FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- [x] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------- <TABLE> <S> <C> <C> <C> Commission Exact name of registrant as specified in its charter State of I.R.S. Employer File Number and principal office address and telephone number Incorporation I.D. Number 1-14514 CONSOLIDATED EDISON, INC. New York 13-3965100 4 Irving Place, New York, New York 10003 (212) 460-4600 1-1217 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. New York 13-5009340 4 Irving Place, New York, New York 10003 (212) 460-4600 </TABLE> Each Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of the close of business on July 31, 1999, (i) Consolidated Edison, Inc. ("CEI") had outstanding 221,020,241 Common Shares ($.10 par value) and (ii) all of the outstanding Common Stock ($2.50 par value) of Consolidated Edison Company of New York, Inc. was held by CEI.
- 2 - TABLE OF CONTENTS PAGE FILING FORMAT 2 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: Consolidated Edison, Inc. Consolidated Balance Sheet 3-4 Consolidated Income Statements 5-7 Consolidated Statements of Cash Flows 8-9 Consolidated Edison Company of New York, Inc. Consolidated Balance Sheet 10-11 Consolidated Income Statements 12-14 Consolidated Statement of Cash Flows 15-16 Notes to Financial Statements 17-19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 20-29 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 29 ABOUT MARKET RISK PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 30-31 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 31-32 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 32-33 FILING FORMAT This Quarterly Report on Form 10-Q is a combined quarterly report being filed separately by two different registrants: Consolidated Edison. Inc. ("CEI") and Consolidated Edison Company of New York, Inc. ("Con Edison"). CEI is a holding company that owns all of the outstanding Common Stock ($2.50 par value) of Con Edison, has certain other subsidiaries, and has no significant business operations other than through its subsidiaries. Any references in this report to the "Company" are to CEI and Con Edison, collectively. Con Edison makes no representation as to the information contained in this report relating to CEI and the subsidiaries of CEI other than Con Edison.
-3- CONSOLIDATED EDISON, INC. CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998 <TABLE> <CAPTION> As at ------------------------------------------------- JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 ------------- ----------------- ------------- (Thousands of Dollars) <S> <C> <C> <C> ASSETS UTILITY PLANT, AT ORIGINAL COST Electric $11,140,874 $12,039,082 $11,878,103 Gas 1,885,118 1,838,550 1,784,322 Steam 613,888 604,761 588,534 General 1,221,663 1,204,262 1,203,749 ----------- ----------- ----------- Total 14,861,543 15,686,655 15,454,708 Less: Accumulated depreciation 4,508,545 4,726,211 4,562,740 ----------- ----------- ----------- Net 10,352,998 10,960,444 10,891,968 Construction work in progress 317,186 347,262 298,349 Nuclear fuel assemblies and components, less accumulated amortization 84,368 98,837 105,515 ----------- ----------- ----------- NET UTILITY PLANT 10,754,552 11,406,543 11,295,832 ----------- ----------- ----------- CURRENT ASSETS Cash and temporary cash investments 291,135 102,295 105,008 Funds held - divestiture of utility plant 1,101,814 -- -- Funds held for refunding of debt -- -- 99,519 Accounts receivable - customer, less allowance for uncollectible accounts of $27,998, $24,957 and $22,570 522,584 521,648 521,262 Other receivables 56,470 49,381 56,653 Fuel, at average cost 16,664 33,289 34,745 Gas in storage, at average cost 32,899 49,656 40,701 Materials and supplies, at average cost 150,984 184,916 191,489 Prepayments 155,440 131,374 74,260 Other current assets 37,746 20,984 16,176 ----------- ----------- ----------- TOTAL CURRENT ASSETS 2,365,736 1,093,543 1,139,813 ----------- ----------- ----------- INVESTMENTS Nuclear decommissioning trust funds 288,361 265,063 240,603 Other 172,374 113,382 100,821 ----------- ----------- ----------- TOTAL INVESTMENTS 460,735 378,445 341,424 ----------- ----------- ----------- DEFERRED CHARGES Enlightened Energy program costs 49,394 68,381 91,026 Unamortized debt expense 138,453 135,897 135,679 Recoverable fuel costs 12,211 22,013 17,339 Power contract termination costs 71,233 70,621 69,943 Other deferred charges 284,160 254,944 245,338 ----------- ----------- ----------- TOTAL DEFERRED CHARGES 555,451 551,856 559,325 ----------- ----------- ----------- REGULATORY ASSET - FUTURE FEDERAL INCOME TAXES 808,006 951,016 899,799 ----------- ----------- ----------- TOTAL $14,944,480 $14,381,403 $14,236,193 =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements
-4- CONSOLIDATED EDISON, INC. CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998 <TABLE> <CAPTION> As at ----------------------------------------------------- JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 ------------- ----------------- ------------- (Thousands of Dollars) <S> <C> <C> <C> CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock, authorized 500,000,000 shares; outstanding 223,101,749 shares, 232,833,494 shares and 234,151,294 shares $ 1,482,341 $ 1,482,341 $ 1,482,343 Retained earnings 4,697,439 4,700,500 4,468,930 Treasury stock, at cost; 12,045,900 shares, 2,654,600 shares and 1,336,800 shares (579,519) (120,790) (59,340) Capital stock expense (36,221) (36,446) (36,835) ------------ ------------ ------------ TOTAL COMMON SHAREHOLDERS' EQUITY 5,564,040 6,025,605 5,855,098 Preferred stock subject to mandatory redemption 37,050 37,050 84,550 Other preferred stock 212,563 212,563 233,468 Long-term debt 4,200,120 4,050,108 4,197,576 ------------ ------------ ------------ TOTAL CAPITALIZATION 10,013,773 10,325,326 10,370,692 ------------ ------------ ------------ NONCURRENT LIABILITIES Obligations under capital leases 36,013 37,295 38,475 Other noncurrent liabilities 255,120 203,543 132,933 ------------ ------------ ------------ TOTAL NONCURRENT LIABILITIES 291,133 240,838 171,408 ------------ ------------ ------------ CURRENT LIABILITIES Long-term debt due within one year 350,000 225,000 200,000 Accounts payable 384,963 371,274 366,314 Notes payable 258,498 -- 44,024 Customer deposits 196,010 181,236 170,653 Accrued taxes 403,963 15,670 67,718 Accrued interest 56,497 76,466 83,512 Accrued wages 79,903 83,555 80,586 Other current liabilities 188,713 188,186 186,199 ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 1,918,547 1,141,387 1,199,006 ------------ ------------ ------------ PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND OTHER DEFERRED CREDITS Accumulated deferred federal income tax 2,160,878 2,392,812 2,227,669 Accumulated deferred investment tax credits 138,689 154,970 159,300 Other deferred credits 421,460 126,070 108,118 ------------ ------------ ------------ Total deferred credits 2,721,027 2,673,852 2,495,087 ------------ ------------ ------------ TOTAL $ 14,944,480 $ 14,381,403 $ 14,236,193 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these financial statements.
-5- CONSOLIDATED EDISON, INC. CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $1,162,543 $1,286,320 Gas 189,700 196,562 Steam 52,878 57,411 Non-utility 73,960 20,748 ------------- ------------- TOTAL OPERATING REVENUES 1,479,081 1,561,041 ------------- ------------- OPERATING EXPENSES Purchased power 281,451 324,426 Fuel 121,427 123,870 Gas purchased for resale 78,012 86,902 Other operations 274,619 289,388 Maintenance 107,089 132,709 Depreciation and amortization 133,615 129,265 Taxes, other than federal income tax 284,979 290,415 Federal income tax 48,204 36,015 ------------- ------------- TOTAL OPERATING EXPENSES 1,329,396 1,412,990 ------------- -------------- OPERATING INCOME 149,685 148,051 OTHER INCOME (DEDUCTIONS) Investment income 606 3,080 Allowance for equity funds used during 937 575 construction Other income less miscellaneous deductions (919) 1,038 Federal income tax (658) 525 --------------- --------------- TOTAL OTHER INCOME (34) 5,218 ---------------- -------------- INCOME BEFORE INTEREST CHARGES 149,651 153,269 Interest on long-term debt 75,820 76,985 Other interest 4,473 10,066 Allowance for borrowed funds used during (438) (294) construction --------------- ------------- 79,855 86,757 NET INTEREST CHARGES --------------- ------------- PREFERRED STOCK DIVIDEND REQUIREMENTS 3,398 4,536 --------------- --------------- NET INCOME FOR COMMON STOCK $ 66,398 $ 61,976 ============= ============= COMMON SHARES OUTSTANDING - AVERAGE (000) 225,982 234,992 BASIC AND DILUTED EARNINGS PER SHARE $ 0.30 $ 0.26 ============= ============= DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.535 $ 0.53 ============= ============= </TABLE> The accompanying notes are an integral part of these financial statements.
-6- CONSOLIDATED EDISON, INC. CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $ 2,356,043 $ 2,577,643 Gas 571,042 595,732 Steam 193,611 192,801 Non-utility 134,971 47,912 ----------- ----------- TOTAL OPERATING REVENUES 3,255,667 3,414,088 ----------- ----------- OPERATING EXPENSES Purchased power 569,277 682,676 Fuel 238,967 258,424 Gas purchased for resale 258,543 276,341 Other operations 566,591 565,218 Maintenance 212,515 250,684 Depreciation and amortization 266,323 257,523 Taxes, other than federal income tax 585,359 592,634 Federal income tax 149,939 127,976 ----------- ----------- TOTAL OPERATING EXPENSES 2,847,514 3,011,476 ----------- ----------- OPERATING INCOME 408,153 402,612 OTHER INCOME (DEDUCTIONS) Investment income 2,022 5,984 Allowance for equity funds used during construction 1,909 1,087 Other income less miscellaneous deductions (1,287) 535 Federal income tax (878) (454) ----------- ----------- TOTAL OTHER INCOME 1,766 7,152 ----------- ----------- INCOME BEFORE INTEREST CHARGES 409,919 409,764 Interest on long-term debt 151,663 156,043 Other interest 9,306 11,313 Allowance for borrowed funds used during construction (892) (557) ----------- ----------- NET INTEREST CHARGES 160,077 166,799 ----------- ----------- PREFERRED STOCK DIVIDEND REQUIREMENTS 6,796 9,072 ----------- ----------- NET INCOME FOR COMMON STOCK $ 243,046 $ 233,893 =========== =========== COMMON SHARES OUTSTANDING - AVERAGE (000) 228,496 235,205 BASIC AND DILUTED EARNINGS PER SHARE $ 1.06 $ 0.99 =========== =========== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 1.07 $ 1.06 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-7 CONSOLIDATED EDISON, INC. CONSOLIDATED INCOME STATEMENT FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $ 5,452,845 $ 5,715,902 Gas 934,919 1,021,216 Steam 322,742 360,151 Non-utility 224,120 89,328 ----------- ----------- TOTAL OPERATING REVENUES 6,934,626 7,186,597 ----------- ----------- OPERATING EXPENSES Purchased power 1,140,384 1,365,334 Fuel 559,550 581,468 Gas purchased for resale 419,511 487,733 Other operations 1,159,328 1,122,965 Maintenance 439,244 464,450 Depreciation and amortization 527,314 512,182 Taxes, other than federal income tax 1,200,827 1,197,978 Federal income tax 429,602 389,767 ----------- ----------- TOTAL OPERATING EXPENSES 5,875,760 6,121,877 ----------- ----------- OPERATING INCOME 1,058,866 1,064,720 OTHER INCOME (DEDUCTIONS) Investment income 7,839 14,220 Allowance for equity funds used during construction 3,253 2,215 Other income less miscellaneous deductions (16,034) (2,839) Federal income tax 1,805 (853) ----------- ----------- TOTAL OTHER INCOME (3,137) 12,743 ----------- ----------- INCOME BEFORE INTEREST CHARGES 1,055,729 1,077,463 Interest on long-term debt 304,291 316,257 Other interest 16,393 20,695 Allowance for borrowed funds used during construction (1,581) (1,110) ----------- ----------- NET INTEREST CHARGES 319,103 335,842 ----------- ----------- PREFERRED STOCK DIVIDEND REQUIREMENTS 14,731 18,209 ----------- ----------- NET INCOME FOR COMMON STOCK $ 721,895 $ 723,412 =========== =========== COMMON SHARES OUTSTANDING - AVERAGE (000) 230,797 235,152 BASIC AND DILUTED EARNINGS PER SHARE $ 3.13 $ 3.08 =========== =========== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 2.13 $ 2.11 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-8- CONSOLIDATED EDISON, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING ACTIVITIES Net income for common stock $ 243,046 $ 233,893 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 266,323 257,523 Deferred recoverable fuel costs 9,802 80,962 Federal income tax deferred (385,669) (17,810) Common equity component of allowance for funds used during construction (1,870) (1,057) Other non-cash charges (credits) 16,954 (7,139) CHANGES IN ASSETS AND LIABILITIES Accounts receivable-customer, less allowance for uncollectibles (936) 59,901 Materials and supplies, including fuel and gas in storage 67,314 15,730 Prepayments, other receivables and other current assets (47,917) 3,961 Enlightened Energy program costs 18,987 26,781 Power contract termination costs (1,050) 904 Cost of removal less salvage 572,521 (36,390) Accounts payable 13,689 (73,800) Accrued income taxes 385,319 15,760 Other-net (182) 2,244 ----------- ----------- NET CASH FLOWS FROM OPERATING ACTIVITIES 1,156,331 561,463 ----------- ----------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (271,035) (264,331) Nuclear fuel expenditures (2,947) (3,194) Contributions to nuclear decommissioning trust (10,650) (10,650) Common equity component of allowance for funds used during construction 1,870 1,057 ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (282,762) (277,118) ----------- ----------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Utility plant divestiture 560,351 -- Funds held-divestiture of utility plant (1,101,814) -- Repurchase of common stock (423,500) (59,340) Net proceeds from short-term debt 258,498 44,024 Issuance of long-term debt 275,000 385,000 Retirement of long-term debt -- (100,000) Advance refunding of long-term debt -- (605,240) Issuance and refunding costs (8,716) (6,975) Funds held for refunding of debt -- 229,355 Common stock dividends (244,548) (249,619) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (684,729) (362,795) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 188,840 (78,450) CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 102,295 183,458 ----------- ----------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 291,135 $ 105,008 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 145,132 $ 153,463 Income taxes 118,283 174,426 </TABLE> The accompanying notes are an integral part of these financial statements.
-9- CONSOLIDATED EDISON, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING ACTIVITIES Net income for common stock $ 721,895 $ 723,412 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 527,314 512,182 Deferred recoverable fuel costs 5,128 25,831 Federal income tax deferred (281,429) (69,550) Common equity component of allowance for funds used during construction (3,177) (2,153) Other non-cash charges (credits) 35,391 (3,551) CHANGES IN ASSETS AND LIABILITIES Accounts receivable-customer, less allowance for uncollectibles (1,322) (48,489) Materials and supplies, including fuel and gas in storage 66,388 5,546 Prepayments, other receivables and other current assets (102,567) 213,132 Enlightened Energy program costs 41,632 29,811 Power contract termination costs (1,050) (2,959) Cost of removal less salvage 536,879 (81,571) Accounts payable 18,649 (9,124) Accrued income taxes 322,980 120,997 Other-net 73,914 63,568 ----------- ----------- NET CASH FLOWS FROM OPERATING ACTIVITIES 1,960,625 1,477,082 ----------- ----------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (625,548) (626,244) Nuclear fuel expenditures (6,809) (10,543) Contributions to nuclear decommissioning trust (21,301) (14,904) Common equity component of allowance for funds used during construction 3,177 2,153 ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (650,481) (649,538) ----------- ----------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Utility plant divestiture 560,351 -- Funds held - divestiture of utility plant (1,101,814) -- Repurchase of common stock (479,407) (59,340) Net proceeds from short-term debt 214,474 29,024 Issuance of long-term debt 350,000 715,000 Retirement of long-term debt (100,000) (202,630) Advance refunding of preferred stock (68,405) -- Advance refunding of long-term debt (100,000) (605,240) Issuance and refunding costs (10,605) (15,495) Funds held for refunding of debt 99,519 (99,519) Common stock dividends (488,130) (496,567) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (1,124,017) (734,767) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 186,127 92,777 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 105,008 12,231 ----------- ----------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 291,135 $ 105,008 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 277,625 $ 312,087 Income taxes 299,564 383,879 </TABLE> The accompanying notes are an integral part of these financial statements.
-10- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. BALANCE SHEET AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998 <TABLE> <CAPTION> As at ------------------------------------------------- JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 ------------- ----------------- ------------- (Thousands of Dollars) <S> <C> <C> <C> ASSETS UTILITY PLANT, AT ORIGINAL COST Electric $11,140,874 $12,039,082 $11,878,103 Gas 1,885,118 1,838,550 1,784,322 Steam 613,888 604,761 588,534 General 1,221,663 1,204,262 1,203,749 ----------- ----------- ----------- Total 14,861,543 15,686,655 15,454,708 Less: Accumulated depreciation 4,508,545 4,726,211 4,562,740 ----------- ----------- ----------- Net 10,352,998 10,960,444 10,891,968 Construction work in progress 317,186 347,262 298,349 Nuclear fuel assemblies and components, less accumulated amortization 84,368 98,837 105,515 ----------- ----------- ----------- NET UTILITY PLANT 10,754,552 11,406,543 11,295,832 ----------- ----------- ----------- CURRENT ASSETS Cash and temporary cash investments 274,533 30,026 20,258 Funds held-divestiture of utility plant 1,101,814 -- -- Funds held for refunding of debt -- -- 99,519 Accounts receivable - customer, less allowance for uncollectible accounts of $24,107, $22,600 and $21,739 480,574 491,493 508,905 Other receivables 54,668 45,935 47,306 Fuel, at average cost 16,664 33,289 34,745 Gas in storage, at average cost 30,923 46,801 37,985 Materials and supplies, at average cost 150,984 184,916 191,489 Prepayments 151,381 130,198 72,956 Other current assets 34,222 20,911 16,163 ----------- ----------- ----------- TOTAL CURRENT ASSETS 2,295,763 983,569 1,029,326 ----------- ----------- ----------- INVESTMENTS Nuclear decommissioning trust funds 288,361 265,063 240,603 Other 15,705 14,750 13,699 ----------- ----------- ----------- TOTAL INVESTMENTS 304,066 279,813 254,302 ----------- ----------- ----------- DEFERRED CHARGES Enlightened Energy program costs 49,394 68,381 91,026 Unamortized debt expense 138,453 135,897 135,679 Recoverable fuel costs 12,211 22,013 17,339 Power contract termination costs 71,233 70,621 69,943 Other deferred charges 284,160 254,944 245,338 ----------- ----------- ----------- TOTAL DEFERRED CHARGES 555,451 551,856 559,325 ----------- ----------- ----------- REGULATORY ASSET - FUTURE FEDERAL INCOME TAXES 808,006 951,016 899,799 ----------- ----------- ----------- TOTAL $14,717,838 $14,172,797 $14,038,584 =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-11- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. BALANCE SHEET AS AT JUNE 30, 1999, DECEMBER 31, 1998 AND JUNE 30, 1998 <TABLE> <CAPTION> As at ---------------------------------------------------- JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 ------------- ----------------- ------------- (Thousands of Dollars) <S> <C> <C> <C> CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock $ 1,482,341 $ 1,482,341 $ 1,482,343 Repurchased CEI common stock (563,874) (120,790) (59,340) Retained earnings 4,524,170 4,517,529 4,273,902 Capital stock expense (36,221) (36,356) (36,835) ------------ ------------ ------------ TOTAL COMMON SHAREHOLDERS' EQUITY 5,406,416 5,842,724 5,660,070 ------------ ------------ ------------ Preferred stock Subject to mandatory redemption 7.20% Series I -- -- 47,500 6-1/8% Series J 37,050 37,050 37,050 ------------ ------------ ------------ TOTAL SUBJECT TO MANDATORY REDEMPTION 37,050 37,050 84,550 ------------ ------------ ------------ Other preferred stock $5 Cumulative Preferred 175,000 175,000 175,000 5-3/4% Series A -- -- 7,061 5-1/4% Series B -- -- 13,844 4.65% Series C 15,330 15,330 15,330 4.65% Series D 22,233 22,233 22,233 ------------ ------------ ------------ TOTAL OTHER PREFERRED STOCK 212,563 212,563 233,468 ------------ ------------ ------------ TOTAL PREFERRED STOCK 249,613 249,613 318,018 ------------ ------------ ------------ Long-term debt 4,200,120 4,050,108 4,197,576 ------------ ------------ ------------ TOTAL CAPITALIZATION 9,856,149 10,142,445 10,175,664 ------------ ------------ ------------ NONCURRENT LIABILITIES Obligations under capital leases 35,858 37,295 38,475 Other noncurrent liabilities 255,120 203,543 132,933 ------------ ------------ ------------ TOTAL NONCURRENT LIABILITIES 290,978 240,838 171,408 ------------ ------------ ------------ CURRENT LIABILITIES Long-term debt due within one year 350,000 225,000 200,000 Accounts payable 369,839 357,315 354,532 Notes payable 221,498 -- 44,024 Customer deposits 207,671 181,236 180,853 Accrued taxes 400,926 17,621 74,662 Accrued interest 56,538 76,507 83,512 Accrued wages 79,903 83,555 80,586 Other current liabilities 180,329 184,989 183,704 ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 1,866,704 1,126,223 1,201,873 ------------ ------------ ------------ PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND OTHER DEFERRED CREDITS Accumulated deferred federal income tax 2,143,860 2,382,273 2,222,210 Accumulated deferred investment tax credits 138,689 154,970 159,300 Other deferred credits 421,458 126,048 108,129 ------------ ------------ ------------ Total deferred credits 2,704,007 2,663,291 2,489,639 ------------ ------------ ------------ TOTAL $ 14,717,838 $ 14,172,797 $ 14,038,584 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these financial statements.
-12- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. INCOME STATEMENT FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $ 1,200,080 $ 1,289,860 Gas 189,700 196,562 Steam 52,878 57,411 --------------- --------------- TOTAL OPERATING REVENUES 1,442,658 1,543,833 --------------- --------------- OPERATING EXPENSES Purchased power 274,556 322,147 Fuel 121,427 123,870 Gas purchased for resale 65,192 75,033 Other operations 258,179 281,340 Maintenance 107,089 132,709 Depreciation and amortization 133,040 129,002 Taxes, other than federal income tax 281,313 290,265 Federal income tax 49,421 37,500 --------------- --------------- TOTAL OPERATING EXEENSES 1,290,217 1,391,866 --------------- --------------- OPERATING INCOME 152,441 151,967 OTHER INCOME (DEDUCTIONS) Investment income 130 1,665 Allowance for equity funds used during 937 575 construction Other income less miscellaneous deductions (608) (1,462) Federal income tax (887) 1,766 --------------- --------------- TOTAL OTHER INCOME (428) 2,544 --------------- --------------- INCOME BEFORE INTEREST CHARGES 152,013 154,511 Interest on long-term debt 75,820 76,985 Other interest 4,061 10,066 Allowance for borrowed funds used during construction (438) (294) --------------- --------------- NET INTEREST CHARGES 79,443 86,757 --------------- --------------- NET INCOME 72,570 67,754 PREFERRED STOCK DIVIDEND REQUIREMENTS 3,398 4,536 --------------- --------------- NET INCOME FOR COMMON STOCK $ 69,172 $ 63,218 ============== ============== CON EDISON SALES Electric (thousands of kilowatthours) Con Edison customers 7,167,682 8,760,065 Delivery service for Retail Choice 1,817,004 19,680 Delivery service to NYPA and others 2,256,496 2,351,811 ------------- ------------- Total sales in service territory 11,241,182 11,131,556 Off-system and ESCO sales 2,470,029 411,652 Gas (dekatherms) Firm sales and transportation 17,609,992 17,845,799 Off-peak firm/interruptible 2,799,192 3,646,403 ------------- ------------- Total sales to Con Edison customers 20,409,184 21,492,202 Transportation of customer-owned gas NYPA 2,251,072 641,921 Other 4,667,475 3,598,938 Off-system sales 8,003,871 4,600,307 ------------- ------------- Total sales and transportation 35,331,602 30,333,368 Steam (thousands of pounds) 4,558,681 4,540,725 </TABLE> The accompanying notes are an integral part of these financial statements.
-13- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $ 2,410,274 $ 2,581,183 Gas 571,042 595,732 Steam 193,611 192,801 ------------ ------------ TOTAL OPERATING REVENUES 3,174,927 3,369,716 ------------ ------------ OPERATING EXPENSES Purchased power 556,998 680,383 Fuel 238,967 258,424 Gas purchased for resale 213,253 239,743 Other operations 535,767 549,500 Maintenance 212,515 250,684 Depreciation and amortization 265,313 257,054 Taxes, other than federal income tax 580,189 592,383 Federal income tax 154,187 131,640 ------------ ------------ TOTAL OPERATING EXPENSES 2,757,189 2,959,811 ------------ ------------ OPERATING INCOME 417,738 409,905 OTHER INCOME (DEDUCTIONS) Investment income 192 2,708 Allowance for equity funds used during construction 1,909 1,087 Other income less miscellaneous deductions (1,243) (1,966) Federal income tax (945) 1,363 ------------ ------------ TOTAL OTHER INCOME (87) 3,192 ------------ ------------ INCOME BEFORE INTEREST CHARGES 417,651 413,097 Interest on long-term debt 151,663 156,043 Other interest 8,895 11,313 Allowance for borrowed funds used during construction (892) (557) ------------ ------------ NET INTEREST CHARGES 159,666 166,799 ------------ ------------ NET INCOME 257,985 246,298 PREFERRED STOCK DIVIDEND REQUIREMENTS 6,796 9,072 ------------ ------------ NET INCOME FOR COMMON STOCK $ 251,189 $ 237,226 ============ ============ CON EDISON SALES Electric (thousands of kilowatthours) Con Edison customers 15,573,926 17,790,466 Delivery service for Retail Choice 2,866,072 19,680 Delivery service to NYPA and others 4,729,835 4,806,032 ------------ ------------ Total sales in service territory 23,169,833 22,616,178 Off-system and ESCO sales 3,828,190 760,433 Gas (dekatherms) Firm sales and transportation 58,205,342 54,285,625 Off-peak firm/interruptible 7,962,748 11,187,254 ------------ ------------ Total sales to Con Edison customers 66,168,090 65,472,879 Transportation of customer-owned gas NYPA 2,267,025 1,725,535 Other 11,468,573 7,186,264 Off-system sales 16,461,693 9,932,608 ------------ ------------ Total sales and transportation 96,365,381 84,317,286 Steam (thousands of pounds) 14,774,938 13,526,399 </TABLE> The accompanying notes are an integral part of these financial statements.
-14- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. INCOME STATEMENT FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING REVENUES Electric $ 5,546,211 $ 5,719,441 Gas 934,919 1,021,216 Steam 322,742 360,151 Non-utility -- 41,416 ------------- ------------- TOTAL OPERATING REVENUES 6,803,872 7,142,224 ------------- ------------- OPERATING EXPENSES Purchased power 1,128,650 1,363,041 Fuel 559,550 581,468 Gas purchased for resale 343,613 451,135 Other operations 1,104,053 1,107,247 Maintenance 439,244 464,450 Depreciation and amortization 526,084 511,712 Taxes, other than federal income tax 1,190,415 1,197,727 Federal income tax 437,357 393,431 ------------- ------------- TOTAL OPERATING EXPENSES 5,728,966 6,070,211 ------------- ------------- OPERATING INCOME 1,074,906 1,072,013 OTHER INCOME (DEDUCTIONS) Investment income 3,646 10,945 Allowance for equity funds used during construction 3,253 2,215 Other income less miscellaneous deductions (4,554) (5,339) Federal income tax (1,733) 963 ------------- ------------- TOTAL OTHER INCOME 612 8,784 ------------- ------------- INCOME BEFORE INTEREST CHARGES 1,075,518 1,080,797 Interest on long-term debt 304,291 316,257 Other interest 15,982 20,695 Allowance for borrowed funds used during construction (1,581) (1,110) ------------- ------------- NET INTEREST CHARGES 318,692 335,842 ------------- ------------- NET INCOME 756,826 744,955 PREFERRED STOCK DIVIDEND REQUIREMENTS 14,731 18,209 ------------- ------------- NET INCOME FOR COMMON STOCK $ 742,095 $ 726,746 ============= ============= CON EDISON SALES Electric (thousands of kilowatthours) Con Edison customers 34,157,476 38,105,191 Delivery service for Retail Choice 5,263,714 19,680 Delivery service to NYPA and others 9,778,052 9,684,407 ------------- ------------- Total sales in service territory 49,199,242 47,809,278 Off-system and ESCO sales 7,022,853 2,247,172 Gas (dekatherms) Firm sales and transportation 88,345,955 88,757,674 Off-peak firm/interruptible 14,238,395 21,679,035 ------------- ------------- Total sales to Con Edison customers 102,584,350 110,436,709 Transportation of customer-owned gas NYPA 4,802,398 11,398,600 Other 18,760,578 11,389,385 Off-system sales 32,511,285 19,131,031 ------------- ------------- Total sales and transportation 158,658,611 152,355,725 Steam (thousands of pounds) 26,244,233 26,011,444 </TABLE> The accompanying notes are an integral part of these financial statements.
-15- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING ACTIVITIES Net income $ 257,985 $ 246,298 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 265,313 257,054 Deferred recoverable fuel costs 9,802 80,962 Federal income tax deferred (392,148) (17,810) Common equity component of allowance for funds used during construction (1,870) (1,057) Other non-cash charges (credits) 16,954 (7,139) CHANGES IN ASSETS AND LIABILITIES Accounts receivable-customer, less allowance for uncollectibles 10,919 49,334 Materials and supplies, including fuel and gas in storage 66,435 18,446 Prepayments, other receivables and other current assets (43,227) 8,315 Enlightened Energy program costs 18,987 26,781 Power contract termination costs (1,050) 904 Cost of removal less salvage 572,521 (36,390) Accounts payable 12,524 (60,932) Accrued income taxes 380,854 23,072 Other-net 81,795 19,345 ----------- ----------- NET CASH FLOWS FROM OPERATING ACTIVITIES 1,255,794 607,183 ----------- ----------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (271,035) (264,331) Nuclear fuel expenditures (2,947) (3,194) Contributions to nuclear decommissioning trust (10,650) (10,650) Common equity component of allowance for funds used during construction 1,870 1,057 ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (282,762) (277,118) ----------- ----------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Utility plant divestiture 560,351 -- Funds held-divestiture of utility plant (1,101,814) -- Repurchase of common stock (423,500) (59,340) Net proceeds from short-term debt 221,498 44,024 Issuance of long-term debt 275,000 385,000 Retirement of long-term -- (100,000) debt Advance refunding of long-term debt -- (605,240) Issuance and refunding costs (8,716) (6,975) Funds held for refunding of debt -- 229,355 Common stock dividends (244,548) (249,619) Preferred stock dividends (6,796) (9,066) Corporate reorganization -- (121,404) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (728,525) (493,265) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 244,507 (163,200) CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 30,026 183,458 ----------- ----------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 274,533 $ 20,258 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 145,132 $ 153,463 Income taxes 129,217 174,426 </TABLE> The accompanying notes are an integral part of these financial statements.
-16- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 AND 1998 <TABLE> <CAPTION> 1999 1998 ---- ---- (Thousands of Dollars) <S> <C> <C> OPERATING ACTIVITIES Net income $ 756,826 $ 744,955 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 526,084 511,712 Deferred recoverable fuel costs 5,128 25,831 Federal income tax deferred (287,908) (69,550) Common equity component of allowance for funds used during construction (3,177) (2,153) Other non-cash charges (credits) 35,391 (3,551) CHANGES IN ASSETS AND LIABILITIES Accounts receivable-customer, less allowance for uncollectibles 28,331 (59,056) Materials and supplies, including fuel and gas in storage 65,648 8,262 Prepayments, other receivables and other current assets (103,846) 217,484 Enlightened Energy program costs 41,632 29,811 Power contract termination costs (1,050) (2,959) Cost of removal less salvage 536,879 (81,571) Accounts payable 15,307 3,745 Accrued income taxes 310,957 128,309 Other-net 159,184 80,736 ----------- ----------- NET CASH FLOWS FROM OPERATING ACTIVITIES 2,085,386 1,532,005 ----------- ----------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (625,548) (626,244) Nuclear fuel expenditures (6,809) (10,543) Contributions to nuclear decommissioning trust (21,301) (14,904) Common equity component of allowance for funds used during construction 3,177 2,153 ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (650,481) (649,538) ----------- ----------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Utility plant divestiture 560,351 -- Funds held - divestiture of utility plant (1,101,814) -- Repurchase of common stock (479,407) (59,340) Net proceeds from short-term debt 177,474 29,024 Issuance of long-term debt 350,000 715,000 Retirement of long-term debt (100,000) (202,630) Refunding of preferred stock (68,405) -- Advance refunding of long-term debt (100,000) (605,240) Issuance and refunding costs (10,605) (15,495) Funds held for refunding of debt 99,519 (99,519) Common stock dividends (491,874) (496,567) Preferred stock dividends (15,869) (18,269) Corporate reorganization -- (121,404) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (1,180,630) (874,440) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 254,275 8,027 CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 20,258 12,231 ----------- ----------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 274,533 $ 20,258 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 277,625 $ 312,087 Income taxes 329,916 383,879 </TABLE> The accompanying notes are an integral part of these financial statements.
-17- NOTE A - GENERAL These footnotes accompany and form an integral part of (i) the interim consolidated financial statements of Consolidated Edison, Inc. ("CEI") and its subsidiaries, including the regulated utility Consolidated Edison Company of New York, Inc. ("Con Edison") and several non-utility subsidiaries but not including the regulated utility Orange and Rockland Utilities, Inc. (which CEI acquired in July 1999), and (ii) the interim consolidated financial statements of Con Edison on a stand-alone basis. These financial statements are unaudited but, in the respective opinions of the management of CEI and Con Edison, represent all adjustments (which include only normally recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These financial statements should be read together with the audited financial statements (including the notes thereto) included in the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1998 (the"1998 Form 10-K"). NOTE B - CONTINGENCIES INDIAN POINT Nuclear generating units similar in design to Con Edison's Indian Point 2 unit have experienced problems that have required steam generator replacement. Inspections of the Indian Point 2 steam generators since 1976 have revealed various problems, some of which appear to have been arrested, but the remaining service life of the steam generators is uncertain. The projected service life of the steam generators is reassessed periodically in the light of the inspections made during scheduled outages of the unit. Based on the latest available data and current NRC criteria, Con Edison estimates that steam generator replacement will not be required before 2002. Con Edison has replacement steam generators, which are stored at the site. Replacement of the steam generators would require estimated additional expenditures of up to $100 million (exclusive of replacement power costs) and an outage of approximately three months. However, securing necessary permits and approvals or other factors could require a substantially longer outage if steam generator replacement is required on short notice. The Settlement Agreement (described in Note A to the financial statements included in the 1998 Form 10-K) does not contemplate the divestiture or transfer of Indian Point 2. The PSC has, however, initiated a proceeding to consider the future of nuclear generating facilities in New York State. NUCLEAR INSURANCE The insurance policies covering Con Edison's nuclear facilities for property damage, excess property damage, and outage costs permit assessments under certain conditions to cover insurers' losses. As of June 30, 1999, the highest amount that could be assessed for losses during the current policy year under all of the policies was $18.9 million. While assessments may also be made for losses in certain prior years, neither CEI nor Con Edison is aware of any losses in such years that it believes are likely to result in an assessment. Under certain circumstances, in the event of nuclear incidents at facilities covered by the federal government's third-party liability indemnification program, Con Edison could be assessed up to $88.1 million per incident, of which not more than $10 million may be assessed in any one year.
-18- ENVIRONMENTAL MATTERS The normal course of operations of certain of CEI's subsidiaries, including Con Edison, necessarily involves activities and substances that expose the subsidiaries to potential liabilities under laws and regulations protecting the environment. Liabilities under these laws and regulations can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred. Sources of potential environmental liabilities include (but are not limited to) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes and asbestos. Superfund. By its terms Superfund imposes joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. Con Edison 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 Con Edison (and, in most instances, a large number of other potentially responsible parties) were deposited. Estimates of Con Edison's liability for these sites range from extremely preliminary to highly refined. At June 30, 1999, a liability of approximately $22.3 million had been accrued. There will be additional costs in amounts that are not presently determinable but may be material to the respective financial position, results of operations or liquidity of CEI and Con Edison. Asbestos Claims. Suits have been brought in New York State and federal courts against Con Edison and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of Con Edison. Many of these suits have been disposed of without any payment by Con Edison, or for immaterial amounts. The amounts specified in all the remaining suits total billions of dollars but CEI and Con Edison believe that these amounts are greatly exaggerated, as were the claims already disposed of. Based on the information and relevant circumstances known to CEI and Con Edison at this time, neither CEI nor Con Edison believe that these suits will have a material adverse effect on their respective financial position, results of operations or liquidity. NOTE C - FINANCIAL INFORMATION BY CEI BUSINESS SEGMENT FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 Electric Gas 1999 1998 1999 1998 ---- ---- - ---- - ---- Sales revenue $ 1,162,543 $ 1,286,320 $ 189,700 $ 196,562 Intersegment revenues 40,234 6,386 615 663 Depreciation and 112,572 109,625 15,991 15,053 amortization Operating income 130,207 136,860 24,620 19,188 Steam Other 1999 1998 1999 1998 ---- ---- - ---- - ---- Sales revenue $ 52,878 $ 57,411 $ 73,960 $ 20,748 Intersegment revenues 414 423 88 300 Depreciation and 4,476 4,324 576 263 amortization Operating income (2,386) (4,080) (2,756) (3,917)
-19- Total 1999 1998 Sales revenue $ 1,479,081 $ 1,561,041 Intersegment revenues 41,351 7,772 Depreciation and 133,615 129,265 amortization Operating income 149,685 148,051 FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 Electric Gas 1999 1998 1999 1998 ---- ---- - ---- - ---- Sales revenue $ 2,356,043 $ 2,577,643 $ 571,042 $ 595,732 Intersegment revenues 59,626 8,822 1,230 1,207 Depreciation and 224,685 218,527 31,702 29,927 amortization Operating income 277,356 277,024 113,066 107,421 Steam Other 1999 1998 1999 1998 ---- ---- - ---- - ---- Sales revenue $ 193,611 $ 192,801 $ 134,971 $ 47,912 Intersegment revenues 827 827 309 300 Depreciation and 8,925 8,600 1,011 469 amortization Operating income 27,316 25,461 (9,585) (7,294) Total 1999 1998 Sales revenue $ 3,255,667 $ 3,414,088 Intersegment revenues 61,992 11,156 Depreciation and 266,323 257,523 amortization Operating income 408,153 402,612
-20- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Edison, Inc. (CEI) is a holding company which operates only through its subsidiaries and has no material assets other than the stock of its subsidiaries. CEI's principal subsidiary is Consolidated Edison Company of New York, Inc. (Con Edison), a regulated utility. In July 1999, CEI acquired Orange and Rockland Utilities, Inc. (O&R), which is also a regulated utility. See "Liquidity and Capital Resources - Acquisition," below. In addition, CEI has several non-utility subsidiaries. The following discussion and analysis relates to the interim consolidated financial statements, included in Part I, Item 1 of this report, of (i) CEI and its subsidiaries (other than O&R, which was acquired in July 1999) and (ii) Con Edison on a stand-alone basis. Unless otherwise indicated, this discussion and analysis applies to each of CEI and Con Edison. References in this report to the "Company" are to CEI and Con Edison, collectively. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1998 (File Nos. 1-14514 and 1-1217, the 1998 Form 10-K) and in Part I, Item 2 of the combined CEI and Con Edison Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 1999 (the 1999 First Quarter Form 10-Q). Reference is also made to the notes to the financial statements in Part I, Item 1 of this report, which notes are incorporated herein by reference. O&R has separately filed with the Securities and Exchange Commission (File No. 1-4315) its Annual Report on Form 10-K for the year ended December 31, 1998 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1999 and June 30, 1999, each of which includes a discussion and analysis of its financial condition and results of operations. LIQUIDITY AND CAPITAL RESOURCES Cash and temporary cash investments and outstanding commercial paper for CEI and Con Edison were as follows at the dates indicated (amounts shown in millions): <TABLE> <CAPTION> June 30, 1999 December 31, 1998 June 30, 1998 CEI Con Edison CEI Con Edison CEI Con Edison <S> <C> <C> <C> <C> <C> <C> Cash and temporary cash investments $291.1 $274.5 $102.3 $30.0 $105.0 $ 20.3 Outstanding commercial paper $258.5 $221.5 $ -- $ -- $ 44.0 $ 44.0 </TABLE> These balances reflect, among other things, the issuance of new long-term debt in June 1999 and the stock repurchases discussed below. At June 30, 1999, approximately $1.1 billion of net proceeds from sales of generating capacity was being held by Con Edison pending possible investment in "like kind property" (the intended effect of which would have been to defer Federal income tax on the gain from the sales). See "PSC Settlement Agreement," below. In July 1999, Con Edison determined that it was not likely that the investment could be completed consistent with regulatory constraints, and instead used the net proceeds to pay dividends to CEI, to repay commercial paper and for the CEI common stock repurchase program. CEI used dividends received from Con Edison to repay commercial paper issued to fund initially its acquisition of O&R.
-21- Pursuant to the $1 billion CEI common stock repurchase program, during the second quarter of 1999, Con Edison purchased approximately 5.0 million CEI shares. From May 1998, when the program began, through June 30, 1999, Con Edison purchased a total of approximately 12.0 million CEI shares at an aggregate cost of $563.9 million. As of August 12, 1999, Con Edison had purchased approximately 15.7 million CEI shares at an aggregate cost of $726.8 million. In May 1999, CEI purchased 432,400 shares of its common stock (at an aggregate cost of approximately $19.8 million) to be used for exercises of options under CEI's 1996 Stock Option Plan. At June 30, 1999, approximately 340,400 of these shares remain available for future option exercises. See "Liquidity and Capital Resources - Sources of Liquidity Stock Repurchases" in Item 7 of the 1998 Form 10-K. In June 1999, Con Edison issued $275 million aggregate principal amount of 40-year 7.35% debentures. In July 1999, Con Edison repaid at maturity $150 million of its floating rate taxable debentures and issued $292.7 million of 35-year adjustable rate tax-exempt debt (with an initial weekly rate of 3.10% per annum), the proceeds of which, along with other Con Edison funds, will be used to redeem in August 1999 its $150 million 7 1/4% Series 1989 C tax-exempt debt and its $150 million 7 1/2% Series 1990 A tax-exempt debt. The ratio of earnings to fixed charges (for the twelve months ended on the date indicated) and common equity ratio (as of the date indicated) for CEI and Con Edison were as follows: <TABLE> <CAPTION> June 30, 1999 December 31, 1998 June 30, 1998 <S> <C> <C> <C> Earnings to fixed charges: CEI 4.44 4.29 4.19 Con Edison 4.53 4.36 4.20 Common equity ratio: CEI 55.6 58.4 56.4 CECONY 54.9 57.6 55.6 </TABLE> The increase in interest coverage reflects higher pre-tax income and lower interest expense as a result of debt refundings. The decrease in equity ratios reflects the CEI common stock repurchase program. At July 31, 1999, CEI equity ratio was 52.1% and Con Edison's equity ratio was 48.4%, reflecting the continuation of the repurchase program and, in the case of Con Edison, dividends paid to CEI in July. Con Edison's equivalent number of days of revenue outstanding (ENDRO) as customer accounts receivable was 25.9 days at June 30, 1999, compared with 28.0 days at December 31, 1998 and 25.6 days at June 30, 1998. Prior year ENDRO amounts have been restated to reflect a new method for calculating ENDRO that eliminates variations arising from the number of billing and collection days in each month. The prepayment balance at June 30, 1999 reflects cumulative credits to pension expense of $99.7 million, compared with $62.0 million at December 31, 1998 and $17.0 million at June 30, 1998, resulting primarily from the amortization of past investment gains. See Note D to the financial statements included in Item 8 of the 1998 Form 10-K. The increase in CEI's other investments reflects investments by Consolidated Edison Development, Inc., a CEI subsidiary. Recoverable fuel costs amounted to $12.2 million at June 30, 1999, compared with $22.0 million at December 31, 1998 and $17.3 million at June 1998, reflecting the ongoing recovery of previously deferred amounts and the changes in volumes and unit cost of purchased power, fuel and gas purchased for resale discussed below in "Results of Operations."
-22- Non-current liabilities - other includes $147.1 million at June 30, 1999, $102.0 million at December 31, 1998 and $57.9 million at June 30, 1998 for unfunded other post-employment benefit (OPEB) obligations. The Company's policy is to fund its estimated OPEB costs to the extent deductible under current tax limitations. See Note E to the financial statements included in Item 8 of the 1998 Form 10-K. The decreases in net utility plant and materials and supplies and the increase in accrued taxes reflect sales of generating capacity. See "PSC Settlement Agreement," below. Open Access and the Independent System Operator Reference is made to "Liquidity and Capital Resources - Open Access and the Independent System Operator" in Item 7 of the 1998 Form 10-K. In July 1999, the Federal Energy Regulatory Commission ("FERC") approved September 1, 1999 as the start date for operation of the New York State Independent System Operator ("NYISO"), subject to FERC's approval of certain additional filings, including filings relating to an installed capacity ("ICAP") market and the transfer to the NYISO of functions currently performed by the New York Power Pool, and a successful NYISO market trial. PSC Settlement Agreement Reference is made to "Liquidity and Capital Resources - PSC Settlement Agreement" in Item 7 of the 1998 Form 10-K and "Liquidity and Capital Resources - - PSC Settlement Agreement" in Part I, Item 2 of the 1999 First Quarter Form 10-Q. In June 1999, Con Edison completed the sales of 4,434 MW of its approximately 8,300 MW of electric generating capacity, for an aggregate price of approximately $1.25 billion. In July 1999, Con Edison used the net proceeds received from these sales to pay dividends to CEI, repay commercial paper and repurchase CEI common stock. See "Acquisition," below. Con Edison expects to complete the sale of an additional 1,855 MW of its electric generating capacity for $550 million by the end of August 1999. The net proceeds from this sale will be used to pay dividends to CEI and to continue the repurchase program. Con Edison has entered into contracts ("Transition Contracts") with buyers of the capacity it sold to purchase capacity from them for at least the period until the NYISO ICAP market is operational and to obtain associated energy until the commencement of NYISO operations. See "Open Access and the Independent System Operator," above. Con Edison has submitted a petition to the New York State Public Service Commission ("PSC") relating to the difference in the cost of capacity under the Transition Contracts and the embedded costs of the divested capacity reflected in Con Edison's electric rates. Con Edison has proposed that any incremental cost be recovered either as a "cost of implementing divestiture" (which the PSC Settlement Agreement provides is to be recovered from net divestiture proceeds) or through Con Edison's electric fuel adjustment clause. The fuel adjustment clause states that any incremental costs incurred by Con Edison resulting from the divestiture are to be recovered in the fuel adjustment. Con Edison estimates that there would be no incremental capacity costs under the Transition Contracts if the NYISO ICAP market commences operation as scheduled in November 1999, and that the incremental costs would be about $75 million if commencement is delayed until May 2000. In the event of a prolonged delay in the commencement of the NYISO ICAP market, additional incremental costs could be material. Acquisition Reference is made to "Liquidity and Capital Resources - Sources of Liquidity - Acquisition" in Item 7 of the 1998 Form 10-K. In July 1999, CEI completed its acquisition of O&R for an aggregate purchase price of $791.5 million, initially issuing commercial paper to fund the acquisition. CEI has repaid the commercial paper using dividends it received from Con Edison in July 1999.
-23- Financial Market Risks Reference is made to "Liquidity and Capital Resources--Financial Market Risks" in Item 7 of the 1998 Form 10-K. At June 30, 1999 neither the fair value of derivatives outstanding nor potential derivative losses from reasonably possible near-term changes in market prices were material to the financial position, results of operations or liquidity of the Company. Environmental Claims and Other Contingencies Reference is made to the notes to the financial statements included in this report 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. Year 2000 Readiness Disclosure Reference is made to "Liquidity and Capital Resources--Year 2000 Readiness Disclosure" in Item 7 of the 1998 Form 10-K and in Part I, Item 2 of the 1999 First Quarter Form 10-Q. Con Edison estimates that the cost of its Year 2000 program will be approximately $27 million, substantially all of which has been incurred. The cost is being funded from internally-generated funds and expensed as incurred. Forward-Looking Statements This discussion and analysis includes forward-looking statements, which are statements of future expectation and not facts. Words such as "estimates," "expects," "anticipates," "intends," "plans" and similar expressions identify forward-looking statements. Actual results or developments might differ materially from those included in the forward-looking statements because of factors such as competition and industry restructuring, changes in economic conditions, changes in historical weather patterns, changes in laws, regulations, regulatory policies or public policy doctrines, technological developments, any failure by Con Edison or others to successfully complete necessary changes to address Year 2000 problems, and other presently unknown or unforeseen factors. RESULTS OF OPERATIONS CEI's net income for common stock for the second quarter and six months ended June 30, 1999 was higher than the corresponding 1998 periods by $4.4 million ($.04 per share) and $9.2 million ($.07 per share), respectively. CEI's net income for common stock the 12 months ended June 30, 1999 was $1.5 million less than the 12 months ended June 30, 1998, while earnings per share increased $.05 per share. The increases in earnings per share reflect in part the CEI common stock repurchase program (see "Liquidity and Capital Resources," above). Earnings for the 1999 periods were favorably affected by higher electric sales resulting from the continued strength of the New York City economy (which partially offset the effects of rate reductions implemented pursuant to the PSC Settlement Agreement) and by the return to service of Con Edison's Indian Point 2 nuclear generating unit (see "Liquidity and Capital Resources - Nuclear Generation" in Item 7 of the 1998 Form 10-K).
-24- The results of operations of CEI include the results of operations of CEI and its subsidiaries (including Con Edison, but not O&R which was acquired in July 1999). For information about CEI's operating segments, see the notes to the financial statements included in Part I, Item 1 of this report. <TABLE> <CAPTION> Increases (Decreases) ----------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, 1999 June 30, 1999 June 30, 1999 Compared With Compared With Compared With Twelve Three Months Ended Six Months Ended Months Ended June June 30, 1998 June 30, 1998 30, 1998 ----------------------------------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- (Amounts are for CEI and are in Millions) ----------------------------------------- <S> <C> <C> <C> <C> <C> <C> Operating revenues $ (82.0) (5.3)% $ (158.4) (4.6)% $ (252.0) (3.5)% Purchased power- electric and steam (43.0) (13.2) (113.4) (16.6) (225.0) (16.5) Fuel-electric and steam (2.4) (2.0) (19.4) (7.5) (21.9) (3.8) Gas purchased for resale (8.9) (10.2) (17.8) (6.4) (68.2) (14.0) -------- ------ ------ Operating revenues less purchased power, fuel and gas purchased for resale (Net revenues) (27.7) (2.7) (7.8) (0.4) 63.1 1.3 Other operations and maintenance (40.4) (9.6) (36.8) (4.5) 11.2 0.7 Depreciation and amortization 4.3 3.4 8.8 3.4 15.1 3.0 Taxes, other than federal income tax (5.4) (1.9) (7.3) (1.2) 2.8 0.2 Federal income tax 12.2 33.8 22.0 17.2 39.8 10.2 ------- ------ ------ Operating income 1.6 1.1 5.5 1.4 (5.8) (0.5) Other income less deductions and related federal income tax (5.2) Large (5.3) (75.3) (15.9) Large Net interest charges (6.9) (8.0) (6.7) (4.0) (16.7) (5.0) Preferred stock Dividend requirements (1.1) (25.1) (2.3) (25.1) (3.5) (19.1) ------- ------ ------ Net income for common stock $ 4.4 7.1% $ 9.2 3.9% $ (1.5) (0.2)% </TABLE>
-25- CEI's investment in its non-utility subsidiaries was $212.5 million at June 30, 1999. CEI's results of operations include the net after-tax losses of its non-utility subsidiaries as follows (with amounts shown in millions): 1999 1998 ---- ---- Amount Per Share Amount Per Share Second Quarter $(2.2) $(.01) $(2.0) $(.01) Six Months ended June 30 $(7.9) $(.03) $(5.2) $(.02) Twelve Months ended June 30 $(21.2) $(.09) $(10.7) $(.05) For additional information about CEI's non-utility subsidiaries, see "Non-Utility Subsidiaries" in Item 1 of the 1998 Form 10-K. Second Quarter 1999 Compared with Second Quarter 1998 CEI's net revenues (operating revenues less purchased power, fuel and gas purchased for resale) decreased $27.7 million in the second quarter of 1999 compared with the 1998 period. Electric net revenues decreased $46.9 million. Gas, steam and non-utility net revenues increased $2.9 million, $2.8 million and $13.5 million, respectively. Electric net revenues in the 1999 period were lower than in the 1998 period primarily as a result of the rate reductions that went into effect in April 1999, the third rate year of the PSC Settlement Agreement. See "Liquidity and Capital Resources - PSC Settlement Agreement -Rate Plan" in Item 7 of the 1998 Form 10-K. Con Edison's electric Retail Choice program had no significant impact on net revenues in the 1999 period. Non-utility net revenues increased in the 1999 period due primarily to the participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con Edison's electric and gas Retail Choice programs. Con Edison's electric sales, excluding off-system sales, in the 1999 period compared with the 1998 period were: Millions of Kwhrs. 2nd Quarter 2nd Quarter Percent Description 1999 1998 Variation Variation ----------- ---- ---- --------- --------- Residential/Religious 2,469 2,429 40 1.6 Commercial/Industrial 4,578 6,175 (1,597) (25.9) Other 121 156 (35) (22.4) Total Full Service 7,168 8,760 (1,592) (18.2) Customers Retail Choice Customers 1,817 20 1,797 Large Sub-total 8,985 8,780 205 2.3 NYPA, Municipal Agency and Other Sales 2,256 2,352 (96) (4.1) Total Service Area 11,241 11,132 109 1.0 Electric sales in the service area increased by 1.0 percent. The decrease in sales to Con Edison's full service (supply and delivery) customers in the 1999 period reflects Con Edison's electric Retail Choice (delivery only) program. See "Electric Operations-Changes" in Item 1 of the 1998 Form 10-K and "PSC Settlement Agreement," above.
-26- For the 1999 period, Con Edison's firm gas sales and transportation volumes decreased 1.3 percent, and interruptible sales decreased 23.2 percent compared, with the 1998 period. These sales declines reflect the milder weather in 1999 as compared to 1998. Under the current gas rate agreement, most weather-related variations in firm gas sales and transportation do not affect earnings. Transportation of customer-owned gas under Con Edison's gas Retail Choice program increased significantly during the 1999 period. See "Gas Operations-Gas Sales" in Item 1 of the 1998 Form 10-K. Gas transported for the New York Power Authority (NYPA) increased significantly in the 1999 period due to NYPA's use of gas fuel for its generation of electricity. After adjusting for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory increased 2.1 percent in the second quarter of 1999, firm gas sales and transportation volume increased 1.4 percent and steam sales volume decreased 0.9 percent. Electric fuel costs increased in the 1999 period by $1.9 million due to an increase in generation, partially offset by a decrease in the average unit cost of fuel. Electric purchased power costs decreased in the 1999 period due to lower purchased volumes, partially offset by increased unit cost. Electric fuel and purchased power costs in the 1999 period reflect the return to service (in September 1998) of Con Edison's Indian Point 2 nuclear generating unit (see "Liquidity and Capital Resources - Nuclear Generation" in Item 7 of the 1998 Form 10-K). The June 1999 sales of electric generating capacity and the Transition Contracts had no significant effect on these costs in the 1999 period. See "Liquidity and Capital Resources - PSC Settlement Agreement," above. The cost of gas purchased for resale in the 1999 period decreased, reflecting lower unit cost, partially offset by higher sendout. Steam fuel costs decreased due to lower unit cost, partially offset by higher sendout. Steam purchased power costs decreased due to lower unit cost and lower purchased volumes. CEI's other operations and maintenance (O&M) expenses decreased in the 1999 period compared with the 1998 period, due primarily to decreased Con Edison O&M expenses offset in part by increased expenses at its non-utility subsidiaries. The decrease in Con Edison O&M expenses was the result of lower expenses at Indian Point 2 and lower administrative and general expenses. See "Liquidity and Capital Resources-Nuclear Generation" in Item 7 of the 1998 Form 10-K. Net interest charges decreased in the 1999 period due primarily to interest savings resulting from the refunding of long-term debt issues in 1998. Depreciation and amortization increased in the 1999 period due principally to higher average plant balances. Federal income tax increased in the 1999 period due to higher taxable income and lower tax credits. Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998 CEI's net revenues decreased $7.8 million in the six months ended June 30, 1999 compared with the 1998 period. Electric net revenues decreased $32.6 million. Gas, steam and non-utility net revenues increased $1.7 million, $5.4 million and $17.7 million, respectively. Electric net revenues in the six-month period ended June 30, 1999 were lower than in the corresponding 1998 period primarily as a result of the rate reductions that went into effect in April 1999 and April 1998 and the deferral for customer benefit of approximately $10 million applicable to the rate year ended March 31, 1999 under the earnings sharing provisions of the PSC Settlement Agreement, partially offset by higher sales, resulting from continued strength in the New York City economy. Con Edison's electric Retail Choice program had no significant impact on net revenues in the 1999 period.
-27- Non-utility net revenues increased in the 1999 period due primarily to the participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con Edison's electric and gas Retail Choice programs. Con Edison's electric sales, excluding off-system sales, for the 1999 period compared with the 1998 period were: <TABLE> <CAPTION> Millions of Kwhrs. Six Months Ended Six Months Ended Percent Description June 30, 1999 June 30, 1998 Variation Variation ----------- ----------------- ---------------- --------- --------- <S> <C> <C> <C> <C> Residential/Religious 5,193 5,081 112 2.2% Commercial/Industrial 10,119 12,392 (2,273) (18.3) Other 262 317 (55) (17.4) Total Full Service Customers 15,574 17,790 (2,216) (12.5) Retail Choice 2,866 20 2,846 Large Customers Sub-total 18,440 17,810 630 3.5 NYPA, Municipal Agency 4,730 4,806 (76) (1.6) and Other Sales Total Service Area 23,170 22,616 554 2.4% </TABLE> Electric sales in the service area increased by 2.4 percent. The decrease in sales to Con Edison's full service (supply and delivery) customers in the 1999 period reflects Con Edison's electric Retail Choice (delivery only) program. For the 1999 period, Con Edison's firm gas sales and transportation volumes increased 7.2 percent, and interruptible sales decreased 28.8 percent. Transportation of customer-owned gas under Con Edison's gas Retail Choice program increased significantly during the 1999 period. Gas transported for NYPA increased in the 1999 period due to NYPA's use of gas fuel for its generation of electricity. Steam sales volume increased 9.2 percent compared with the 1998 period as a result of colder weather in 1999 as compared to 1998. After adjustment for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory in the 1999 period increased 2.2 percent. Similarly adjusted, firm gas sales and transportation volume increased 1.9 percent and steam sales volume decreased 1.0 percent. Electric fuel costs decreased in the 1999 period by $19.1 million due to a decrease in the unit cost of fuel, partially offset by an increase in generation. Electric purchased power costs decreased in the 1999 period, reflecting decreased purchased volumes, partially offset by higher unit cost of purchases. Electric fuel and purchased power costs in the 1999 period reflect the return to service (in September 1998) of Con Edison's Indian Point 2 nuclear generating unit. The cost of gas purchased for resale in the 1999 period decreased, reflecting a lower unit cost of fuel, partially offset by higher sendout. Steam fuel costs decreased due to a decrease in the unit cost of fuel, partially offset by increased generation of steam. Steam purchased power costs decreased as a result of decreased purchased volumes and lower unit cost of purchases.
-28- CEI's O&M expenses decreased in the 1999 period due primarily to lower Con Edison O&M expenses, offset in part by increased expenses at its non-utility subsidiaries. The decrease in Con Edison O&M expenses was due primarily to lower expenses at Indian Point 2 and lower administrative and general expenses. Depreciation and amortization increased in the 1999 period due principally to higher average plant balances. Federal income tax increased in the 1999 period due to higher taxable income and lower tax credits. Net interest charges decreased in the 1999 period due primarily to interest savings resulting from the refunding of long-tem debt issues in 1998. Twelve Months Ended June 30, 1999 Compared with Twelve Months Ended June 30, 1998 CEI's net revenues increased $63.1 million in the 12 months ended June 30, 1999 compared with the 1998 period. Electric and non-utility net revenues increased $54.0 million and $36.7 million, respectively. Gas and steam net revenues decreased $19.1 million and $8.5 million, respectively. Electric net revenues in the 12-month period ended June 30, 1999 were higher than in the corresponding 1998 period primarily as a result of higher sales, reflecting continued strength in the New York City economy and warmer than normal 1998 summer weather, offset in part by the rate reductions that went into effect in April 1999 and April 1998 and the deferral for customer benefit of approximately $10 million applicable to the rate year ended March 31, 1999, under the earnings sharing provisions of the PSC Settlement Agreement. Con Edison's electric Retail Choice program had no significant impact on net revenues in the 1999 period. Gas net revenues in the 1998 period included an incentive of $10.8 million related to distribution system efficiency; no incentive was recorded in the 1999 period. Non-utility net revenues increased in the 1999 period due primarily to the participation of Consolidated Edison Solutions, Inc., a CEI subsidiary, in Con Edison's electric and gas Retail Choice programs. Con Edison's electric sales, excluding off-system sales, for the 1999 period compared with the 1998 period were: <TABLE> <CAPTION> Millions of Kwhrs. Twelve Months Ended Twelve Months Ended Percent Description June 30, 1999 June 30, 1998 Variation Variation ----------- ------------- ------------- --------- --------- <S> <C> <C> <C> <C> Residential/Religious 11,394 11,135 259 2.3% Commercial/Industrial 22,183 26,327 (4,144) (15.7) Other 580 643 (63) (9.8) Total Full Service Customers 34,157 38,105 (3,948) (10.4) Retail Choice Customers 5,264 20 5,244 Large Sub-total 39,421 38,125 1,296 3.4 NYPA, Municipal Agency 9,778 9,684 94 1.0 and Other Sales Total Service Area 49,199 47,809 1,390 2.9% </TABLE>
-29- Electric sales in the service area increased 2.9 percent. The decrease in sales to Con Edison's full service (supply and delivery) customers in the 1999 period reflects Con Edison's electric Retail Choice (delivery only) program. For the 1999 period, Con Edison's firm gas sales and transportation volumes decreased 0.5 percent, and interruptible sales decreased 34.3 percent. Transportation of customer-owned gas under Con Edison's gas Retail Choice program increased significantly during the 1999 period. Gas transported for NYPA decreased in the 1999 period due to NYPA's use of alternative fuel for its generation of electricity. After adjustment for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory in the 1999 period increased 2.4 percent. Similarly adjusted, firm gas sales and transportation volume increased 1.0 percent and steam sales volume decreased 1.1 percent. Electric fuel costs increased in the 1999 period by $3.6 million due to increased generation of electricity, partially offset by a decrease in the unit cost of fuel. Electric purchased power costs decreased in the 1999 period, reflecting decreased purchased volumes and lower unit cost of purchases. Electric fuel and purchased power costs in the 1999 period reflect the return to service (in September 1998) of Con Edison's Indian Point 2 nuclear generating unit. The cost of gas purchased for resale in the 1999 period decreased, reflecting a lower unit cost of fuel and lower sendout. Steam fuel costs decreased due to decreased generation of steam by Con Edison and lower unit cost of fuel. Steam purchased power costs decreased due to decreased purchased volumes and lower unit cost of purchases. CEI's O&M expenses increased in the 1999 period due primarily to increased expenses at its non-utility subsidiaries, offset in part by lower Con Edison O&M expenses. The decrease in Con Edison O&M expenses was due primarily to lower expenses at Indian Point 2 and lower administrative and general expenses. Depreciation and amortization increased in the 1999 period due principally to higher average plant balances. Taxes other than federal income tax increased in the 1999 period compared with the 1998 period, due primarily to increased property taxes and application of the New York State and New York City subsidiary capital taxes. Federal income tax increased in the 1999 period due to higher taxable income and lower tax credits. CEI's other income less miscellaneous deductions decreased in the 1999 period due primarily to the write-off in December 1998 of a $10 million investment made by one of CEI's non-utility subsidiaries. Net interest charges decreased in the 1999 period due to interest savings resulting from the refunding of long-term debt issues in 1998. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information about the Company's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Liquidity and Capital Resources - Financial Market Risks" in Part 1, Item 2 of this report and Item 7A of the 1998 Form 10-K.
-30- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS WASHINGTON HEIGHTS POWER OUTAGE During an early July 1999 heat wave, electric service to customers served by Con Edison's Washington Heights distribution network and certain of its other distribution networks was interrupted. Con Edison's electric tariff prescribes compensation to customers for spoilage of food and other perishables resulting from distribution system outages of 12 hours or longer in duration. Con Edison has paid approximately $4 million to customers for spoilage claims relating to the outages. In July 1999, the City of New York sued Con Edison in New York State Supreme Court, New York County with respect to the Washington Heights power outage seeking compensation for unspecified municipal response costs and other compensatory and punitive damages, and other relief (including changes to Con Edison's procedures relating to the maintenance and reinforcement of its distribution system). Several other lawsuits relating to the Washington Heights power outage, including purported class actions, are pending in the same court. The plaintiffs are seeking aggregate specified compensatory and punitive damages in excess of $100 million, additional unspecified damages and other relief (including a permanent injunction against future power outages). In addition, the outages are being reviewed by the New York State Public Service Commission (the "PSC"), the New York State Attorney General and others. The City of New York has filed a petition with the PSC requesting that a $3 million penalty be imposed on Con Edison. Based upon the information and relevant circumstances known to CEI and Con Edison, neither CEI nor Con Edison expects that the outages will have a material adverse effect on their respective financial position, results of operation or liquidity. CHALLENGE TO THE SETTLEMENT AGREEMENT Reference is made to "Challenge to the Settlement Agreement" in Part I, Item 3 of the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K"). The lawsuit commenced by the Public Utility Law Project of New York, Inc. against the PSC with respect to the PSC's "Competitive Opportunities" proceeding was dismissed. SUPERFUND - ECHO AVENUE SITE Reference is made to "Superfund - Echo Avenue Site" in Part I, Item 3 of the 1998 Form 10-K. In July 1999, the court dismissed the remaining claims against Con Edison. SUPERFUND - ARTHUR KILL TRANSFORMER SITE Reference is made to "Superfund - Arthur Kill Transformer Site" in Part I, Item 3 of the 1998 Form 10-K. In June 1999, Con Edison completed the sale of the Arthur Kill generating station. Con Edison has completed the cleanup programs approved by the New York State Department of Environmental Conservation ("DEC") for the station's facilities and various soil and pavement areas of the site affected by the PCB release. In July 1999, the DEC signed a consent order, covering the waterfront area of the station, which requires Con Edison to investigate the nature and extent of contamination and recommend a remediation program. After soliciting public comment, the DEC will select a remedial alternative to be implemented by Con Edison.
-31- SUPERFUND - EDISON PROPERTIES SITE Reference is made to "Superfund - Edison Properties Site" in Part II, Item 1, Legal Proceedings in the combined CEI and Con Edison Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) At the Annual Meeting of Stockholders of CEI and the Annual Meeting of Stockholders of Con Edison held concurrently on May 17, 1999, the stockholders of CEI voted to elect management's nominees for the Board of Directors, to ratify and approve the appointment of CEI's independent accountants, and not to adopt two stockholder proposals, and the stockholders of Con Edison (including CEI, which owned all 235,488,094 shares of Con Edison's common stock outstanding and entitled to vote at the Annual Meeting and the holders of 1,915,319 shares of cumulative preferred stock) voted to elect management's nominees for the Board of Trustees and to ratify and approve the appointment of Con Edison's independent accountants. (b) The name of each nominee for election as a member of CEI's Board of Directors or Con Edison's Board of Trustees and the number of shares voted for or with respect to which authority to vote for was withheld are as follows: <TABLE> <CAPTION> CEI's Board of Directors Con Edison's Board of Trustees ------------------------ ------------------------------ For Withheld For Withheld <S> <C> <C> <C> <C> E. Virgil Conway 177,805,230 2,321,590 236,969,233 8,319 Gordon J. Davis 178,000,256 2,126,564 236,970,731 6,821 Ruth M. Davis 177,860,717 2,266,103 236,968,840 8,712 Joan S. Freilich 177,979,276 2,147,544 236,971,007 6,545 Ellen V. Futter 177,930,754 2,196,066 236,970,727 6,825 Sally Hernandez-Pinero 177,916,843 2,209,977 236,969,967 7,585 Peter W. Likins 177,958,559 2,168,261 236,971,348 6,204 Eugene R. McGrath 177,941,496 2,185,324 236,972,072 5,480 Robert G. Schwartz 177,810,187 2,316,633 236,967,105 10,447 Richard A. Voell 178,009,497 2,117,323 236,969,882 7,670 Stephen R. Volk 178,033,391 2,093,429 236,971,288 6,264 </TABLE> (c) The results of the vote on the appointment of PricewaterhouseCoopers LLP as independent accountants for CEI for 1999 were as follows: 177,515,945 shares were voted for this proposal; 1,301,433 shares were voted against the proposal; and 1,309,422 shares were abstentions. (d) The results of the vote on the appointment of PricewaterhouseCoopers LLP as independent accountants for Con Edison for 1999 were as follows: 236,961,810 shares were voted for this proposal; 4,675 shares were voted against the proposal; and 11,067 shares were abstentions.
-32- (e) The following stockholder-proposed resolution was voted upon by the stockholders of CEI at the Annual Meeting: "RESOLVED: That the stockholders of Consolidated Edison, Inc., assembled in annual meeting in person and by proxy, hereby request the Board of Directors to take the steps necessary to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit." The results of the vote on this proposal were as follows: 37,046,940 shares were voted for this proposal; 108,463,831 shares were voted against the proposal; 6,671,235 shares were abstentions; and 27,944,814 shares were broker nonvotes. (f) The following stockholder-proposed resolution was voted upon by the stockholders of CEI at the Annual Meeting: "RESOLVED: That the shareholders recommend that the Board take the necessary step that Con Edison specifically identify by name and corporate title in all future proxy statements those executive officers, not otherwise so identified, who are contractually entitled to receive in excess of $250,000 annually as base salary, together with whatever other additional compensation bonuses and other cash payments were due them." The results of the vote on this proposal were as follows: 14,929,630 shares were voted for this proposal; 130,382,029 shares were voted against the proposal; 6,870,347 shares were abstentions; and 27,944,814 shares were broker nonvotes ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit 4.1 Participation Agreement, dated as of July 1, 1999, between New York State Energy Research and Development Authority ("NYSERDA") and Con Edison. Exhibit 4.2 Indenture of Trust, dated as of July 1, 1999 between NYSERDA and HSBC Bank USA, as trustee. Exhibit 12.1 Statement of computation of CEI's ratio of earnings to fixed charges for the twelve-month periods ended June 30, 1999 and 1998. Exhibit 12.2 Statement of computation of Con Edison's ratio of earnings to fixed charges for the twelve-month periods ended June 30, 1999 and 1998. Exhibit 27.1 Financial Data Schedule for CEI.* Exhibit 27.2 Financial Data Schedule for Con Edison.* - ----------- *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.
-33- (b) REPORTS ON FORM 8-K CEI and Con Edison filed combined Current Reports on Form 8-K, dated June 25, 1999, reporting (under Item 5) the sale of $275 million aggregate principal amount of Con Edison's 7.35% Public Interest NotES (7.35% Debentures, Series 1999 A) and the divestiture of electric generating capacity by Con Edison (see "Liquidity and Capital Resources - PSC Settlement Agreement" in Item 2 of Part I of this report). No other CEI or Con Edison Current Reports on Form 8-K were filed during the quarter ended June 30, 1999. CEI filed a Current Report on Form 8-K, dated July 8, 1999, reporting (under Item 5) the completion of its acquisition of Orange and Rockland Utilities, Inc.
-34- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSOLIDATED EDISON, INC. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. DATE: August 13, 1999 By: JOAN S. FREILICH Joan S. Freilich Executive Vice President, Chief Financial Officer and Duly Authorized Officer