) in April
1992, by $251.2 million (5.0 percent) in April 1993 and by $55.2
million (1.1 percent) in April 1994. The agreement provided for a
rate of return on common equity of 11.50 percent for the first
rate year and 11.60 percent for the second and third rate years,
based on a common equity ratio of 52 percent. In order to settle
disputed items, including alleged excess earnings in prior years,
the Company's revenue allowance was reduced in each of the three
years by $35 million. For calendar years 1994, 1993 and 1992, the
Company accrued incentives for attaining certain objectives for
the Company's Enlightened Energy program, customer service and
<PAGE>
<PAGE> - 9 -
fuel costs of $116.4 million, $69.6 million and $58.1 million,
respectively, before federal income tax. For each of the three
rate years, the Company's rate of return on electric common
equity, excluding incentives and labor productivity, was below
the thresholds set in the agreement for sharing with customers.
The agreement introduced a rate-making concept known as the
Electric Revenue Adjustment Mechanism (ERAM). The purpose of the
ERAM was to eliminate the linkage between customers' energy
consumption and Company profits. Under the ERAM rates were based
on annual forecasts of electric sales and sales revenues with
refund to or recovery from customers of any overages or
deficiencies from the forecast in the prior rate year.
Implementation of the ERAM removes from Company earnings all
variations in electric sales from forecasts, including the
effects of year-to-year weather variations, the results of
changes in economic conditions, and the impact of the Enlightened
Energy program. In 1994 the Company set aside $63.7 million to be
refunded to customers for revenue overcollections under the ERAM.
In 1993 and 1992 the Company accrued $10.9 million and $130.1
million, respectively, of additional revenues to be recovered
from customers under the ERAM.
1995 ELECTRIC RATE AGREEMENT In April 1995 the PSC approved a
three-year electric rate agreement effective April 1, 1995. The
principal features of the agreement are as follows:
Limited Increases in Base Revenues. There was no increase in
base electric revenues for the first rate year of the agreement
(the twelve months ending March 31, 1996). However, differences
between actual and projected amounts for certain expense items
for each rate year will be reconciled and deferred for refund to
or recovery from customers in subsequent years. These items
include pension and retiree health and life insurance expenses,
costs incurred under IPP contracts, and certain Enlightened
Energy and renewable energy expenses. Property tax differences
will be similarly reconciled and refunded to or recovered from
customers, except that the Company will absorb (or retain) 14
percent of any property tax increase or decrease from the
forecast amounts.
For the second and third rate years, rates will also be
changed to provide for projected costs in each year of pensions
and retiree health and life insurance, IPP contracts, and the
Enlightened Energy program. Pension and postretirement benefit
costs will increase substantially in 1996, reflecting the
discount rate and health cost trend rates assumed. See Notes D
and E to the financial statements.
<PAGE>
<PAGE> - 10 -
Unlike previous multi-year rate agreements, there will be no
increases in rates in the second and third rate years to cover
general escalation, wage and salary increases or carrying costs
on increased utility plant investment. See "Modified ERAM" below
for revenue adjustments to reflect changes in numbers of
customers.
Return on Equity and Equity Ratio. The allowed rate of return on
common equity is 11.1 percent in the first rate year and is to be
adjusted for the second and third rate years by adding or
subtracting one-half of the change in 30-year Treasury bond rates
from a January/February 1995 base, to or from 11.1 percent. The
maximum change in the rate of return from the previous rate year
is 100 basis points (one percent). A preliminary estimate of the
indicated rate of return on equity for the second rate year is
between 10.2 and 10.4 percent. A 52 percent common equity ratio
is assumed throughout the term of the agreement.
Costs for debt and preferred stock will not be updated from
the levels projected for the first rate year.
Earnings Sharing. Following each rate year the Company's actual
return on equity will be calculated, using actual capitalization
ratios and debt and preferred stock costs, but excluding any
earnings from the incentives discussed below. The Company will
retain 100 percent of any earnings up to 50 basis points above
the allowed rate of return for that rate year. The Company will
retain 50 percent of earnings exceeding the allowed rate of
return by more than 50 basis points but not more than 150 basis
points and the balance will be deferred for customer benefit. The
Company will retain 25 percent of earnings that exceed the
allowed rate of return by more than 150 basis points; one-third
of the balance will be deferred for customer benefit and
two-thirds will be applied to reduce rate base balances in a
manner to be determined by the Company.
Due principally to increased productivity, the Company
estimates the actual rate of return on electric common equity,
excluding incentives, for the first rate year will exceed the
sharing threshold of 11.6 percent. As a result, in the fourth
quarter of 1995 the Company recorded a provision for the future
benefit of electric customers of $10.0 million, before federal
income tax.
IPP Termination Costs. The rate agreement also provides for full
recovery by the Company of all IPP contract termination costs
incurred to date, and permits the Company to petition the PSC to
defer the costs of new IPP contract terminations or
modifications, if any, during the term of the agreement.
<PAGE>
<PAGE> - 11 -
Incentive Provisions. The rate agreement permits the Company to
earn additional incentive amounts, not subject to the earnings
sharing provisions, by attaining certain objectives for the
Company's Enlightened Energy program, fuel costs, and customer
service. While these incentive mechanisms are similar to those
provided under the 1992 electric rate agreement, opportunities
for earning incentives are generally less than under the earlier
agreement. There would also be penalties for failing to achieve
minimum objectives, and there is a penalty-only incentive
mechanism designed to encourage the Company to maintain its high
level of service reliability.
For calendar year 1995 the Company accrued benefits of $32.7
million (including $17.1 million related to the prior year) and
$5.7 million, before federal income tax, for the Enlightened
Energy incentive and for electric customer service performance,
respectively.
Partial Pass-Through Fuel Adjustment Clause. The PPFAC incentive
is continued with certain modifications from the 1992 electric
rate agreement. For each rate year of the new agreement there
will be a $35 million cap (previously $30 million) on the maximum
incentive or penalty, with a "sub-cap" (within the $35 million
cap) of $10 million (as previously) for costs associated with
generation from the Company's Indian Point 2 nuclear unit. While
the cap is higher, the targets established for incentive earnings
are generally more difficult than under the prior agreement. For
calendar year 1995 the Company earned $19.2 million, before
federal income tax, under the PPFAC, $6.5 million of which was
earned in the first calendar quarter, under the 1992 agreement.
Modified ERAM. The agreement continues, in modified form, the
ERAM introduced in the 1992 electric rate agreement. The new
agreement adds to the ERAM a revenue per customer (RPC) mechanism
which excludes from adjustment those variances in the Company's
electric revenues which result from changes in the number of
customers in each electric service classification. In effect, the
Company will retain additional revenues attributable to added
customers, but will bear the revenue shortfall resulting from
lost customers, while other variances from forecast revenues will
be deferred for subsequent recovery from or refund to customers,
and will not affect the Company's earnings. The ERAM and the RPC
mechanism will not apply to delivery service for NYPA.
<PAGE>
<PAGE> - 12 -
At the end of each rate year, the forecast average annual
amount of revenue per customer in each service classification
(the RPC Factor) for that rate year is multiplied by the actual
average number of customers in that classification. The net
difference between that amount and the actual revenues from all
service classifications is deferred for refund to or recovery
from customers in the subsequent rate year; the RPC Factor for
the following rate year will be adjusted to reflect such net
difference. The RPC Factors will also be adjusted in the second
and third rate years to reflect any increase or decrease in
allowed base revenues for reconciliations and projections
discussed above in "Limited Increases in Base Revenues."
For calendar year 1995 the Company set aside $35.3 million,
before federal income tax, to be refunded to customers for
revenue overcollections under the ERAM, net of $13.3 million
earned under the RPC.
Nuclear Decommissioning Expense. See Note A to the financial
statements for changes in nuclear decommissioning expense.
Second Rate Year. In February 1996 the Company filed revisions
to its electric rates to become effective April 1, 1996 for the
second rate year, as required in the agreement. The Company
estimated that there would be no material change in rates. The
matter is pending before the PSC.
Extension of Agreement. The agreement stipulates that if the
Company abstains from filing for a general electric rate increase
to take effect at the end of the three-year period, the operation
of the rate agreement may be extended beyond March 31, 1998. Any
party to the agreement may file a petition to compel the Company
to justify continuation of the mechanisms, provisions and
formulas beyond March 31, 1998. If the agreement is extended, the
provisions for limited rate changes, adjustment of equity return,
earnings sharing, incentives, and Modified ERAM will continue in
effect until changed by the PSC.
<PAGE>
<PAGE> - 13 -
GAS AND STEAM RATE AGREEMENTS In October 1992 the PSC approved
two-year gas and steam rate agreements which included annual
increases for the first rate year in firm gas and steam rates of
$12.3 million (1.9 percent) and $11.8 million (3.6 percent),
respectively. In September 1993 the PSC granted the Company
permission to increase its firm gas rates for the second rate
year by $21.6 million (2.8 percent). In lieu of a steam rate
increase of $2.1 million for the second rate year, the PSC
authorized the Company to retain certain tax refunds being held
by the Company for refund to steam customers. The gas and steam
rate agreements were premised upon an allowed equity return of
11.6 percent and a common equity ratio of 52 percent of total
capitalization. Earnings above an 11.95 percent return were to be
shared equally with customers. For both rate years, the twelve
months ended September 30, 1993 and 1994, the Company's rate of
return on gas common equity was below the sharing threshold. The
Company's rate of return on steam common equity for the first and
second rate years was above the sharing threshold, and as a
result, the Company recorded a provision for refund to steam
customers of $1.7 million in 1993 and $3.6 million in 1994.
In October 1994 the PSC approved three-year rate agreements
for gas and steam services. The agreements provide for gas and
steam rate increases in the first rate year, the twelve months
ended September 30, 1995, of $7.7 million (0.9 percent) and $9.9
million (3.0 percent), respectively, and a methodology for rate
changes in the second and third rate years. For both services,
the October 1994 increases reflect a 10.9 percent rate of return
on common equity and a 52 percent common equity ratio. The
agreements contain "excess earnings" provisions giving
stockholders the benefit of 100 percent retention of any earnings
between 10.9 percent and 11.65 percent, and 50 percent sharing
with customers above 11.65 percent. The steam earnings
calculation also excludes the effects of net sales increases
related to abnormal weather, up to a maximum exclusion for
abnormal weather which is the equivalent of 25 basis points in
common equity return per year. The gas agreement contains two
incentive (or penalty) mechanisms (not subject to the "excess
earnings" provisions). In 1995 the Company accrued benefits of
$6.1 million and $1.3 million, before federal income tax, for the
gas system improvement and customer service incentives,
respectively. For the first rate year, the twelve months ended
September 30, 1995, the Company's rates of return on common
equity for gas and steam were below the threshold for sharing.
<PAGE>
<PAGE> - 14 -
Effective October 1, 1995 (the beginning of the second year
of the October 1994 three-year gas and steam rate agreements),
gas and steam rates were increased by $20.9 million (2.5 percent)
and $4.6 million (1.3 percent), respectively. The primary reasons
for the gas rate increase were escalation in certain operation
and maintenance expenses, return and depreciation on higher plant
balances, and recovery of earnings under the incentive provisions
of the agreement. The steam rate increase was primarily to cover
escalation in operation and maintenance expenses, and return and
depreciation on higher plant balances.
CLEAN AIR ACT AMENDMENTS The Clean Air Act amendments of 1990
impose limits on sulfur dioxide emissions from electric
generating units. Because the Company uses very low sulfur fuel
oil and natural gas as boiler fuels, the sulfur dioxide emissions
limits should not affect the Company's operations. The Company
will incur increased capital and operating costs to meet the
nitrogen oxide emissions limits set by the New York State
Department of Environmental Conservation (DEC) under the
"Reasonably Available Control Technology" (RACT) provisions of
the Clean Air Act. The Company has spent approximately $23
million to comply with the Phase I limitations. The State may
further reduce the nitrogen oxide emissions limits under Phase II
of the RACT program which is expected to take effect in 1999. New
York and nine other member states of the Northeast Ozone
Transport Commission have entered into a Memorandum of
Understanding which calls for the states to adopt more stringent
nitrogen oxide emissions limits for RACT Phases II and III,
effective in 1999 and 2003, respectively. The Company estimates
that the cost of compliance with these phases could approximate
$150 million.
NUCLEAR FUEL DISPOSAL The Company has a contract with the United
States Department of Energy (DOE) which provides that, in return
for payments being made by the Company to the DOE pursuant to the
contract, the DOE, starting in 1998, will take title to the
Company's spent nuclear fuel, transport it to a federal
repository and store it permanently. Notwithstanding the
contract, the DOE has announced that it is not likely to have an
operating permanent repository before 2015. The DOE has also
taken the position that it is not obligated to begin accepting
the spent fuel until it has an appropriate facility for such
purpose. In June 1994 the Company and a number of other utilities
petitioned the United States Court of Appeals for the District of
Columbia for a declaratory judgment that the DOE is
unconditionally obligated to begin accepting the spent fuel by
1998, an order directing the DOE to implement a program enabling
it to begin acceptance of spent fuel by 1998, and, if warranted,
<PAGE>
<PAGE> - 15 -
appropriate relief for the financial burden to the utilities
resulting from the DOE's delay. The Company estimates that it now
has adequate on-site capacity until 2005 for interim storage of
its spent fuel. Absent regulatory or technological developments
by 2005, the Company expects that it will require additional
on-site or other spent fuel storage facilities. Such additional
facilities would require regulatory approvals. In the event that
the Company is unable to make appropriate arrangements for the
storage of its spent fuel, the Company would be required to
curtail the operation of its Indian Point 2 nuclear unit. See
discussion of decommissioning in Note A to the financial
statements.
SUPERFUND AND ASBESTOS CLAIMS AND OTHER CONTINGENCIES Reference
is made to Note F to the financial statements for information
concerning potential liabilities of the Company arising from the
Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("Superfund"), from claims relating to
alleged exposure to asbestos, and from certain other
contingencies to which the Company is subject.
COLLECTIVE BARGAINING CONTRACT The Company's four-year
collective bargaining contract with Local No. 1-2, Utility
Workers' Union of America, which represents 66% of the Company's
employees, expires in June 1996.
IMPACT OF INFLATION The Company is affected by the decline in
the purchasing power of the dollar caused by inflation.
Regulation permits the Company to recover through depreciation
only the historical cost of its plant assets even though in an
inflationary economy the cost to replace the assets upon their
retirement will substantially exceed historical cost. However,
this is partially offset by the repayment of the Company's
long-term debt in dollars of lesser value than the dollars
originally borrowed.
<PAGE>
<PAGE> - 16 -
RESULTS OF OPERATIONS
Earnings per share were $2.93 in 1995, $2.98 in 1994 and
$2.66 in 1993. The average number of common shares outstanding
for 1995, 1994 and 1993 was 234.9 million, 234.8 million and
234.0 million, respectively.
Earnings for 1995, 1994 and 1993 reflect electric, gas and steam
rate increases, and other provisions of the electric, gas and
steam rate agreements discussed above.
OPERATING REVENUES AND FUEL COSTS Operating revenues in 1995 and
1994 increased from the prior year by $163.8 million and by
$107.7 million, respectively. The principal increases and
decreases in revenue were:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------
1995 1994
(Millions of Dollars) Over 1994 Over 1993
- -----------------------------------------------------
<S> <C> <C>
Electric, gas and steam
rate changes $ 29.3 $ 115.8
Fuel rider billings* 22.4 (143.3)
Sales volume changes
Electric** 41.4 56.3
Gas (11.7) 26.1
Steam (13.9) 14.4
Gas weather normalization 5.9 (5.6)
Electric:
ERAM/Modified ERAM
accruals 28.4 (74.7)
Recoveries of prior rate
year ERAM accruals 83.1 75.9
Rate refund provision (10.0) --
Off-system sales 12.5 19.8
Other (23.6) 23.0
--------------------
Total $163.8 $ 107.7
- -----------------------------------------------------
</TABLE>
* Excludes costs of fuel, purchased power and gas purchased
for resale reflected in base rates.
** Includes Con Edison direct customers and delivery service
for NYPA and municipal agencies.
<PAGE>
<PAGE> - 17 -
The increase in fuel billings in 1995 reflects higher unit
costs of purchased power, offset by lower cost of gas per therm.
The decrease in fuel billings in 1994 reflects decreases in the
unit costs of both purchased power and fuel used to produce
electricity. The cost of gas per therm was 20.2 percent lower in
1995 than in 1994 and was 10.4 percent lower in 1994 than in
1993.
Electric fuel costs decreased $56.1 million in 1995 largely
because of the Company's increased power purchases and consequent
lower generation; steam fuel costs decreased $7.6 million in 1995
due to lower sendout and lower unit cost of fuel. Electric fuel
costs in 1995 and 1994 were affected by the greater availability
in 1994 than in 1995 of lower-cost nuclear generation from the
Company's Indian Point 2 unit. During 1995 Indian Point 2
underwent a scheduled refueling and maintenance outage and the
unit's low cost generation was, therefore, unavailable for part
of the year. During 1995 the Company purchased 59 percent of its
total electric energy requirements, compared with 51 percent in
1994. Reflecting this increase, including increased purchases of
the relatively high cost power that the Company is required to
pay for under its IPP contracts, purchased power costs increased
by $319.8 million over the 1994 period. Gas purchased for resale
decreased $81.4 million in 1995, reflecting the lower unit cost
of purchased gas, offset by higher sendout.
Electricity sales volume in the Company's service territory
increased 0.7 percent in 1995 and 2.0 percent in 1994. Gas sales
volume to firm customers decreased 2.8 percent in 1995 and
increased 3.9 percent in 1994. Transportation of customer-owned
gas increased 65.3 percent in 1995 and decreased 12.1 percent in
1994, primarily due to variations in the volume of gas
transported for NYPA's use as boiler fuel at its Poletti unit.
Steam sales volume decreased 4.1 percent in 1995 and increased
4.4 percent in 1994.
The Company's electricity, gas and steam sales vary
seasonally in response to weather. Electric peak load occurs in
the summer, while gas and steam sales peak in the winter. After
adjusting for variations, principally weather and billing days,
in each period, electricity sales volume increased 1.2 percent in
1995 and 1.5 percent in 1994. Similarly adjusted, gas sales
volume to firm customers increased 0.1 percent in 1995 and 1.6
percent in 1994, and steam sales volume decreased 1.9 percent in
1995 and increased 0.6 percent in 1994. Weather-adjusted sales
represent the Company's estimate of the sales that would have
been made if historical average weather conditions had prevailed.
<PAGE>
<PAGE> - 18 -
Off-system electricity sales increased to 5,035 millions of
kilowatthours (kWhrs) in 1995 compared with 1,785 millions of
kWhrs in 1994. The increase in 1995 in such sales was due largely
to arrangements in which the Company produces electricity for
others using gas they provide as fuel. The Company has purchased
a substantial portion of this electricity for sale to its own
customers.
OTHER OPERATIONS AND MAINTENANCE EXPENSES Other operations and
maintenance expenses were unchanged in 1995 and decreased 1.5
percent in 1994. For 1995 lower administrative and general
expenses and production expenses at fossil generating stations
were offset in part by higher amortization of previously deferred
Enlightened Energy program costs and higher production expenses
related to the refueling and maintenance outage of the Indian
Point 2 nuclear unit in 1995. For 1994 the decrease reflects
lower production expenses, principally due to the refueling and
maintenance outage of the Indian Point 2 nuclear unit in 1993;
there was no outage in 1994. The decrease was offset in part by
costs in connection with the settlement of an environmental
proceeding (discussed below) and higher health insurance costs.
During 1995 the Company accrued $10 million for additional
environmental investigation and site remediation costs pursuant
to a 1994 settlement of a DEC civil administrative proceeding
against the Company and $5 million for two Superfund sites. In
1994, pursuant to the DEC settlement, the Company paid a $9
million penalty and contributed $5 million to an environmental
projects fund. The penalty was charged to miscellaneous income
deductions ($2 million in 1994 and $7 million in prior years).
The payment to the environmental projects fund was charged to
operations and maintenance expenses in 1994. In addition the
Company accrued $11.5 million during 1994 for environmental
investigation and site remediation costs. See Note F to the
financial statements for additional information about the
settlement.
<PAGE>
<PAGE> - 19 -
TAXES, OTHER THAN FEDERAL INCOME TAX At $1.1 billion, taxes
other than federal income tax remain one of the Company's largest
operating expenses. The principal components and variations in
operating taxes were:
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------
1995 1994
(Millions of Dollars) 1995 Over 1994 Over 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Property taxes $ 534.0 $ (5.4) $(36.8)
State and local taxes
on revenues 460.3 (2.2) (6.3)
Payroll taxes 58.2 .4 (.2)
Other taxes 67.7 (.3) 11.7
---------------------------------
Total $1,120.2* $(7.5) $(31.6)
- --------------------------------------------------------------
</TABLE>
* Including sales taxes on customers' bills, total taxes other
than federal income tax billed to customers in 1995 were
$1,413.8 million.
The reductions in property taxes in 1995 and 1994 reflect
decreases in the share of total New York City property taxes
borne by the Company. Under the terms of the current electric,
gas and steam rate agreements most of the difference between
property taxes included in rates and actual property taxes is
being deferred for future recovery from or refund to customers.
OTHER INCOME Other income increased $8.2 million in 1995 and
decreased $2.3 million in 1994. For 1995 the increase reflects
higher interest on temporary cash investments and for 1994 the
decrease reflects lower interest income accrued on ERAM revenue
deferrals under the 1992 electric rate agreement.
NET INTEREST CHARGES Interest on long-term debt increased $12.9
million in 1995 and $7.3 million in 1994 principally as a result
of new debt issues, offset to a large extent in 1994 by the
effect of debt refundings. Other interest increased $9.1 million
in 1995 principally as a result of a higher customer deposit rate
and interest associated with certain tax settlements.
FEDERAL INCOME TAX Federal income tax decreased $41.0 million in
1995 and increased $73.6 million in 1994 reflecting the changes
each year in income before tax and in tax credits. See Note H to
the financial statements.
February 27, 1996
