Quarterly Report for the period ended June 30, 2007
Table of Contents

FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

x

 

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

For the quarterly period ended JUNE 30, 2007

OR

   

¨

 

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

 

Commission

File Number

  

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of

Incorporation

   I.R.S. Employer
ID. Number

1-14514

  

Consolidated Edison, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

   New York    13-3965100

1-1217

  

Consolidated Edison Company of New York, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

   New York    13-5009340

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

 

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

 

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

 

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

 

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

 

As of the close of business on July 31, 2007, Con Edison had outstanding 270,975,263 Common Shares ($.10 par value). All of the outstanding common equity of Con Edison of New York is held by Con Edison.

 

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Table of Contents

Filing Format

 

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

 

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Table of Contents

TABLE OF CONTENTS

 

          PAGE

Glossary of Terms

   4

PART I—Financial Information

    

Item 1

   Financial Statements (Unaudited)     
    

Con Edison

    
    

Consolidated Balance Sheet

   6
    

Consolidated Income Statement

   8
    

Consolidated Statement of Comprehensive Income

   9
    

Consolidated Statement of Common Shareholders’ Equity

   10
    

Consolidated Statement of Cash Flows

   11
    

Con Edison of New York

    
    

Consolidated Balance Sheet

   12
    

Consolidated Income Statement

   14
    

Consolidated Statement of Comprehensive Income

   15
    

Consolidated Statement of Common Shareholder’s Equity

   16
    

Consolidated Statement of Cash Flows

   17
    

Notes to Financial Statements (Unaudited)

   18

Item 2

  

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

  

43

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

   71

Item 4

  

Controls and Procedures

   71

PART II—Other Information

    

Item 1

  

Legal Proceedings

   72

Item 1a

  

Risk Factors

   72

Item 4

  

Submission of Matters to a Vote of Security Holders

   73

Item 6

  

Exhibits

   75

Signatures

   76

 

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Table of Contents

GLOSSARY OF TERMS

 

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

 

Con Edison Companies

    

Con Edison

   Consolidated Edison, Inc.

Con Edison Communications

   Con Edison Communications, LLC

Con Edison Development

   Consolidated Edison Development, Inc.

Con Edison Energy

   Consolidated Edison Energy, Inc.

Con Edison of New York

   Consolidated Edison Company of New York, Inc.

Con Edison Solutions

   Consolidated Edison Solutions, Inc.

O&R

   Orange and Rockland Utilities, Inc.

Pike

   Pike County Light & Power Company

RECO

   Rockland Electric Company

The Companies

   Con Edison and Con Edison of New York

The Utilities

   Con Edison of New York and O&R

Regulatory and State Agencies

    

DEC

   New York State Department of Environmental Conservation

EPA

   Environmental Protection Agency

FERC

   Federal Energy Regulatory Commission

IRS

   Internal Revenue Service

ISO-NE

   ISO New England

NJBPU

   New Jersey Board of Public Utilities

NJDEP

   New Jersey Department of Environmental Protection

NYAG

   New York Attorney General

NYISO

   New York Independent System Operator

NYPA

   New York Power Authority

NYSERDA

   New York State Energy Research and Development Authority

NYSRC

   New York State Reliability Council

PJM

   PJM Interconnection

PSC

   New York State Public Service Commission

PPUC

   Pennsylvania Public Utility Commission

SEC

   Securities and Exchange Commission

Other

    

ABO

   Accumulated Benefit Obligation

APB

   Accounting Principles Board

AFDC

   Allowance for funds used during construction

CO2

   Carbon dioxide

COSO

   Committee of Sponsoring Organizations of the Treadway Commission

DIG

   Derivatives Implementation Group

District Court

   The United States District Court for the Southern District of New York

dths

   Dekatherms

EITF

   Emerging Issues Task Force

EMF

   Electric and magnetic fields

 

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Table of Contents

Other

    

ERRP

   East River Repowering Project

FASB

   Financial Accounting Standards Board

FIN

   FASB Interpretation No.

First Quarter Form 10-Q

   The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007

Fitch

   Fitch Ratings

Form 10-K

   The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2006

FSP

   FASB Staff Position

GHG

   Greenhouse gases

kV

   Kilovolts

kWh

   Kilowatt-hour

LILO

   Lease In/Lease Out

LTIP

   Long Term Incentive Plan

MD&A

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

mdths

   Thousand dekatherms

MGP Sites

   Manufactured gas plant sites

mmlbs

   Million pounds

Moody’s

   Moody’s Investors Service

MVA

   Megavolt amperes

MW

   Megawatts or thousand kilowatts

MWH

   Megawatt hour

NUGs

   Non-utility generators

OCI

   Other Comprehensive Income

PCBs

   Polychlorinated biphenyls

PPA

   Power purchase agreement

PRP

   Potentially responsible party

S&P

   Standard & Poor’s Rating Services

SFAS

   Statement of Financial Accounting Standards

SO2

   Sulfur dioxide

SSCM

   Simplified service cost method

Second Quarter Form 10-Q

   The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007

Superfund

   Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes

VaR

   Value-at-Risk

VIE

   Variable interest entity

 

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Table of Contents

Consolidated Edison, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

     June 30, 2007    December 31, 2006
     (Millions of Dollars)

ASSETS

             

UTILITY PLANT, AT ORIGINAL COST

             

Electric

   $ 15,417    $ 14,775

Gas

     3,307      3,233

Steam

     1,717      1,691

General

     1,675      1,635

TOTAL

     22,116      21,334

Less: Accumulated depreciation

     4,684      4,583

Net

     17,432      16,751

Construction work in progress

     858      872

NET UTILITY PLANT

     18,290      17,623

NON-UTILITY PLANT

             

Generating assets, less accumulated depreciation of $140 and $127 in 2007 and 2006, respectively

     773      785

Non-utility property, less accumulated depreciation of $39 and $36 in 2007 and 2006, respectively

     31      34

Construction work in progress

     3      3

NET PLANT

     19,097      18,445

CURRENT ASSETS

             

Cash and temporary cash investments

     186      94

Restricted cash

     17      18

Accounts receivable - customers, less allowance for uncollectible accounts of $45 in 2007 and 2006

     867      825

Accrued unbilled revenue

     138      122

Other receivables, less allowance for uncollectible accounts of $6 and $4 in 2007 and 2006, respectively

     446      522

Fuel oil, at average cost

     52      56

Gas in storage, at average cost

     188      253

Materials and supplies, at average cost

     141      157

Prepayments

     125      157

Fair value of derivative assets

     52      122

Recoverable energy costs

     206      235

Deferred derivative losses

     177      237

Other current assets

     56      139

TOTAL CURRENT ASSETS

     2,651      2,937

INVESTMENTS

     381      366

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

             

Goodwill

     408      406

Intangible assets, less accumulated amortization of $39 and $34 in 2007 and 2006, respectively

     75      80

Regulatory assets

     4,110      4,179

Other deferred charges and noncurrent assets

     428      286

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

     5,021      4,951

TOTAL ASSETS

   $ 27,150    $ 26,699

 

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

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Consolidated Edison, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

     June 30, 2007    December 31, 2006
     (Millions of Dollars)

CAPITALIZATION AND LIABILITIES

             

CAPITALIZATION

             

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

   $ 8,806    $ 8,004

Preferred stock of subsidiary

     213      213

Long-term debt

     7,778      8,298

TOTAL CAPITALIZATION

     16,797      16,515

MINORITY INTERESTS

     42      41

NONCURRENT LIABILITIES

             

Obligations under capital leases

     24      26

Provision for injuries and damages

     156      155

Pension and retiree benefits

     857      737

Superfund and other environmental costs

     330      292

Uncertain income taxes

     147     

Asset retirement obligations

     99      97

Fair value of derivative liabilities

     57      97

Other noncurrent liabilities

     92      93

TOTAL NONCURRENT LIABILITIES

     1,762      1,497

CURRENT LIABILITIES

             

Long-term debt due within one year

     536      374

Notes payable

     315      117

Accounts payable

     1,119      1,126

Customer deposits

     240      228

Accrued taxes

     51      36

Accrued interest

     136      139

Accrued wages

     87      79

Fair value of derivative liabilities

     185      395

Deferred derivative gains

     9      6

Deferred income taxes - recoverable energy costs

     84      96

Other current liabilities

     252      276

TOTAL CURRENT LIABILITIES

     3,014      2,872

DEFERRED CREDITS AND REGULATORY LIABILITIES

             

Deferred income taxes and investment tax credits

     4,104      4,095

Regulatory liabilities

     1,411      1,657

Other deferred credits

     20      22

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

     5,535      5,774

TOTAL CAPITALIZATION AND LIABILITIES

   $ 27,150    $ 26,699

 

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

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Consolidated Edison, Inc.

 

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
         2007             2006             2007             2006      
     (Millions of Dollars/Except Share Data)  

OPERATING REVENUES

                                

Electric

   $ 1,896     $ 1,666     $ 3,683     $ 3,425  

Gas

     422       349       1,271       1,192  

Steam

     128       106       422       381  

Non-utility

     583       434       1,071       874  

TOTAL OPERATING REVENUES

     3,029       2,555       6,447       5,872  

OPERATING EXPENSES

                                

Purchased power

     1,251       1,019       2,361       2,203  

Fuel

     181       145       450       400  

Gas purchased for resale

     250       189       764       745  

Other operations and maintenance

     504       437       1,002       877  

Depreciation and amortization

     167       153       331       305  

Taxes, other than income taxes

     318       299       647       617  

Income taxes

     78       65       229       172  

TOTAL OPERATING EXPENSES

     2,749       2,307       5,784       5,319  

OPERATING INCOME

     280       248       663       553  

OTHER INCOME (DEDUCTIONS)

                                

Investment and other income

     21       8       36       20  

Allowance for equity funds used during construction

     2       1       3       2  

Preferred stock dividend requirements of subsidiary

     (3 )     (3 )     (6 )     (6 )

Other deductions

     (13 )     (4 )     (18 )     (9 )

Income taxes

     5       6       10       1  

TOTAL OTHER INCOME (DEDUCTIONS)

     12       8       25       8  

INTEREST EXPENSE

                                

Interest on long-term debt

     126       119       254       232  

Other interest

     14       12       29       25  

Allowance for borrowed funds used during construction

     (2 )     (1 )     (5 )     (2 )

NET INTEREST EXPENSE

     138       130       278       255  

INCOME FROM CONTINUING OPERATIONS

     154       126       410       306  

INCOME FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)

           (2 )           (1 )

NET INCOME

   $ 154     $ 124     $ 410     $ 305  

EARNINGS PER COMMON SHARE - BASIC

                                

Continuing operations

   $ 0.58     $ 0.51     $ 1.57     $ 1.24  

Discontinued operations

           (0.01 )            

Net income

   $ 0.58     $ 0.50     $ 1.57     $ 1.24  

EARNINGS PER COMMON SHARE - DILUTED

                                

Continuing operations

   $ 0.58     $ 0.51     $ 1.56     $ 1.24  

Discontinued operations

           (0.01 )            

Net income

   $ 0.58     $ 0.50     $ 1.56     $ 1.24  

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

   $ 0.580     $ 0.575     $ 1.160     $ 1.150  

AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)

     264.9       245.9       261.9       245.7  

AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)

     266.2       246.7       263.1       246.7  

 

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

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Table of Contents

Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2007     2006     2007     2006  
     (Millions of Dollars)  

NET INCOME

   $ 154     $ 124     $ 410     $ 305  

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

                                

Pension plan liability adjustments, net of $1, $0, $2 and $(3) taxes in 2007 and 2006, respectively

     2             3       (4 )

Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $(11), $(8), $3 and $(40) taxes in 2007 and 2006, respectively

     (19 )     (11 )     4       (57 )

Less: Reclassification adjustment for losses included in net income, net of $(5), $(10), $(14) and $(28) taxes in 2007 and 2006, respectively

     (8 )     (14 )     (20 )     (40 )

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

     (9 )     3       27       (21 )

COMPREHENSIVE INCOME

   $ 145     $ 127     $ 437     $ 284  

 

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

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Table of Contents

Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

 

    Common Stock  

Additional
Paid-

In Capital

   

Retained

Earnings

    Treasury Stock     Capital
Stock
Expense
    Accumulated
Other
Comprehensive
Loss
    Total  
    Shares   Amount       Shares   Amount        
    (Millions of Dollars/Except Share Data)  

BALANCE AS OF
DECEMBER 31, 2005

  245,286,058   $ 27   $ 2,768     $ 5,605     23,210,700   $ (1,001 )   $ (55 )   $ (34 )   $ 7,310  

Net income

                      181                                   181  

Common stock dividends

                      (141 )                                 (141 )

Issuance of common
shares—dividend reinvestment and employee stock plans

  456,347           24                                           24  

Stock options

              (23 )     35                                   12  

Other comprehensive loss

                                                  (24 )     (24 )

BALANCE AS OF MARCH 31, 2006

  245,742,405   $ 27   $ 2,769     $ 5,680     23,210,700   $ (1,001 )   $ (55 )   $ (58 )   $ 7,362  

Net income

                      124                                   124  

Common stock dividends

                      (142 )                                 (142 )

Issuance of common
shares—dividend reinvestment and employee stock plans

  491,822           28                                           28  

Other comprehensive income

                                                  3       3  

BALANCE AS OF JUNE 30, 2006

  246,234,227   $ 27   $ 2,797     $ 5,662     23,210,700   $ (1,001 )   $ (55 )   $ (55 )   $ 7,375  

BALANCE AS OF
DECEMBER 31, 2006

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

Net income

                      256                                   256  

Common stock dividends

                      (150 )                                 (150 )

Issuance of common
shares—dividend reinvestment and employee stock plans

  1,327,669           61                                           61  

Other comprehensive income

                                                  36       36  

BALANCE AS OF MARCH 31, 2007

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

Net income

                      154                                   154  

Common stock dividends

                      (156 )                                 (156 )

Issuance of common
shares—public offering

  11,000,000     1     559                           (2 )             558  

Issuance of common
shares—dividend reinvestment and employee stock plans

  1,089,068           52                                           52  

Other comprehensive loss

                                                  (9 )     (9 )

BALANCE AS OF JUNE 30, 2007

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

 

10

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


Table of Contents

Consolidated Edison, Inc.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

     For the Six Months
Ended June 30,
 
         2007    

        2006    

 
     (Millions of Dollars)  

OPERATING ACTIVITIES

                

Net Income

   $ 410     $ 305  

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

                

Depreciation and amortization

     331       305  

Deferred income taxes

     89       11  

Rate case amortization and accruals

     (254 )     (137 )

Common equity component of allowance for funds used during construction

     (3 )     (2 )

Prepaid pension costs (net of capitalized amounts)

     71       15  

Other non-cash items (net)

     (55 )     122  

CHANGES IN ASSETS AND LIABILITIES

                

Accounts receivable - customers, less allowance for uncollectibles

     (42 )     347  

Materials and supplies, including fuel oil and gas in storage

     85       22  

Other receivables and other current assets

     143       (104 )

Prepayments

     32       286  

Recoverable energy costs

     74       89  

Accounts payable

     (7 )     (273 )

Pensions and retiree benefits

     13       61  

Accrued taxes

     22       (63 )

Accrued interest

     (3 )     23  

Deferred charges, noncurrent assets and other regulatory assets

     (257 )     (125 )

Deferred credits and other regulatory liabilities

     146       (9 )

Other assets

     (10 )     8  

Other liabilities

     36       (78 )

NET CASH FLOWS FROM OPERATING ACTIVITIES

     821       803  


INVESTING ACTIVITIES

                

Utility construction expenditures (excluding capitalized support costs of $(30) and $(22) in 2007 and 2006, respectively)

     (891 )     (872 )

Cost of removal less salvage

     (73 )     (83 )

Non-utility construction expenditures

     (3 )     (2 )

Common equity component of allowance for funds used during construction

     3       2  

Restricted cash

     1       (3 )

Proceeds from sale of properties

     30       60  

Proceeds from sale of Con Edison Communications

           39  

NET CASH FLOWS USED IN INVESTING ACTIVITIES

     (933 )     (859 )


FINANCING ACTIVITIES

                

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

     198       (403 )

Retirement of long-term debt

     (359 )     (109 )

Issuance of long-term debt

           800  

Issuance of common stock

     651       20  

Debt issuance costs

           (7 )

Common stock dividends

     (286 )     (263 )

NET CASH FLOWS FROM FINANCING ACTIVITIES

     204       38  


CASH AND TEMPORARY CASH INVESTMENTS:

                

NET CHANGE FOR THE PERIOD

     92       (18 )

BALANCE AT BEGINNING OF PERIOD

     94       81  


BALANCE AT END OF PERIOD

   $ 186     $ 63  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                

Cash paid during the period for:

                

Interest

   $ 226     $ 212  

Income taxes

   $ 75     $ 171  

 

 

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

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Table of Contents

Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

     June 30, 2007    December 31, 2006
     (Millions of Dollars)

ASSETS

             

UTILITY PLANT, AT ORIGINAL COST

             

Electric

   $ 14,479    $ 13,872

Gas

     2,915      2,848

Steam

     1,717      1,691

General

     1,546      1,510

TOTAL

     20,657      19,921

Less: Accumulated depreciation

     4,267      4,173

Net

     16,390      15,748

Construction work in progress

     833      832

NET UTILITY PLANT

     17,223      16,580

NON-UTILITY PROPERTY

             

Non-utility property, less accumulated depreciation of $17 in 2007 and 2006

     13      15

NET PLANT

     17,236      16,595

CURRENT ASSETS

             

Cash and temporary cash investments

     60      47

Accounts receivable - customers, less allowance for uncollectible accounts of $41 and $40 in 2007 and 2006, respectively

     719      716

Other receivables, less allowance for uncollectible accounts of $5 and $3 in 2007 and 2006, respectively

     333      365

Accounts receivable from affiliated companies

     104      138

Fuel oil, at average cost

     45      47

Gas in storage, at average cost

     149      193

Materials and supplies, at average cost

     127      126

Prepayments

     77      84

Fair value of derivative assets

     3     

Recoverable energy costs

     185      213

Deferred derivative losses

     167      213

Other current assets

     3      14

TOTAL CURRENT ASSETS

     1,972      2,156

INVESTMENTS

     101      91

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

             

Regulatory assets

     3,710      3,764

Other deferred charges and noncurrent assets

     340      210

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS

     4,050      3,974

TOTAL ASSETS

   $ 23,359    $ 22,816

 

12

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


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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

     June 30, 2007    December 31, 2006
     (Millions of Dollars)

CAPITALIZATION AND LIABILITIES

             

CAPITALIZATION

             

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

   $ 7,761    $ 7,132

Preferred stock

     213      213

Long-term debt

     6,743      6,925

TOTAL CAPITALIZATION

     14,717      14,270

NONCURRENT LIABILITIES

             

Obligations under capital leases

     24      26

Provision for injuries and damages

     150      148

Pensions and retiree benefits

     553      449

Superfund and other environmental costs

     282      243

Uncertain income taxes

     134     

Asset retirement obligations

     99      96

Fair value of derivative liabilities

     21      35

Other noncurrent liabilities

     76      72

TOTAL NONCURRENT LIABILITIES

     1,339      1,069

CURRENT LIABILITIES

             

Long-term debt due within one year

     510      330

Accounts payable

     852      866

Accounts payable to affiliated companies

     15      14

Customer deposits

     225      214

Accrued taxes

     147      118

Accrued interest

     122      121

Accrued wages

     81      71

Fair value of derivative liabilities

     83      193

Deferred derivative gains

     7      5

Deferred income taxes - recoverable energy costs

     75      87

Other current liabilities

     215      233

TOTAL CURRENT LIABILITIES

     2,332      2,252

DEFERRED CREDITS AND REGULATORY LIABILITIES

             

Deferred income taxes and investment tax credits

     3,680      3,682

Regulatory liabilities

     1,274      1,524

Other deferred credits

     17      19

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

     4,971      5,225

TOTAL CAPITALIZATION AND LIABILITIES

   $ 23,359    $ 22,816

 

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

13


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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
         2007             2006             2007             2006      
     (Millions of Dollars)  

OPERATING REVENUES

                                

Electric

   $ 1,731     $ 1,543     $ 3,374     $ 3,176  

Gas

     377       316       1,113       1,052  

Steam

     128       106       422       381  

TOTAL OPERATING REVENUES

     2,236       1,965       4,909       4,609  

OPERATING EXPENSES

                                

Purchased power

     713       642       1,369       1,417  

Fuel

     123       100       335       293  

Gas purchased for resale

     216       169       650       628  

Other operations and maintenance

     431       364       863       739  

Depreciation and amortization

     147       135       292       268  

Taxes, other than income taxes

     303       282       615       581  

Income taxes

     61       55       197       168  

TOTAL OPERATING EXPENSES

     1,994       1,747       4,321       4,094  

OPERATING INCOME

     242       218       588       515  

OTHER INCOME (DEDUCTIONS)

                                

Investment and other income

     15       5       25       15  

Allowance for equity funds used during construction

     2       1       3       2  

Other deductions

     (3 )     (3 )     (7 )     (7 )

Income taxes

     (2 )     3             2  

TOTAL OTHER INCOME (DEDUCTIONS)

     12       6       21       12  

INTEREST EXPENSE

                                

Interest on long-term debt

     105       96       209       185  

Other interest

     9       10       23       20  

Allowance for borrowed funds used during construction

     (2 )     (1 )     (4 )     (2 )

NET INTEREST EXPENSE

     112       105       228       203  

NET INCOME

     142       119       381       324  

PREFERRED STOCK DIVIDEND REQUIREMENTS

     3       3       6       6  

NET INCOME FOR COMMON STOCK

   $ 139     $ 116     $ 375     $ 318  

 

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


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Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
 
     2007    2006    2007    2006  
     (Millions of Dollars)  

NET INCOME

   $ 142    $ 119    $ 381    $ 324  

OTHER COMPREHENSIVE LOSS, NET OF TAXES

                             

Pension plan liability adjustments, net of $0, $0, $0 and $(3) taxes in 2007 and 2006, respectively

                    (4 )

Unrealized losses on derivatives qualified as cash flow hedges

                    (1 )

TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAXES

                    (5 )

COMPREHENSIVE INCOME

   $ 142    $ 119    $ 381    $ 319  

 

    The accompanying notes are an integral part of these financial statements.   15


Table of Contents

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS EQUITY

 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

 

    Common Stock   Additional
Paid- In
Capital
 

Retained

Earnings

   

Repurchased
Con Edison

Stock

   

Capital
Stock

Expense

   

Accumulated
Other
Comprehensive

Loss

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

BALANCE AS OF DECEMBER 31, 2005

  235,488,094   $ 589   $ 1,802   $ 5,074     $ (962 )   $ (55 )   $ (11 )   $ 6,437  

Net income

                    205                               205  

Common stock dividend to parent

                    (113 )                             (113 )

Cumulative preferred dividends

                    (3 )                             (3 )

Other comprehensive loss

                                            (5 )     (5 )

BALANCE AS OF MARCH 31, 2006

  235,488,094   $ 589   $ 1,802   $ 5,163     $ (962 )   $ (55 )   $ (16 )   $ 6,521  

Net income

                    119                               119  

Common stock dividend to parent

                    (115 )                             (115 )

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF JUNE 30, 2006

  235,488,094   $ 589   $ 1,802   $ 5,164     $ (962 )   $ (55 )   $ (16 )   $ 6,522  

BALANCE AS OF DECEMBER 31, 2006

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

Net income

                    239                               239  

Common stock dividend to parent

                    (131 )                             (131 )

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF MARCH 31, 2007

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

Net income

                    142                               142  

Common stock dividend to parent

                    (131 )                             (131 )

Capital contribution by parent

              518                     (2 )             516  

Cumulative preferred dividends

                    (3 )                             (3 )

BALANCE AS OF JUNE 30, 2007

  235,488,094   $ 589   $ 2,770   $ 5,433     $ (962 )   $ (60 )   $ (9 )   $ 7,761  
16    The accompanying notes are an integral part of these financial statements.    


Table of Contents

Consolidated Edison Company of New York, Inc.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

     For the Six Months
Ended June 30,
 
     2007     2006  
     (Millions of Dollars)  

OPERATING ACTIVITIES

                

Net income

   $ 381     $ 324  

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

                

Depreciation and amortization

     292       268  

Deferred income taxes

     86       31  

Rate case amortization and accruals

     (254 )     (137 )

Common equity component of allowance for funds used during construction

     (3 )     (2 )

Prepaid pension costs (net of capitalized amounts)

     12       15  

Other non-cash items (net)

     (32 )     (1 )

CHANGES IN ASSETS AND LIABILITIES

                

Accounts receivable - customers, less allowance for uncollectibles

     (3 )     308  

Materials and supplies, including fuel oil and gas in storage

     45       4  

Other receivables and other current assets

     89       (39 )

Prepayments

     7       350  

Recoverable energy costs

     69       85  

Accounts payable

     (18 )     (289 )

Pensions and retiree benefits

     (7 )     35  

Accrued taxes

     35       (94 )

Accrued interest

     1       23  

Deferred charges, noncurrent assets and other regulatory assets

     (248 )     (125 )

Deferred credits and other regulatory liabilities

     156       (4 )

Other assets

     (1 )      

Other liabilities

     48       (67 )

NET CASH FLOWS FROM OPERATING ACTIVITIES

     655       685  

INVESTING ACTIVITIES

                

Utility construction expenditures (excluding capitalized support costs of $(30) and $(22) in 2007 and 2006, respectively)

     (852 )     (823 )

Cost of removal less salvage

     (71 )     (82 )

Common equity component of allowance for funds used during construction

     3       2  

Proceeds from sale of properties

     30       60  

NET CASH FLOWS USED IN INVESTING ACTIVITIES

     (890 )     (843 )

FINANCING ACTIVITIES

                

Net payments of short-term debt

           (323 )

Retirement of long-term debt

           (100 )

Issuance of long-term debt

           800  

Debt issuance costs

           (7 )

Capital contribution by parent

     516        

Dividend to parent

     (262 )     (228 )

Preferred stock dividends

     (6 )     (6 )

NET CASH FLOWS FROM FINANCING ACTIVITIES

     248       136  

CASH AND TEMPORARY CASH INVESTMENTS:

                

NET CHANGE FOR THE PERIOD

     13       (22 )

BALANCE AT BEGINNING OF PERIOD

     47       61  

BALANCE AT END OF PERIOD

   $ 60     $ 39  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                

Cash paid during the period for:

                

Interest

   $ 203     $ 161  

Income taxes

   $ 102     $ 183  

 

    The accompanying notes are an integral part of these financial statements.   17


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

General

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

 

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

 

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2006 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report Form 10-Q for the quarterly period ended March 31, 2007 (the First Quarter Form 10-Q). Information in the notes to the consolidated financial statements in the Form 10-K and the First Quarter Form 10-Q referred to in these notes is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made. Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of results for the entire fiscal year.

 

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

 

18


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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that owns, leases or operates generating plants and participates in other infrastructure projects.

 

Note A - Earnings Per Common Share

Reference is made to “Earnings Per Common Share” in Note A to the financial statements included in Item 8 of the Form 10-K. For the three and six months ended June 30, 2007 and 2006, Con Edison’s basic and diluted EPS are calculated as follows:

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
(Millions of Dollars, except per share amounts/Shares in Millions)        2007            2006             2007            2006      

Income from continuing operations

   $ 154    $ 126     $ 410    $ 306  

Income from discontinued operations, net of tax

          (2 )          (1 )

Net income

   $ 154    $ 124     $ 410    $ 305  

Weighted average common shares outstanding - Basic

     264.9      245.9       261.8      245.7  

Add: Incremental shares attributable to effect of potentially dilutive securities

     1.3      0.8       1.3      1.0  

Adjusted weighted average common shares outstanding - Diluted

     266.2      246.7       263.1      246.7  

EARNINGS PER COMMON SHARE - BASIC

                              

Continuing operations

   $ 0.58    $ 0.51     $ 1.57    $ 1.24  

Discontinued operations

          (0.01 )           

Net income

   $ 0.58    $ 0.50     $ 1.57    $ 1.24  

EARNINGS PER COMMON SHARE - DILUTED

                              

Continuing operations

   $ 0.58    $ 0.51     $ 1.56    $ 1.24  

Discontinued operations

          (0.01 )           

Net income

   $ 0.58    $ 0.50     $ 1.56    $ 1.24  

 

Note B - Regulatory Matters

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

 

Rate Agreements

O&R - Electric

In March 2007, the PSC ordered that O&R’s rates be made temporary, the effect of which is that amounts collected by O&R for electric service rendered in New York State after March 1, 2007 will be subject to refund pending the conclusion of a proceeding, which is now ongoing, to set new rates

 

19


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

effective July 1, 2007. In the order, the PSC confirmed that no issues had been raised regarding the company’s service adequacy or operations. In June 2007, O&R commenced an action in New York State Supreme Court seeking to have the order annulled.

 

Con Edison of New York - Gas

On June 1, 2007, Con Edison of New York entered into a Joint Proposal with the staff of the PSC and other parties with respect to the rates the company can charge its customers for gas service. The Joint Proposal is subject to PSC approval.

 

The Joint Proposal covers the three-year period from October 1, 2007 through September 30, 2010, and provides for rate increases of $67.4 million, $32.7 million and $42.7 million, effective October 1, 2007, 2008 and 2009, respectively. In addition, under the Joint Proposal revenues will increase $17.1 million starting in the first rate year because certain costs that are currently recovered in rates will instead be recovered under the provisions pursuant to which the company recovers its gas supply-related costs.

 

Additional provisions of the Joint Proposal include:

   

earnings in excess of a 10.9 percent return on equity for the first rate year and a 10.7 percent return on equity for the second and third rate years (based upon the actual average equity ratio, subject to a maximum equity ratio of 50 percent of capitalization) would be shared equally with customers, with 20 basis points of the first rate year’s earnings sharing threshold predicated on achieving certain energy efficiency goals and the earnings subject to sharing for each rate year being determined after reflecting in earnings the effects of any reduction in expense deferrals (discussed below);

 

   

a revenue decoupling mechanism for the first rate year (which may be continued or modified for the second or third rate years) under which the company’s revenues from most firm customer classifications would be determined by multiplying the forecasted delivery revenue per customer reflected in gas rates times the actual number of customers and a regulatory asset for recovery from customers would be recorded if actual delivery revenues billed to customers are less than the forecasted amount or a regulatory liability for future customer benefit would be recorded if the actual revenues are more than the forecasted amount;

 

   

opportunities to retain for shareholders annual gas net revenues from non-firm customer transactions: 20 percent of any net revenues between $35 million and $50 million and 25 percent of any net revenues above $50 million;

 

   

continuation of provisions for the recovery from customers on a current basis of the cost of purchased gas and supply-related costs;

 

20


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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

   

annual reconciliation of the difference between the actual annual average amount of gas utility plant (excluding plant additions resulting from moving facilities to avoid interfering with government projects), net of depreciation, up to a maximum annual average amount, and the annual average amounts reflected in gas rates, with the revenue requirement impact of the difference recorded as a regulatory asset or a regulatory liability, as the case may be, and a separate reconciliation of interference plant additions that would not be subject to a maximum annual average amount;

 

   

annual reconciliations of the differences between the actual amounts of pension and other post-retirement benefit expenses, environmental remediation expenses, property taxes and non-capital expenses resulting from the moving of facilities to avoid interfering with government projects and the amounts reflected for such expenses in gas rates, with the differences (or in the case of property taxes and interference expenses, 90 percent of the differences) deferred as a regulatory asset or accrued as a regulatory liability, as the case may be; provided that earnings above the earnings sharing threshold (discussed above) would reduce the deferral as a regulatory asset of the differences in pension and other post-employment benefit expenses, property taxes and interference expenses by up to 50 percent (but not to the extent the reduction would cause the resulting earnings to decrease below the threshold); and

 

   

potential penalties of up to $7.5 million for each rate year if the company does not meet certain standards for leak management, emergency response, prevention of damage to facilities, gas main replacement and customer satisfaction.

 

21


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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2007 and December 31, 2006 were comprised of the following items:

 

     Con Edison    Con Edison of
New York
(Millions of Dollars)    2007    2006    2007    2006

Regulatory assets

                           

Unrecognized pension and other postretirement costs

   $ 1,935    $ 1,929    $ 1,799    $ 1,776

Future federal income tax

     1,034      995      978      941

Environmental remediation costs

     367      318      304      255

World Trade Center restoration costs

     148      147      148      147

Pension and other postretirement benefits deferrals

     118      157      54      98

Revenue taxes

     71      68      70      67

O&R transition bond charges

     65      67          

Net T&D reconciliation

     53      94      53      94

Electric rate increase accrual

     45      44      45      44

Unbilled gas revenue

     44      44      44      44

Workers’ compensation

     43      42      43      42

Other retirement program costs

     18      20      18      20

Recoverable energy costs

     14      55      14      55

Asbestos-related costs

     10      10      10      10

Deferred derivative losses - long-term

     5      18      4      15

Other

     140      171      126      156

Regulatory assets

     4,110      4,179      3,710      3,764

Deferred derivative losses - current

     177      237      167      213

Recoverable energy costs - current

     206      235      185      213

Total Regulatory Assets

   $ 4,493    $ 4,651    $ 4,062    $ 4,190

Regulatory liabilities

                           

Allowance for cost of removal less salvage

   $ 473    $ 492    $ 412    $ 432

Gain on sale of First Avenue properties

     144      144      144      144

Net electric deferrals

     139      164      139      164

Prior year deferred tax amortization

     81      81      81      81

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

     53      85      53      85

NYS tax law changes

     53      38      43      28

Interest on federal income tax refund

     41      41      41      41

Net steam deferrals

     35      48      35      48

O&R refundable energy costs

     34      40          

Gain on sale of W. 24th St. property

     32      46      32      46

Transmission congestion contracts

     19      96      19      96

Deferred derivative gains - long-term

     16      2      6      1

Property tax reconciliation

     15      39      15      39

EPA SO2 allowance proceeds - electric and steam

     12      106      12      106

DC service incentive

     11      13      11      13

Gas interruptible sales credits

     10      8      10      8

Other

     243      214      221      192

Regulatory liabilities

     1,411      1,657      1,274      1,524

Deferred derivative gains - current

     9      6      7      5

Total Regulatory Liabilities

   $ 1,420    $ 1,663    $ 1,281    $ 1,529

 

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In March 2007, in accordance with the 2005 Electric Rate Agreement, the company offset $265 million of regulatory liabilities against an equal amount of regulatory assets. The regulatory liabilities settled related primarily to proceeds from the sale of sulfur dioxide allowances, prior year’s transmission congestion contracts auction proceeds, gains from the sale of properties, penalties related to customer outages, and the cost reconciliations for property taxes and interference costs. The regulatory assets recovered related primarily to the Net T&D reconciliation and cost reconciliations for pension and other postretirement benefit costs.

 

Power Outage Proceedings

During a July 2006 heat wave, electric service was interrupted to a number of Con Edison of New York’s customers, predominantly in the company’s Long Island City distribution network in Queens, New York. Also, a number of the company’s customers in Westchester County, New York, experienced weather-related outages in 2006.

 

In April 2007, the PSC expanded its ongoing proceeding investigating the Queens outage to also consider the prudence of the company’s conduct with respect to the outage. The investigation has been reviewing the circumstances surrounding the outage, the company’s response, communication and restoration efforts, the need for changes to the company’s practices and procedures and the costs incurred by the company related to the outage. The PSC indicated that the prudence examination should consider and address, among other things: (i) the reasonableness of the company’s response to the outage, its monitoring of its distribution system, its use of available information, its procedures for determining whether to shut down the Long Island City network (and the prudence of its decision not to do so) and its operation and maintenance of equipment in the Long Island City network; and (ii) whether and to what extent, the expenses and capital expenditures associated with the outage that the company has incurred, or may incur, should be borne by the company’s customers. In February 2007, the PSC staff issued a report on the outage which, among other things, includes the PSC staff’s (i) finding that the overriding cause of the outage was the company’s failure to adequately operate, maintain and oversee the Long Island City network, (ii) conclusion that the company should have, but failed to, shut down the Long Island City network to minimize the impact of the outage to customers, and (iii) recommendation that the PSC initiate a proceeding to consider the prudence of the company’s actions or inactions during the outage.

 

The PSC is also reviewing the Westchester outages, and has ordered the company to show cause why it should not be liable for certain food spoilage claims in connection with the September 2006 outage in Westchester resulting from Tropical Storm Ernesto.

 

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The PSC has engaged an independent third party consultant to audit the company’s performance in response to outage emergencies and planning for restoration of service.

 

As of June 30, 2007, Con Edison of New York had paid $14 million, $5 million of which was reimbursed by insurers, to compensate customers for spoilage of food and other perishables resulting from the Queens outage, incurred estimated operating costs of $39 million, net of $1 million of insurance reimbursement, invested $48 million in capital assets and retirements in the Long Island City network after the Queens outage, and accrued penalties under its 2005 electric rate agreement of $18 million relating to customer outages.

 

In July 2007, the PSC issued a notice requesting comments on the tariff provisions pursuant to which the company is required to reimburse its electric customers for losses resulting from service interruptions in certain circumstances. The current provisions provide for reimbursement to affected residential and commercial customers for food spoilage of up to $450 and $9,000, respectively, with a maximum aggregate of $15 million for an outage. The Company is not required to provide reimbursement for outages caused by certain events such as storms, provided the company makes reasonable efforts to restore service as soon as practicable.

 

The Companies are unable to predict whether the outages and any related proceedings will have any further material adverse effect on their results of operations or have a material adverse effect on their financial position or liquidity.

 

Note C - Short-Term Borrowing and Credit Agreements

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

 

In June 2007, the Companies’ credit agreement, which was to expire in June 2011, was extended for an additional year, with a maximum of $2.2 billion available to Con Edison of New York and $1 billion available to Con Edison in the additional year.

 

At June 30, 2007, Con Edison had $314 million of commercial paper outstanding at a weighted average interest rate of 5.5 percent, none of which was outstanding under Con Edison of New York’s program. At June 30, 2006, Con Edison had $352 million of commercial paper outstanding of which $197 million was outstanding under Con Edison of New York’s program. The weighted average interest rate at June 30, 2006 was 5.4 percent and 5.3 percent for Con Edison and Con Edison of New York, respectively. At June 30, 2007 and 2006, no loans were outstanding under the Companies’ credit agreements and $47 million and $15 million of letters of credit were outstanding, respectively.

 

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Note D - Pension Benefits

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

 

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and six months ended June 30, 2007 and 2006 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison      Con Edison of
New York
 
(Millions of Dollars)    2007     2006      2007     2006  

Service cost - including administrative expenses

   $ 33     $ 33      $ 31     $ 31  

Interest cost on projected benefit obligation

     123       115        115       108  

Expected return on plan assets

     (162 )     (155 )      (155 )     (149 )

Amortization of net actuarial loss

     40       32        34       26  

Amortization of prior service costs

     3       4        3       3  

NET PERIODIC BENEFIT COST

   $ 37     $ 29      $ 28     $ 19  

Amortization of regulatory asset*

     1       1        1       1  

TOTAL PERIODIC BENEFIT COST

   $ 38     $ 30      $ 29     $ 20  

Cost capitalized

     (11 )     (9 )      (8 )     (7 )

Cost deferred

     (20 )     (28 )      (18 )     (24 )

Cost charged/(credited) to operating expenses

   $ 7     $ (7 )    $ 3     $ (11 )
* Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

 

     For the Six Months Ended June 30,  
     Con Edison      Con Edison of
New York
 
(Millions of Dollars)    2007     2006      2007     2006  

Service cost - including administrative expenses

   $ 66     $ 67      $ 61     $ 62  

Interest cost on projected benefit obligation

     246       229        230       215  

Expected return on plan assets

     (323 )     (310 )      (309 )     (298 )

Amortization of net actuarial loss

     80       63        69       52  

Amortization of prior service costs

     5       7        5       6  

NET PERIODIC BENEFIT COST

   $ 74     $ 56      $ 56     $ 37  

Amortization of regulatory asset*

     2       2        2       2  

TOTAL PERIODIC BENEFIT COST

   $ 76     $ 58      $ 58     $ 39  

Cost capitalized

     (23 )     (17 )      (18 )     (13 )

Cost deferred

     (49 )     (58 )      (45 )     (51 )

Cost charged/(credited) to operating expenses

   $ 4     $ (17 )    $ (5 )   $ (25 )
* Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

 

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Note E - Other Postretirement Benefits

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

 

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and six months ended June 30, 2007 and 2006 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison      Con Edison of
New York
 
(Millions of Dollars)      2007         2006          2007         2006    

Service cost

   $ 5     $ 5      $ 4     $ 4  

Interest cost on accumulated other postretirement benefit obligation

     23       22        21       19  

Expected return on plan assets

     (20 )     (20 )      (19 )     (18 )

Amortization of net actuarial loss

     16       15        14       12  

Amortization of prior service cost

     (3 )     (4 )      (3 )     (4 )

Amortization of transition obligation

     1       1        1       1  

NET PERIODIC POSTRETIREMENT BENEFIT COST

   $ 22     $ 19      $ 18     $ 14  

Cost capitalized

     (8 )     (5 )      (6 )     (4 )

Cost deferred

     (9 )     (9 )      (9 )     (7 )

Cost charged to operating expenses

   $ 5     $ 5      $ 3     $ 3  
     For the Six Months Ended June 30,  
     Con Edison      Con Edison of
New York
 
(Millions of Dollars)      2007         2006          2007         2006    

Service cost

   $ 9     $ 9      $ 7     $ 7  

Interest cost on accumulated other postretirement benefit obligation

     46       43        41       38  

Expected return on plan assets

     (40 )     (39 )      (37 )     (36 )

Amortization of net actuarial loss

     33       29        29       24  

Amortization of prior service cost

     (7 )     (7 )      (7 )     (7 )

Amortization of transition obligation

     2       2        2       2  

NET PERIODIC POSTRETIREMENT BENEFIT COST

   $ 43     $ 37      $ 35     $ 28  

Cost capitalized

     (15 )     (11 )      (12 )     (9 )

Cost deferred

     (20 )     (15 )      (18 )     (12 )

Cost charged to operating expenses

   $ 8     $ 11      $ 5     $ 7  

 

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Note F - Environmental Matters

Superfund Sites

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

 

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

 

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate in 2006 dollars of the amount the Utilities will need to pay to discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate in 2006 dollars of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

 

The accrued liabilities and regulatory assets related to Superfund Sites at June 30, 2007 and December 31, 2006 were as follows:

 

     Con Edison    Con Edison of
New York
(Millions of Dollars)    2007    2006    2007    2006

Accrued Liabilities:

                           

Manufactured gas plant sites

   $ 268    $ 228    $ 221    $ 180

Other Superfund Sites

     62      64      61      63

Total

   $ 330    $ 292    $ 282    $ 243

Regulatory assets

   $ 367    $ 318    $ 304    $ 255

 

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

 

Environmental remediation payments and insurance recoveries received related to Superfund Sites for the three and six months ended June 30, 2007 and 2006 were as follows:

 

     For the Three Months Ended June 30,
     Con Edison    Con Edison of
New York
(Millions of Dollars)      2007        2006        2007        2006  

Remediation payments

   $ 9    $ 17    $ 7    $ 13

Insurance recoveries received

     1      3      1      3
     For the Six Months Ended June 30,
     Con Edison    Con Edison of
New York
(Millions of Dollars)    2007    2006    2007    2006

Remediation payments

   $ 18    $ 29    $ 16    $ 24

Insurance recoveries received

     1      3      1      3

 

In 2006, Con Edison of New York estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.1 billion. In 2006, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $96 million. These estimates were based on the assumption that there is contamination at the sites that have not yet been investigated and additional assumptions about these and the other sites regarding the extent of contamination and the type and extent of remediation that may be required. Actual experience may be materially different.

 

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment

 

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by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2006, Con Edison of New York estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, Con Edison of New York is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at June 30, 2007 and December 31, 2006 were as follows:

 

     Con Edison    Con Edison of
New York
(Millions of Dollars)        2007            2006            2007            2006    

Accrued liability - asbestos suits

   $ 10    $ 10    $ 10    $ 10

Regulatory assets - asbestos suits

   $ 10    $ 10    $ 10    $ 10

Accrued liability - workers’ compensation

   $ 119    $ 117    $ 114    $ 112

Regulatory assets - workers’ compensation

   $ 43    $ 42    $ 43    $ 42

 

Note G - Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a Con Edison of New York steam main located in midtown Manhattan ruptured for reasons that have not yet been determined. It has been reported that one person died and others were injured as a result of the incident. Debris from the incident included dirt and mud containing asbestos. The response to the incident has required the closing of several buildings and streets for various periods. The company has notified its insurers of the incident and believes that the policies currently in force will cover most of the company’s costs, which could be substantial, to satisfy its liability to others in connection with the incident.

 

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transaction). The transactions respectively involve gas distribution and electric generating facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In

 

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accordance with Statement of Financial Accounting Standards (SFAS) No. 13, “Accounting for Leases,” Con Edison is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. At June 30, 2007 and December 31, 2006, the company’s investment in these leveraged leases ($234 million and $232 million, respectively) net of deferred tax liabilities ($217 million and $208 million, respectively), amounted to $17 million and $24 million, respectively.

 

On audit of Con Edison’s tax return for 1997, the Internal Revenue Service (IRS) disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of this tax payment and interest. In September 2006, at the audit level, the IRS also disallowed $151 million of net tax deductions taken with respect to both of the LILO transactions for the tax years 1998 through 2001. In November 2006, Con Edison filed an appeal of this disallowance with the Appeals Office of the IRS, where consideration of this matter is pending. In March 2007, at the audit level, the IRS disallowed $43 million of net tax deductions taken with respect to both of the LILO transactions for the tax year 2005. Con Edison filed an appeal of this disallowance with the Appeals Office of the IRS, where consideration of this matter is pending.

 

Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edison’s estimated tax savings, reflected in its financial statements, from the two LILO transactions through June 30, 2007, in the aggregate, was $163 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $53 million.

 

Northeast Utilities Litigation

Con Edison and Northeast Utilities are pursuing claims against each other for damages as a result of the alleged breach of their agreement and plan of merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000. The litigation, entitled Consolidated Edison, Inc. v. Northeast Utilities, was commenced in March 2001 and is pending in the United States District Court for the Southern District of New York. The parties are seeking to recover from each other fees and expenses

 

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each incurred in connection with the merger agreement and preparing for the merger. In addition, Con Edison is seeking to recover from Northeast Utilities compensation for synergies that were lost when the merger did not occur, together with the attorney’s fees it has incurred in connection with the litigation. Con Edison does not expect that the lawsuit will have a material adverse effect on its financial position, results of operations or liquidity.

 

Mirant Litigation

In June 2007, the United States Bankruptcy Court for the Northern District of Texas approved the settlement of the legal proceedings relating to the June 1999 sale of generating assets by Con Edison of New York and O&R to affiliates of Mirant Corporation (which had filed a petition for reorganization under the U.S. Bankruptcy Code). Pursuant to the settlement, the proceedings against Con Edison of New York and O&R were dismissed, with prejudice, and they paid certain amounts to the Mirant affiliates, which, in aggregate, were not material to the Companies.

 

Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. In addition, a Con Edison Development subsidiary has issued a guarantee on behalf of an entity in which it has an equity interest. Maximum amounts guaranteed by Con Edison totaled $1.3 billion and $1.2 billion at June 30, 2007 and December 31, 2006, respectively.

 

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2007 is as follows:

 

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

Commodity transactions

   $ 893    $ 33    $ 211    $ 1,137

Affordable housing program

          22           22

Intra-company guarantees

     45           1      46

Other guarantees

     44      42           86

TOTAL

   $ 982    $ 97    $ 212    $ 1,291

 

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

 

Note H - Income Tax

Uncertain Tax Positions

Reference is made to Note H to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q for information about the Companies’ January 2007 adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48).

 

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The Companies’ uncertain tax positions include use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2005. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits ($331 million, of which $303 million is attributable to Con Edison of New York) and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits for Con Edison and Con Edison of New York could be approximately $99 million and $90 million, respectively. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.

 

At June 30, 2007, the liabilities for uncertain tax positions for Con Edison and Con Edison of New York were $147 million and $134 million, respectively, and accrued interest on the liabilities amounted to $32 million and $28 million, respectively. The Companies recognize interest accrued related to the liability for uncertain tax positions in interest expense and penalties, if any, in operating expenses in the Companies’ consolidated income statements. The Companies’ recognized interest expense for uncertain tax positions for the three and six months ended June 30, 2007 were as follows:

 

     For the Three Months
Ended June 30, 2007
   For the Six Months
Ended June 30, 2007
(Millions of Dollars)    Con
Edison
   Con Edison
of New York
   Con
Edison
   Con Edison
of New York

Interest expense

   $ 6    $ 3    $ 10    $ 7

 

In June 2007, Con Edison paid $160 million to the Internal Revenue Service, $147 million of which is attributable to Con Edison of New York, as a deposit for the repayment, including related interest, that the Companies expect will be required with respect to the past SSCM benefits. As a result, for federal income tax purposes, interest will continue to accrue only on the portion of the liability, if any, that exceeds the deposit. Con Edison and Con Edison of New York have recorded the deposit as a noncurrent asset on their consolidated balance sheet.

 

The Companies do not expect the total amounts of uncertain tax positions to significantly increase or decrease within the next 12 months.

 

Note I - Stock-Based Compensation

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

 

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In accordance with SFAS No. 123(R), “Share-Based Payment” (SFAS No. 123(R)), the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the three and six months ended June 30, 2007 and 2006:

 

     For the Three Months Ended June 30,
     Con Edison    Con Edison of
New York
(Millions of Dollars)      2007        2006        2007        2006  

Stock options

   $    $ 3    $    $ 2

Restricted stock units

     1      1      1      1

Performance-based restricted stock

     1      1      1      1

Total

   $ 2    $ 5    $ 2    $ 4
     For the Six Months Ended June 30,
     Con Edison    Con Edison of
New York
(Millions of Dollars)    2007    2006    2007    2006

Stock options

   $ 1    $ 6    $ 1    $ 5

Restricted stock units

     1      1      1      1

Performance-based restricted stock

     2      9      2      8

Total

   $ 4    $ 16    $ 4    $ 14

 

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Stock Options

A summary of changes in the status of stock options during the three and six months ended June 30, 2007 and 2006 were as follows:

 

     Con Edison    Con Edison of
New York
     Shares     Weighted
Average
Exercise
Price
   Shares     Weighted
Average
Exercise
Price

Outstanding at 12/31/05

   7,867,151     $ 41.913    6,697,401     $ 42.000

Granted

   804,000       46.880    699,000       46.880

Exercised

   (67,500 )     37.560    (60,800 )     37.404

Forfeited

   (20,900 )     42.691    (5,000 )     44.688

Outstanding at 3/31/06

   8,582,751     $ 42.412    7,330,601     $ 42.503

Granted

   859,900       43.500    711,700       43.500

Exercised

   (64,725 )     35.935    (55,725 )     35.538

Forfeited

   (19,000 )     44.353    (13,000 )     44.765

Outstanding at 6/30/06

   9,358,926     $ 42.553    7,973,576     $ 42.637

Outstanding at 12/31/06

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

Granted

                 

Exercised

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

Forfeited

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

Outstanding at 3/31/07

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

Granted

                 

Exercised

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

Forfeited

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

Outstanding at 6/30/07

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

 

The change in the fair value of all outstanding options from their grant dates to June 30, 2007 and 2006 (aggregate intrinsic value) for Con Edison were $15 million and $18 million, respectively. The change in the fair value of all outstanding options from their grant dates to June 30, 2007 and 2006 (aggregate intrinsic value) for Con Edison of New York were $12 million and $14 million, respectively. The aggregate intrinsic value of options exercised in the period ended June 30, 2007 and 2006 were $6 million and $1 million and the cash received by Con Edison for payment of the exercise price were $30 million and $3 million, respectively. The weighted average remaining contractual life of options outstanding is five years as of June 30, 2007.

 

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The following table summarizes stock options outstanding at June 30, 2007 for each plan year for the Companies:

 

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

Options

Outstanding

   Weighted
Average
Exercise
Price
   Options
Exercisable
  

Options

Outstanding

   Weighted
Average
Exercise
Price
   Options
Exercisable

2006

   9    1,645,600    $ 45.151       1,401,700    $ 45.186   

2005

   8    1,262,400      42.740       1,022,750      42.721   

2004

   7    950,950      43.776    950,950    756,850      43.769    756,850

2003

   6    810,600      39.916    810,600    637,900      39.941    637,900

2002

   5    959,850      42.510    959,850    822,350      42.510    822,350

2001

   4    506,050      37.750    506,050    438,050      37.750    438,050

2000

   3    145,350      32.500    145,350    109,850      32.500    109,850

1999

   2    561,450      47.938    561,450    544,050      47.938    544,050

1998/97

   1    111,550      42.563    111,550    110,050      42.563    110,050

Total

        6,953,800    $ 42.931    4,045,800    5,843,550    $ 43.033    3,419,100

 

There were no new awards granted in 2007. The exercise prices of options awarded in 2006 range from $43.50 to $46.88. The total expense to be recognized in future periods for unvested stock options outstanding as of June 30, 2007 is $3 million for Con Edison, including $2 million for Con Edison of New York.

 

Restricted Stock Units

At June 30, 2007 and 2006, there were 115,055 and 222,500 units outstanding for Con Edison employees, of which 63,055 and 171,700 units are outstanding for Con Edison of New York employees. The weighted average fair value as of the grant date of the outstanding units for June 30, 2007 and 2006 were $42.87 and $36.59 per unit for Con Edison, respectively. The weighted average fair value as of the grant date of the outstanding units for June 30, 2007 and 2006 were $45.88 and $36.31 per unit for Con Edison of New York, respectively. The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of June 30, 2007 for Con Edison and Con Edison of New York were $1.5 million and $1 million, respectively.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

A summary of changes in the status of the Performance RSUs’ Total Shareholder Return (TSR) portion during the three and six months ended June 30, 2007 and 2006 were as follows:

 

     Con Edison   

Con Edison of

New York

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

Non-vested at 12/31/05

   204,425     $ 31.461    171,950     $ 31.581

Granted

   99,300       43.830    87,400       43.830

Vested and Exercised

   (156,450 )     46.477    (144,475 )     46.455

Forfeited

                 

Non-vested at 3/31/06

   147,275     $ 29.313    114,875     $ 29.530

Granted

                 

Vested and Exercised

                 

Forfeited

                 

Non-vested at 6/30/06

   147,275     $ 31.250    114,875     $ 44.440

Non-vested at 12/31/06

   126,425     $ 13.992    94,025     $ 14.420

Granted

   113,600       45.730    81,848       45.730

Vested and Exercised

   (31,400 )        (21,475 )    

Forfeited

                 

Non-vested at 3/31/07

   208,625     $ 36.108    154,398     $ 35.709

Granted

   33,280       48.060    30,805       48.060

Vested and Exercised

                 

Forfeited

                 

Non-vested at 6/30/07

   241,905     $ 20.152    185,203     $ 20.155
* Fair value is determined using the Monte Carlo simulation.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

A summary of changes in the status of the Performance RSUs’ Executive Incentive Plan (EIP) portion during the three and six months ended June 30, 2007 and 2006 were as follows:

 

     Con Edison    Con Edison of
New York
     Units     Weighted
Average
Price
   Units     Weighted
Average
Price

Non-vested at 12/31/05

   204,425     $ 43.297    171,950     $ 43.300

Granted

   99,300       46.880    87,400       46.880

Vested and Exercised

   (156,450 )     46.477    (144,475 )     46.455

Forfeited

                 

Non-vested at 3/31/06

   147,275     $ 43.500    114,875     $ 43.500

Granted

                 

Vested and Exercised

                 

Forfeited

                 

Non-vested at 6/30/06

   147,275     $ 44.440    114,875     $ 44.440

Non-vested at 12/31/06

   126,425     $ 48.070    94,025     $ 48.070

Granted

   113,600       47.815    81,848       47.807

Vested and Exercised

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

Forfeited

                 

Non-vested at 3/31/07

   208,625     $ 51.060    154,398     $ 51.060

Granted

   33,280       51.060    30,805       51.060

Vested and Exercised

                 

Forfeited

                 

Non-vested at 6/30/07

   241,905     $ 45.120    185,203     $ 45.120

 

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of June 30, 2007 is $9 million, including $7 million for Con Edison of New York.

 

Stock Purchase Plan

In the three months ended June 30, 2007 and 2006, 155,415 shares and 162,533 shares were purchased under the Stock Purchase Plan at a weighted average price of $49.56 and $44.06 per share, respectively. In the six months ended June 30, 2007 and 2006, 304,812 shares and 312,117 shares were purchased under the Stock Purchase Plan at a weighted average price of $49.04 and $45.07 per share, respectively.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Note J - Financial Information By Business Segment

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

 

The financial data for the business segments are as follows:

 

     For the Three Months Ended June 30,
    

Operating

Revenues

    Inter-segment
revenues
    Depreciation and
amortization
   

Operating

Income

(Millions of Dollars)    2007    2006     2007     2006     2007    2006     2007    2006

Con Edison of New York

                                                           

Electric

   $ 1,731    $ 1,543     $ 3     $ 2     $ 111    $ 103     $ 191    $ 180

Gas

     377      316       1       1       21      20       43      30

Steam

     128      106       23       19       15      12       8      8

Consolidation adjustments

                (27 )     (22 )                    

Total Con Edison of New York

   $ 2,236    $ 1,965     $     $     $ 147    $ 135     $ 242    $ 218

O&R

                                                           

Electric

   $ 165    $ 123     $     $     $ 7    $ 6     $ 15    $ 9

Gas

     45      34                   3      3       1     

Total O&R

   $ 210    $ 157     $     $     $ 10    $ 9     $ 16    $ 9

Competitive energy businesses

   $ 583    $ 434     $ 1     $ 18     $ 10    $ 10     $ 22    $ 20

Other*

          (1 )     (1 )     (18 )          (1 )          1

Total Con Edison

   $ 3,029    $ 2,555     $     $     $ 167    $ 153     $ 280    $ 248
* Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

 

     For the Six Months Ended June 30,
    

Operating

Revenues

   Inter-segment
revenues
    Depreciation and
amortization
  

Operating

Income

(Millions of Dollars)    2007    2006    2007     2006     2007    2006    2007     2006

Con Edison of New York

                                                          

Electric

   $ 3,374    $ 3,176    $ 5     $ 5     $ 220    $ 204    $ 363     $ 317

Gas

     1,113      1,052      2       1       42      40      155       129

Steam

     422      381      40       38       30      24      70       69

Consolidation adjustments

               (47 )     (44 )                    

Total Con Edison of New York

   $ 4,909    $ 4,609    $     $     $ 292    $ 268    $ 588     $ 515

O&R

                                                          

Electric

   $ 309    $ 249    $     $     $ 13    $ 12    $ 25     $ 18

Gas

     158      140                  5      5      17       10

Total O&R

   $ 467    $ 389    $     $     $ 18    $ 17    $ 42     $ 28

Competitive energy businesses

   $ 1,071    $ 874    $ 3     $ 34     $ 20    $ 20    $ 36     $ 10

Other*

               (3 )     (34 )     1           (3 )    

Total Con Edison

   $ 6,447    $ 5,872    $     $     $ 331    $ 305    $ 663     $ 553
* Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

 

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Note K - Derivative Instruments and Hedging Activities

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

 

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of these hedges at June 30, 2007 and December 31, 2006 were as follows:

 

       Con Edison      Con Edison of
New York
 
(Millions of Dollars)      2007      2006      2007      2006  

Fair value of net assets

     $ (141 )    $ (319 )    $ (88 )    $ (206 )

 

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

 

Con Edison and Con Edison of New York had $198 million and $50 million credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at June 30, 2007, respectively. Con Edison’s net credit exposure consisted of $118 million with investment-grade counterparties (a portion of which is insured through credit insurance and hedged with credit default swaps), $78 million with commodity exchange brokers and $2 million with entities which lacked ratings or whose ratings were not investment grade. Con Edison of New York’s net credit exposure was primarily with commodity exchange brokers.

 

Cash Flow Hedges

Con Edison’s subsidiaries, primarily the competitive energy businesses, designate a portion of derivative instruments as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133). Under cash flow hedge accounting, to the extent a hedge is determined to be “effective,” the unrealized gain or loss on the hedge is recorded in OCI and reclassified to earnings at the time the underlying transaction is completed. A gain or loss relating to any portion of the hedge determined to be “ineffective” is recognized in earnings in the period in which such determination is made.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

The following table presents selected information related to these cash flow hedges included in accumulated OCI at June 30, 2007:

 

     Maximum Term    Accumulated Other
Comprehensive Income/
(Loss) Net of Tax
   Portion Expected to be
Reclassified to Earnings
during the Next 12 Months
(Term in Months/Millions of
Dollars)
   Con Edison    Con Edison of
New York
   Con Edison     Con Edison of  
New York
   Con Edison     Con Edison of
New York

Energy Price Hedges

   42    $    $ (16 )   $    $ (18 )   $

 

The actual amounts that will be reclassified to earnings may vary from the expected amounts presented above as a result of changes in market prices. The effect of reclassification from accumulated OCI to earnings will generally be offset by the recognition of the hedged transaction in earnings.

 

The unrealized net gains and losses relating to the hedge ineffectiveness of these cash flow hedges that were recognized in net earnings for the three and six months ended June 30, 2007 and 2006 were immaterial to the results of operations of the Companies for those periods.

 

Other Derivatives

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under SFAS No. 133. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. The Utilities are permitted by their respective regulators to reflect in rates all reasonably incurred gains and losses on these instruments. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K. Con Edison’s competitive energy businesses record unrealized gains and losses on these derivative contracts in earnings in the reporting period in which they occur. Generally, the collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. For the three months ended June 30, 2007 and 2006, Con Edison recorded in non-utility operating revenues an unrealized pre-tax gain amounting to $3 million and a pre-tax loss of $8 million, respectively. For the six months ended June 30, 2007 and 2006, Con Edison recorded in non-utility operating revenues unrealized pre-tax losses of $13 million and $59 million, respectively.

 

Interest Rate Hedging

Con Edison’s subsidiaries use interest rate swaps to manage interest rate exposure associated with debt. The fair values of these interest rate swaps at June 30, 2007 and December 31, 2006 were as follows:

 

       Con Edison      Con Edison of
New York
 
(Millions of Dollars)      2007      2006      2007      2006  

Fair value of interest rate swaps

     $ (15 )    $ (15 )    $ (5 )    $ (3 )

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

 

Fair Value Hedges

Con Edison of New York’s swap (related to its $225 million of Series 2001A tax-exempt debt) is designated as a fair value hedge, which qualifies for “short-cut” hedge accounting under SFAS No. 133. Under this method, changes in fair value of the swap are recorded directly against the carrying value of the hedged bonds and have no impact on earnings.

 

Cash Flow Hedges

Con Edison Development’s and O&R’s swaps are designated as cash flow hedges under SFAS No. 133. Any gain or loss on the hedges is recorded in OCI and reclassified to interest expense and included in earnings during the periods in which the hedged interest payments occur. See “Interest Rate Hedging” in Note O to the financial statements in Item 8 of the Form 10-K for the contractual components of the interest rate swaps accounted for as cash flow hedges.

 

Note L - New Financial Accounting Standards

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

 

In June 2007, the FASB issued Emerging Issues Task Force (EITF) Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to be used in Future Research and Development Activities.” The EITF concluded that nonrefundable advance payments for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. The guidance in this EITF becomes effective for fiscal years beginning after December 15, 2007. The Companies do not expect this EITF to have a material effect on their financial position, results of operations or liquidity.

 

In May 2007, the FASB issued FASB Staff Position (FSP) No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.” The guidance in this FSP clarifies how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The guidance in this FSP becomes effective upon adoption of the FASB Interpretation No. 48, which the Companies adopted in January 2007. See Note H. The application of this FSP did not have a material impact on the Companies’ financial position, results of operations or liquidity.

 

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The guidance in this Statement becomes

 

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effective for fiscal periods beginning after November 15, 2007. The Companies are currently evaluating the impact of this Statement on their financial position, results of operations or liquidity.

 

In September 2006, the FASB issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.” This Issue requires employers to record a liability for future benefits for endorsement split-dollar life insurance arrangements that provide a postretirement benefit to an employee. The guidance in this EITF becomes effective for fiscal periods beginning after December 15, 2007. The Companies do not expect this EITF to have a material impact on their financial position, results of operations or liquidity.

 

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value and expands the disclosures about fair value measurements. It applies to other accounting pronouncements that require fair value measurements and, accordingly, does not require any new fair value measurements. The guidance in this Statement becomes effective for financial statements issued for fiscal years beginning after November 15, 2007. The Companies are currently evaluating the impact of this Statement on their financial position, results of operations or liquidity.

 

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ITEM 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (COMBINED FOR CON EDISON AND CON EDISON OF NEW YORK)

This combined management’s discussion and analysis of financial condition and results of operations (MD&A) relates to the consolidated financial statements (the Second Quarter Financial Statements) included in this report of two separate registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (Con Edison of New York) and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers to Con Edison and Con Edison of New York. Con Edison of New York is a subsidiary of Con Edison and, as such, information in this MD&A about Con Edison of New York applies to Con Edison.

 

This MD&A should be read in conjunction with the Second Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2006 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part I, Item 2 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (File Nos. 1-14514 and 1-1217, the First Quarter Form 10-Q).

 

Information in the notes to the consolidated financial statements referred to in this discussion and analysis is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.

 

Corporate Overview

Con Edison’s principal business operations are those of its utility companies, Con Edison of New York and Orange and Rockland Utilities, Inc. (O&R), together known as the “Utilities.” Con Edison also has competitive energy businesses (see “Competitive Energy Businesses,” below). Certain financial data of Con Edison’s businesses is presented below:

 

   

Three Months Ended

June 30, 2007

 

Six Months Ended

June 30, 2007

  At June 30, 2007
(Millions of Dollars)   Operating
Revenues
  Net Income   Operating
Revenues
  Net Income   Assets

Con Edison of New York

  $ 2,236     74 %   $ 139     90 %   $ 4,909     76 %   $ 375     91 %   $ 23,359   86 %

O&R

    210     7 %     6     4 %     467     7 %     26     6 %     1,746   6 %

Total Utilities

    2,446     81 %     145     94 %     5,376     83 %     401     97 %     25,105   92 %

Con Edison Development (a)

    242     8 %     11     7 %     419     7 %     (1 )   — %     1,259   5 %

Con Edison Energy (a)

    15     — %         — %     28     — %     1     — %     241   1 %

Con Edison Solutions (a)

    330     11 %     7     5 %     644     10 %     23     6 %     161   1 %

Other (b)

    (4 )   — %     (9 )   (6)%     (20 )   — %     (14 )   (3)%     384   1 %

Total Con Edison

  $ 3,029     100 %   $ 154     100  %   $ 6,447     100 %   $ 410     100 %   $ 27,150   100 %
(a) Net income of the competitive energy businesses for the three months and six months ended June 30, 2007 includes $2 million and $(7) million, respectively, of after-tax net mark-to-market gains/(losses) (Con Edison Development, $2 million and $(19) million, Con Edison Energy, $1 million and $0, and Con Edison Solutions, $(1) million and $12 million).
(b) Represents inter-company and parent company accounting. See “Results of Operations,” below.

 

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AND RESULTS OF OPERATIONS (COMBINED FOR CON EDISON AND CON EDISON OF

NEW YORK) — CONTINUED

 

Con Edison’s net income for common stock for the three months ended June 30, 2007 was $154 million or $0.58 a share compared with earnings of $124 million or $0.50 a share for the three months ended June 30, 2006. Net income for common stock for the six months ended June 30, 2007 was $410 million or $1.57 a share compared with earnings of $305 million or $1.24 a share for the six months ended June 30, 2006. See “Results of Operations – Summary,” below.

 

Regulated Utilities

Con Edison of New York provides electric service to approximately 3.2 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility businesses, provides electric service to approximately 0.3 million customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to over 0.1 million customers in southeastern New York and adjacent areas of eastern Pennsylvania.

 

The Utilities are primarily “wires and pipes” energy delivery businesses that deliver energy in their service areas subject to extensive federal and state regulation. The Utilities’ customers buy this energy from the Utilities, or from other suppliers through the Utilities’ retail access programs. The Utilities purchase substantially all of the energy they sell to customers pursuant to firm contracts or through wholesale energy markets, and recover (generally on a current basis) the cost of the energy sold, pursuant to approved rate plans.

 

Con Edison anticipates that the Utilities will continue to provide substantially all of its earnings over the next few years. The Utilities’ earnings generally reflect demand for utility service and the Utilities’ ability to charge rates for their services that reflect the costs of service, including a return on invested equity capital. The factors affecting demand for utility service include growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Demand for electric service peaks during the summer air conditioning season. Demand for gas and steam service peaks during the winter heating season.

 

Because the energy delivery infrastructure must be adequate to meet demand in peak periods with a high level of reliability, the Utilities’ capital investment plans reflect in great part past actual electric peak demand adjusted to summer design weather conditions, as well as forecast growth in peak usage. The Utilities estimate that, under design weather conditions, the 2007 peak electric demand in their respective service areas will be 13,575 MW for Con Edison of New York and 1,610 MW for O&R. The average annual growth rate of the peak electric demand over the next five years at design

 

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (COMBINED FOR CON EDISON AND CON EDISON OF

NEW YORK) — CONTINUED

 

conditions is estimated to be approximately 1.5 percent for Con Edison of New York and 2.3 percent for O&R. Design conditions do not include the potential impact of any demand reduction programs invoked only in specific circumstances or new permanent energy efficiency programs. The Companies anticipate an ongoing need for substantial capital investment in order to meet this growth in peak usage with the high level of reliability that they currently provide (see “Liquidity and Capital Resources – Capital Requirements,” below).

 

The Utilities have rate plans approved by state utility regulators that cover the rates they can charge their customers. Con Edison of New York’s electric, gas and steam rate plans are effective through March 31, 2008, September 30, 2007 and September 30, 2008, respectively. In May 2007, Con Edison of New York filed a request with the New York State Public Service Commission (PSC) for a new electric rate plan to be effective April 1, 2008 and in June 2007 the company entered into a Joint Proposal with the PSC staff, which is subject to PSC approval, for a gas rate plan that would be effective from October 2007 through September 2010. O&R’s rate plans for its gas service in New York and its subsidiary’s electric service in New Jersey extend through October 31, 2009 and March 31, 2010, respectively. O&R’s rate plan for electric service in New York expired on October 31, 2006, and in March 2007 the PSC ordered that O&R’s rates be made temporary and subject to refund until a proceeding to set new rates is concluded. In August 2007, O&R filed for a new electric rate plan for its New York customers. Pursuant to the Utilities’ rate plans, charges to customers generally may not be changed during the respective terms of the rate plans other than for recovery of the costs incurred for energy supply, for specified increases provided in the rate plans and for limited other exceptions. The New York rate plans generally require the Utilities to share with customers earnings in excess of specified rates of return on common equity capital. Changes in delivery volumes are reflected in operating income (except to the extent that weather-normalization or revenue decoupling provisions apply to the gas businesses, and subject to provisions in the rate plans for sharing above-target earnings with customers). See “Regulatory Matters” below and Note B to the Second Quarter Financial Statements.

 

Accounting rules and regulations for public utilities include Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation,” pursuant to which the economic effects of rate regulation are reflected in financial statements. See “Application of Critical Accounting Policies,” below.

 

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NEW YORK) — CONTINUED

 

Competitive Energy Businesses

Con Edison’s competitive energy businesses participate in segments of the electricity industry that are less comprehensively regulated than the Utilities. These segments include the operation of electric generation facilities, trading of electricity and fuel, sales of electricity to wholesale and retail customers and sales of certain energy-related goods and services. At June 30, 2007, Con Edison’s equity investment in its competitive energy businesses was $582 million and their assets amounted to $1.7 billion.

 

Consolidated Edison Solutions, Inc. (Con Edison Solutions) sells electricity directly to delivery-service customers of utilities primarily in the Northeast and Mid-Atlantic regions (including some of the Utilities’ customers) and also offers energy-related services. Con Edison Solutions does not sell electricity to the Utilities. The company sold approximately 5.6 million MWHs of electricity to customers over the six-month period ended June 30, 2007.

 

Consolidated Edison Development, Inc. (Con Edison Development) owns, leases or operates generating plants and participates in other infrastructure projects. At June 30, 2007, the company owned or leased the equivalent of 1,668 MWs of capacity in electric generating facilities, of which 203 MWs are sold under long-term purchase power agreements and the balance is sold on the wholesale electricity markets. In addition, the company sells electricity at wholesale to utilities. Con Edison is considering strategic alternatives with respect to the electric generation facilities of its competitive energy businesses.

 

Consolidated Edison Energy, Inc. (Con Edison Energy) procures electric energy and capacity for Con Edison Solutions and fuel for Con Edison Development and others. It sells the electric capacity and energy produced by plants owned, leased or operated by Con Edison Development and others. The company also provides energy risk management services to Con Edison Solutions and Con Edison Development, offers these services to others and manages wholesale supply transactions for Con Edison Development.

 

The competitive energy businesses are focusing on increasing their customer base, gross margins and the value of their existing assets. See “Liquidity and Capital Resources – Capital Requirements” and “Capital Resources,” below.

 

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Results of Operations - Summary

Con Edison’s earnings per share (basic and diluted) for the three months ended June 30, 2007 were $0.58 compared with $0.50 for the 2006 period. Con Edison’s earnings per share for the six months ended June 30, 2007 were $1.57 ($1.56 on a diluted basis) compared with $1.24 (basic and diluted) for the 2006 period.

 

Net income for the three and six months ended June 30, 2007 and 2006 was as follows:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
(Millions of Dollars)    2007     2006     2007     2006  

Con Edison of New York

   $ 139     $ 116     $ 375     $ 318  

O&R

     6       3       26       16  

Competitive energy businesses (a)

  

 

18

 

    12       23       (7 )

Other (b)

     (9 )     (5 )     (14 )     (21 )

Total continuing operations

     154       126       410       306  

Discontinued operations (c)

           (2 )           (1 )

CON EDISON

   $ 154     $ 124     $ 410     $ 305  
(a) Includes $2 million, $(5) million, $(7) million and $(35) million of after-tax net mark-to-market gains/(losses) in the three months ended June 30, 2007 and 2006 and the six months ended June 30, 2007 and 2006, respectively.
(b) Other consists of inter-company and parent company accounting. See “Results of Operations,” below.
(c) Represents the discontinued operations of Con Edison Communications. See Note T to the financial statements in Item 8 of the Form 10-K.

 

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The Companies’ results of operations for the three and six months ended June 30, 2007, as compared with the 2006 periods, reflect sales growth, colder winter and warmer spring weather, the Utilities’ rate agreements (which are designed to recover increases in certain operations and maintenance expenses, depreciation and property taxes, and interest charges), the impact of storms and the results of the competitive energy businesses including net mark-to-market effects. The following table presents the estimated effect on earnings per share and net income for the three and six months ended June 30, 2007 as compared with the 2006 periods, resulting from these and other major factors:

 

     Three Months Variation     Six Months Variation  
     Earnings
per Share
    Net Income
(Millions of Dollars)
    Earnings
per Share
    Net Income
(Millions of Dollars)
 

Con Edison of New York

                                

Sales growth

   $ 0.03     $ 7     $ 0.06     $ 15  

Impact of weather

     0.07       16       0.11       27  

Electric rate agreement

     0.10       23       0.16       40  

Gas rate agreement

           1       0.04       10  

Net transfers to firm gas service

     0.01       3       0.04       9  

Steam rate agreement

     0.02       5       0.04       11  

Operations and maintenance expense

     (0.09 )     (22 )     (0.10 )     (24 )

Depreciation and property taxes

     (0.08 )     (18 )     (0.14 )     (33 )

Interest charges

     (0.02 )     (5 )     (0.07 )     (17 )

Other (includes dilutive effect of new stock issuances)

     0.02       13             19  

Total Con Edison of New York

     0.06       23       0.14       57  

Orange and Rockland Utilities

           3       0.04       10  

Competitive energy businesses

                                

Earnings excluding net mark-to-market

effects

                 0.01       3  

Net mark-to-market effects

     0.03       7       0.11       28  

Other, including parent company expenses

     (0.02 )     (5 )     0.03       6  

Discontinued operations

     0.01       2             1  

Total

   $ 0.08     $ 30     $ 0.33     $ 105  

 

See “Results of Operations” below for further discussion and analysis of results of operations.

 

Risk Factors

The Companies’ businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect actual operating results, cash flows and financial condition. The factors include those described under “Risk Factors” in Item 7 of the Form 10-K.

 

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Forward-Looking Statements

This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as “expects,” “estimates,” “anticipates,” “intends,” “believes,” “plans,” “will” and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various factors such as those discussed under “Risk Factors” in Item 7 of the Form 10-K.

 

Application of Critical Accounting Policies

The Companies’ financial statements reflect the application of their accounting policies, which conform to accounting principles generally accepted in the United States of America. The Companies’ critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits, contingencies, long-lived assets, derivative instruments, goodwill and leases. See “Application of Critical Accounting Policies” in Item 7 of the Form 10-K.

 

Liquidity and Capital Resources

The Companies’ liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows and as discussed below. See “Liquidity and Capital Resources” in Item 7 of the Form 10-K. Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the six months ended June 30, 2007 and 2006 are summarized as follows:

 

     Con Edison     Con Edison of New York  
(Millions of Dollars)      2007         2006         Variance         2007         2006         Variance    

Operating activities

   $ 821     $ 803     $ 18     $ 655     $ 685     $ (30 )

Investing activities

     (933 )     (859 )     (74 )     (890 )     (843 )     (47 )

Financing activities

     204       38       166       248       136       112  

Net change

   $ 92     $ (18 )   $ 110     $ 13     $ (22 )   $ 35  

Balance at beginning of period

     94       81       13       47       61       (14 )

Balance at end of period

   $ 186     $ 63     $ 123     $ 60     $ 39     $ 21  

 

Cash Flows from Operating Activities

The Utilities’ cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is dependent primarily on factors

 

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external to the Utilities, such as weather and economic conditions. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate agreements. In general, changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate agreements. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K.

 

Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges include depreciation and deferred income tax expense. For the Companies, principal non-cash credits also included prepaid pension costs and amortizations of certain net regulatory liabilities, including the tax effects, in accordance with their rate plans. See “Application of Critical Accounting Policies – Accounting for Pensions and Other Postretirement Benefits” in Item 7 of the Form 10-K and Notes D and E to the Second Quarter Financial Statements.

 

Net cash flows from operating activities for the six months ended June 30, 2007 for Con Edison and Con Edison of New York were $18 million higher and $30 million lower, respectively, than in the 2006 period. Net cash flows reflect the $385 million payment of Con Edison of New York’s New York City property taxes in the first half of 2007 with no comparable payment made in the 2006 period. The company achieved a 1.5 percent reduction in its City property taxes for the fiscal year ending June 30, 2006 by prepaying the annual tax amount due on June 30, 2005, $734 million, instead of paying semi-annual installments on their due dates (July 1, 2005 and January 1, 2006). Net cash flows also reflect increased deferred tax benefits and increased net income.

 

The change in net cash flows also reflects the timing of payments for and recovery of energy costs. This timing issue is reflected within changes to accounts receivable – customers, recoverable energy costs and accounts payable balances.

 

The decrease in other receivables reflects primarily lower utility hedging program broker margin deposits based on higher commodity prices. For Con Edison, the decrease also reflects the expiration of certain wholesale load contracts and receivables associated with hedging activities at the competitive energy businesses.

 

The change in other deferred charges and noncurrent assets reflects a $160 million deposit paid by Con Edison to the Internal Revenue Service with respect to the timing of deductions of certain construction related costs, see Note H to the Second Quarter Financial Statements. Con Edison of New York’s portion of this deposit, also recorded as a noncurrent asset, was $147 million.

 

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See “Other Changes in Assets and Liabilities,” below.

 

Cash Flows Used in Investing Activities

Net cash flows used in investing activities for Con Edison and Con Edison of New York were $74 million and $47 million higher, respectively, for the six months ended June 30, 2007 than in the 2006 period. The increases for the Companies reflect primarily increased utility construction expenditures and lower net proceeds from the sale of certain properties ($30 million in 2007, as compared with $60 million in 2006). For Con Edison, the increase also reflects $39 million of net proceeds from the completion of the sale of Con Edison Communications that offset cash flows used in investing activities in 2006.

 

Cash Flows from Financing Activities

Net cash flows from financing activities for Con Edison and Con Edison of New York increased $166 million and $112 million in the six months ended June 30, 2007 compared with the 2006 period, respectively.

 

Con Edison’s cash flows from financing activities for the six months ended June 30, 2007 as compared with the 2006 period reflects the issuance through a public offering of 11 million Con Edison common shares in the 2007 period, resulting in net proceeds of $558 million. Con Edison invested $418 million of the net proceeds in Con Edison of New York and $40 million in O&R, for funding of their construction expenditures and for other general corporate purposes. The remainder of the net proceeds are expected to be invested in the Utilities later this year. Con Edison’s cash flows from financing activities also reflect common shares issued through its dividend reinvestment and employee stock plans (2007: 2.4 million shares for $93 million, 2006: 0.9 million shares for $21 million). In addition, as a result of the stock plan issuances, cash used to pay common stock dividends was reduced by $20 million in 2007 and 2006, respectively.

 

Cash flows from financing activities for Con Edison for the six months ended June 30, 2007 as compared with the 2006 period reflects an increase in commercial paper balances (included on the consolidated balance sheets as “Notes payable”) and for the Companies, reflects the repayment of short-term debt in 2006. See Note C to the Second Quarter Financial Statements. In May 2007, Con Edison issued commercial paper and used available cash balances to redeem in advance of maturity, $325 million 7.25% 40-year Public Income NotES.

 

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Net cash flows from financing activities for the Companies during the six months ended June 30, 2006 also reflect the following Con Edison of New York transactions:

 

2006

   

Issued $400 million 5.85% 30-year debentures, the proceeds of which were used for general corporate purposes; and

 

   

Issued $400 million 6.20% 30-year debentures, the proceeds of which were used for general corporate purposes and to redeem in advance of maturity $100 million 7.75% 30-year debentures.

 

Con Edison’s net cash flows from financing activities also include O&R’s financings. In February 2007, O&R’s New Jersey subsidiary redeemed at maturity $20 million 7.125% First Mortgage Bonds.

 

Common stock issuances and external borrowings are sources of liquidity that could be affected by changes in credit ratings, financial performance and capital market conditions. For information about the Companies’ credit ratings and certain financial ratios, see “Capital Resources,” below.

 

Other Changes in Assets and Liabilities

The following table shows changes in assets and liabilities at June 30, 2007, compared with December 31, 2006, that have not impacted the Companies’ consolidated statements of cash flows.

 

(Millions of Dollars)


   Con Edison
2007 vs. 2006
Variance


    Con Edison of New York
2007 vs. 2006
Variance


 

Assets

                

Fair value of derivative assets

   $ (70 )   $ 3  

Deferred derivative losses

     (73 )     (57 )

Liabilities

                

Uncertain income taxes

     147       134  

Fair value of derivative liabilities

     (250 )     (124 )

 

For information on the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, see Note H to the Second Quarter Financial Statements.

 

In the context of higher forward energy market prices and the realization of gains and losses in the six months ended June 30, 2007, the Companies’ policies for managing their energy purchases resulted in a decrease in the fair value of derivative liabilities at June 30, 2007 as compared with year-end 2006.

 

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For Con Edison and Con Edison of New York, the decrease in the fair value of derivative liabilities resulted in a decrease in the deferred derivative losses at June 30, 2007 as compared with year-end 2006. For the Utilities, mark-to-market activity had no effect on net income as the amounts were deferred as regulatory assets/liabilities (deferred derivative losses/gains). In accordance with provisions approved by state regulators, the Utilities generally recover from customers their energy supply costs, net of gains and losses on derivative instruments used to hedge energy purchases. The mark-to-market accounting for Con Edison’s competitive energy businesses resulted in a net decrease in the fair value of derivative assets and liabilities. The decline in the fair value of derivative assets reflects increasing capacity prices and the timing of entering into new positions, which was offset in part by the maturity of certain contract positions and the impact of increasing energy prices. The competitive energy businesses record mark-to-market gains and losses on derivative instruments in earnings in the reporting period in which such changes occur for contracts that do not meet the requirements of cash flow hedge accounting or for which such accounting has not been elected. For the Companies, changes in fair value of derivative instruments may lead to collateral payments made to or received from counterparties or brokers that are reflected in other current assets and other current liabilities.

 

In addition, in March 2007, in accordance with the 2005 Electric Rate Plan, Con Edison of New York offset $265 million of regulatory liabilities against an equal amount of regulatory assets. See Note B to the Financial Statements, in the First Quarter Form 10-Q.

 

Capital Resources

At June 30, 2007, there was no material change in the Companies’ capital resources compared to those disclosed under “Capital Resources” in Item 7 of the Form 10-K, other than as described below.

 

For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the six months ended June 30, 2007, the 12 months ended December 31, 2006 and the six months ended June 30, 2006 was:

 

     Earnings to Fixed Charges (Times)

     For the Six Months Ended
June 30, 2007


   For the Twelve Months Ended
December 31, 2006


   For the Six Months Ended
June 30, 2006


Con Edison

   3.1    2.9    2.7

Con Edison of New York

   3.4    3.2    3.3

 

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For each of the Companies, the common equity ratio at June 30, 2007 and December 31, 2006 was:

 

    

Common Equity Ratio

(Percent of total capitalization)


     June 30, 2007

   December 31, 2006

Con Edison

   52.4    48.5

Con Edison of New York

   52.7    50.0

 

Capital Requirements

At June 30, 2007, there was no material change in the Companies’ capital requirements compared to those discussed under “Capital Requirements” in Item 7 of the Form 10-K.

 

Contractual Obligations

At June 30, 2007, there was no material change in the Companies’ aggregate obligations to make payments pursuant to contracts compared to those discussed under “Contractual Obligations” in Item 7 of the Form 10-K.

 

Electric Power Requirements

At June 30, 2007, there were no material changes in the Companies’ electric power requirements compared to those disclosed under “Electric Power Requirements” in Item 7 of the Form 10-K.

 

Regulatory Matters

At June 30, 2007, there were no material changes in the Companies’ regulatory matters compared to those disclosed under “Regulatory Matters” in Item 7 of the Form 10-K and Part I, Item 2 of the First Quarter Form 10-Q, “Rate and Restructuring Agreements” in Note B to the financial statements in Item 8 of the Form 10-K and Note B to the financial statements included in Part I, Item 1 of the First Quarter Form 10-Q, other than as described in Note B to the Second Quarter Financial Statements.

 

Financial and Commodity Market Risks

The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk. At June 30, 2007, there were no material changes in the Companies’ financial and commodity market risks compared to those disclosed under “Financial and Commodity Market Risks” in Item 7 of the Form 10-K and in Part I, Item 2 of the First Quarter Form 10-Q, other than as described in Note K to the Second Quarter Financial Statements.

 

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Material Contingencies

For information concerning potential liabilities arising from the Companies’ material contingencies, see “Application of Critical Accounting Policies – Accounting for Contingencies” and Notes B, F, G, and H to the Second Quarter Financial Statements.

 

Results of Operations

Results of operations reflect, among other things, the Companies’ accounting policies (see “Application of Critical Accounting Policies” in Item 7 of the Form 10-K), rate plans that cover the rates the Utilities can charge their customers (see “Regulatory Matters” in Item 7 of the Form 10-K) and demand for utility service. Demand for utility service is affected by weather, economic conditions and other factors.

 

The Companies’ results of operations for the three and six months ended June 30, 2007, as compared with the 2006 periods, reflect sales growth, colder winter and warmer spring weather in 2007, the Utilities’ rate agreements (which are designed to recover increases in certain operations and maintenance expenses, depreciation and property taxes, and interest charges), the impact of storms and the results of the competitive energy businesses including mark-to-market effects. For additional information about major factors affecting earnings, see “Results of Operations – Summary,” above.

 

In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers (see “Recoverable Energy Costs” in Note A and “Regulatory Matters” in Note B to the financial statements in Item 8 of the Form 10-K). Accordingly, such costs do not generally affect the Companies’ results of operations. Management uses the term “net revenues” (operating revenues less such costs) to identify changes in operating revenues that may affect the Companies’ results of operations. Management believes that, although “net revenues” may not be a measure determined in accordance with accounting principles generally accepted in the United States of America, the measure facilitates the analysis by management and investors of the Companies’ results of operations.

 

Con Edison’s principal business segments are Con Edison of New York’s regulated electric, gas and steam utility activities, O&R’s regulated electric and gas utility activities and Con Edison’s competitive energy businesses. Con Edison of New York’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three and six months ended June 30, 2007 and 2006 follows. All inter-segment transactions have been eliminated. For additional business segment financial information, see Note J to the Second Quarter Financial Statements.

 

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THREE MONTHS ENDED JUNE 30, 2007 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2006

The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 2007 compared with 2006 were:

 

    Con Edison*     Con Edison of New York     O&R     Competitive Businesses
and Other**
 
(Millions of Dollars)   Increases
(Decreases)
Amount
  Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
  Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
 

Operating revenues

  $ 474   18.6 %   $ 271   13.8 %   $ 53     33.8 %   $ 150     34.6 %

Purchased power

    232   22.8       71   11.1       37     61.7       124     39.1  

Fuel

    36   24.8       23   23.0       N/A     N/A       13     28.9  

Gas purchased for resale

    61   32.3       47   27.8       9     47.4       5     Large  

Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)

    145   12.1       130   12.3       7     9.0       8     11.4  

Other operations and maintenance

    67   15.3       67   18.4       (1 )   (2.2 )     1     3.7  

Depreciation and amortization

    14   9.2       12   8.9       1     11.1       1     11.1  

Taxes, other than income taxes

    19   6.4       21   7.4       (1 )   (8.3 )     (1 )   (20.0 )

Income taxes

    13   20.0       6   10.9       1     50.0       6     75.0  

Operating income

    32   12.9       24   11.0       7     77.8       1     4.8  

Other income less deductions and related income tax

    4   50.0       6   Large       (1 )   Large       (1 )   (20.0 )

Net interest expense

    8   6.2       7   6.7       3     50.0       (2 )   (10.5 )

Income from continuing operations

    28   22.2       23   19.8       3     Large       2     28.6  

Discontinued operations

    2   Large       N/A   N/A       N/A     N/A       2     Large  

Net income

  $ 30   24.2 %   $ 23   19.8 %   $ 3     Large     $ 4     80.0 %
* Represents the consolidated financial results of Con Edison and its businesses.
** Includes inter-company and parent company accounting.

 

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Con Edison of New York

Electric

Con Edison of New York’s electric sales and deliveries, excluding off-system sales, for the three months ended June 30, 2007 compared with the 2006 period were:

 

    Millions of kWhs Delivered     Revenues in Millions  
    Three Months Ended               Three Months Ended            
Description   June 30,
2007
  June 30,
2006
  Variation     Percent
Variation
    June 30,
2007
  June 30,
2006
  Variation     Percent
Variation
 

Residential/Religious

  2,672   2,622   50     1.9 %   $ 607   $ 527   $ 80     15.2 %

Commercial/Industrial

  3,023   3,117   (94 )   (3.0 )     598     529     69     13.0  

Retail access customers

  5,015   4,318   697     16.1       286     240     46     19.2  

NYPA, Municipal Agency and other sales

  2,662   2,570   92     3.6       76     73     3     4.1  

Other operating revenues

                164     174     (10 )   (5.7 )

Total

  13,372   12,627   745     5.9 %   $ 1,731   $ 1,543   $ 188     12.2 %

 

Con Edison of New York’s electric operating revenues were $188 million higher in the three months ended June 30, 2007 as compared with the 2006 period, due primarily to an increase in purchased power and recoverable fuel costs ($66 million and $15 million, respectively), the third year of the electric rate plan ($38 million, which includes $23 million more relating to the reconciliation of the differences between the actual amount of transmission and distribution (T&D) utility plant, net of depreciation (Net T&D) to the amounts reflected in electric rates), increased recoveries of demand side management programs ($23 million), sales growth ($9 million), the impact of the warmer spring weather ($18 million) and higher transmission revenues ($4 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K and Note B to the Second Quarter Financial Statements.

 

Electric sales and delivery volumes in Con Edison of New York’s service area increased 5.9 percent in the three months ended June 30, 2007 compared with the 2006 period, primarily reflecting warmer spring weather and sales growth in the 2007 period compared with 2006. After adjusting for variations, principally weather and billing days in each period, electric sales and delivery volumes in Con Edison of New York’s service area increased 2.1 percent in the three months ended June 30, 2007 compared with the 2006 period.

 

Con Edison of New York’s electric fuel costs increased $15 million in the three months ended June 30, 2007 compared with the 2006 period, reflecting an increase in unit costs ($13 million) and higher

 

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sendout volumes from the company’s generating facilities ($2 million). Electric purchased power costs increased $66 million in the 2007 period compared with the 2006 period reflecting an increase in unit costs ($98 million), offset in part by a decrease in purchased volumes ($32 million), primarily associated with additional customers obtaining their energy supply through competitive providers in the three months ended June 30, 2007.

 

Con Edison of New York’s electric operating income increased $10 million in the three months ended June 30, 2007 compared with the 2006 period. The increase reflects higher net revenues ($107 million, due principally to the provisions of the electric rate agreement), offset in part by higher operations and maintenance costs ($66 million, due primarily to the impact of storms and demand side management program expenses), taxes other than income taxes ($15 million, principally property taxes), income taxes ($8 million) and depreciation ($8 million).

 

Gas

Con Edison of New York’s gas sales and deliveries, excluding off-system sales, in the three months ended June 30, 2007 compared with the 2006 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Three Months Ended                Three Months Ended             
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
 

Residential

   8,558    7,451    1,107     14.9 %   $ 176    $ 151    $ 25     16.6 %

General

   6,836    6,309    527     8.4       112      96      16     16.7  

Firm transportation

   8,383    4,823    3,560     73.8       35      21      14     66.7  

Total firm sales and transportation

   23,777    18,583    5,194     28.0       323      268      55     20.5  

Interruptible sales

   3,455    2,500    955     38.2       26      27      (1 )   (3.7 )

NYPA

   11,581    9,879    1,702     17.2       1      1           

Generation plants

   20,645    15,519    5,126     33.0       12      12           

Other

   3,771    5,307    (1,536 )   (28.9 )     6      5      1     20.0  

Other operating revenues

                   9      3      6     Large  

Total

   63,229    51,788    11,441     22.1 %   $ 377    $ 316    $ 61     19.3 %

 

Con Edison of New York’s gas operating revenues in the three months ended June 30, 2007 increased $61 million compared with the 2006 period, reflecting an increase in purchased gas costs ($47 million), the gas rate plan ($6 million) and sales growth ($2 million). Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.

 

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Con Edison of New York’s sales and transportation volumes for firm customers increased 28.0 percent in the three months ended June 30, 2007 compared with the 2006 period reflecting primarily the movement of certain customers from interruptible to firm service. After adjusting for variations, principally weather and billing days and net transfers to firm service in each period, firm gas sales and transportation volumes in the company’s service area increased 6.0 percent in the 2007 period. Con Edison of New York’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

 

Con Edison of New York’s purchased gas cost increased $47 million in the three months ended June 30, 2007 compared with the 2006 period due to higher unit costs ($31 million) and higher sendout ($16 million).

 

Con Edison of New York’s gas operating income increased $13 million in the three months ended June 30, 2007 compared with the 2006 period due to higher net revenues.

 

Steam

Con Edison of New York’s steam sales and deliveries in the three months ended June 30, 2007 compared with the 2006 period were:

 

     Millions of Pounds Delivered     Revenues in Millions  
     Three Months Ended               Three Months Ended            
Description    June 30,
2007
   June 30,
2006
   Variation    Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation    Percent
Variation
 

General

   84    64    20    31.3 %   $ 4    $ 3    $ 1    33.3 %

Apartment house

   1,450    1,225    225    18.4       35      29      6    20.7  

Annual power

   3,391    2,841    550    19.4       79      66      13    19.7  

Other operating revenues

                  10      8      2    25.0  

Total

   4,925    4,130    795    19.2 %   $ 128    $ 106    $ 22    20.8 %

 

Con Edison of New York’s steam operating revenues increased $22 million in the three months ended June 30, 2007 compared with the 2006 period, due primarily to the weather in 2007 ($8 million) and higher revenues under the steam rate plan ($8 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.

 

Steam sales and delivery volumes increased 19.2 percent in the three months ended June 30, 2007 compared with the 2006 period, reflecting primarily the impact of weather. After adjusting for variations, principally weather and billing days in each period, steam sales and deliveries increased 1.1 percent in the 2007 period.

 

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Con Edison of New York’s steam purchased power costs increased $5 million in the three months ended June 30, 2007 compared with the 2006 period due primarily to higher sendout volumes ($3 million) and higher unit costs ($2 million). Steam fuel costs increased $8 million due primarily to higher sendout volumes ($5 million) and higher unit costs ($3 million).

 

Steam operating income increased $1 million in the three months ended June 30, 2007 compared with the 2006 period reflecting higher net revenues ($10 million), offset in part by higher operations and maintenance costs ($6 million) and taxes, other than income taxes ($4 million).

 

Net Interest Expense

Net interest expense increased $7 million in the three months ended June 30, 2007 compared with the 2006 period, due principally to new debt issuances since June 30, 2006 and interest accrued for the potential repayment of tax benefits from the timing of tax deductions of certain construction related costs (see Note H to the Second Quarter Financial Statements).

 

O&R

Electric

O&R’s electric sales and deliveries, excluding off-system sales, in the three months ended June 30, 2007 compared with the 2006 period were:

 

     Millions of kWhs Delivered     Revenues in Millions  
     Three Months Ended                Three Months Ended              
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
    Variation     Percent
Variation
 

Residential/Religious

   443    402    41     10.2 %   $ 71    $ 50     $ 21     42.0 %

Commercial/Industrial

   561    528    33     6.3       74      53       21     39.6  

Retail access customers

   402    424    (22 )   (5.2 )     17      18       (1 )   (5.6 )

Public authorities

   26    27    (1 )   (3.7 )     3      3            

Other operating revenues

                        (1 )     1     Large  

Total

   1,432    1,381    51     3.7 %   $ 165    $ 123     $ 42     34.1 %

 

O&R’s electric operating revenues increased $42 million in the three months ended June 30, 2007 compared with the 2006 period due primarily to increased recoverable purchased power costs ($37 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See Note B to the financial statements in Item 8 of the Form 10-K.

 

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Electric delivery volumes in O&R’s service area increased 3.7 percent in the three months ended June 30, 2007 compared with the 2006 period primarily as a result of the warmer spring weather. After adjusting for weather variations and unbilled volumes, electric delivery volumes in O&R’s service area increased 1.8 percent in the 2007 period compared with the 2006 period.

 

Electric operating income increased by $6 million in the three months ended June 30, 2007 compared with the 2006 period, due primarily to higher net revenues ($4 million) and lower operations and maintenance costs ($3 million).

 

Gas

O&R’s gas sales and deliveries, excluding off-system sales, in three months ended June 30, 2007 compared with the 2006 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Three Months Ended                Three Months Ended             
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
 

Residential

   1,249    1,066    183     17.2 %   $ 24    $ 16    $ 8     50.0 %

General

   304    275    29     10.5       5      4      1     25.0  

Firm transportation

   1,544    1,354    190     14.0       6      5      1     20.0  

Total firm sales and transportation

   3,097    2,695    402     14.9       35      25      10     40.0  

Interruptible sales

   1,408    1,384    24     1.7       6      7      (1 )   (14.3 )

Generation plants

   864    891    (27 )   (3.0 )     1           1     Large  

Other

   155    137    18     13.1                      

Other gas revenues

                   3      2      1     50.0  

Total

   5,524    5,107    417     8.2 %   $ 45    $ 34    $ 11     32.3 %

 

O&R’s gas operating revenues increased $11 million in the three months ended June 30, 2007 compared with the 2006 period. The increase is due primarily to the increase in purchased gas costs.

 

Sales and transportation volumes for firm customers increased 14.9 percent in the three months ended June 30, 2007 compared with the 2006 period, reflecting primarily the impact of the weather. After adjusting for weather and other variations in each period, total firm sales and transportation volumes were 0.9 percent higher in the three months ended June 30, 2007 compared with the 2006 period. O&R’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

 

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Gas operating income increased by $1 million in the three months ended June 30, 2007 compared with the 2006 period, due primarily to higher net revenues ($3 million), offset in part by higher operations and maintenance costs ($2 million).

 

Competitive Energy Businesses

The competitive energy businesses’ earnings increased $6 million in the three months ended June 30, 2007 compared with the 2006 period, due primarily to mark-to-market gains. Excluding mark-to-market activity in both periods, earnings were unchanged in the three months ended June 30, 2007 compared with the 2006 period.

 

Operating revenues increased $132 million in the three months ended June 30, 2007 compared with the 2006 period, due primarily to higher electric retail and wholesale revenues. Electric retail revenues increased $57 million in the three months ended June 30, 2007 as compared with the 2006 period, of which $49 million was due to higher sales volumes and $8 million was due to an increase in unit prices. Electric wholesale revenues increased $45 million in the three months ended June 30, 2007 as compared with the 2006 period, primarily due to higher prices. Pre-tax mark-to-market revenue increased $12 million in the three months ended June 30, 2007 compared with the 2006 period and other revenues, primarily wholesale, increased $18 million.

 

Operating expenses excluding income taxes increased $124 million in the three months ended June 30, 2007 compared with the 2006 period, reflecting higher purchased power costs ($106 million), fuel costs ($14 million) and gas purchased for resale costs ($4 million).

 

Income taxes increased $7 million in the three months ended June 30, 2007 as compared with the 2006 period, reflecting primarily higher income.

 

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SIX MONTHS ENDED JUNE 30, 2007 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2006

 

The Companies’ results of operations (which were discussed above under “Results of Operations - Summary”) in 2007 compared with 2006 were:

 

    Con Edison*     Con Edison of New York     O&R     Competitive Businesses
and Other**
 
(Millions of Dollars)   Increases
(Decreases)
Amount
  Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
 

Operating revenues

  $ 575   9.8 %   $ 300     6.5 %   $ 78     20.1 %   $ 197     22.5 %

Purchased power

    158   7.2       (48 )   (3.4 )     53     41.7       153     23.2  

Fuel

    50   12.5       42     14.3       N/A     N/A       8     7.5  

Gas purchased for resale

    19   2.6       22     3.5       6     6.5       (9 )   (37.5 )

Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)

    348   13.8       284     12.5       19     11.2       45     53.6  

Other operations and maintenance

    125   14.3       124     16.8       1     1.1            

Depreciation and amortization

    26   8.5       24     9.0       1     5.9       1     5.0  

Taxes, other than income taxes

    30   4.9       34     5.9       (3 )   (12.5 )     (1 )   (8.3 )

Income taxes

    57   33.1       29     17.3       6     60.0       22     Large  

Operating income

    110   19.9       73     14.2       14     50.0       23     Large  

Other income less deductions and related income tax

    17   Large       9     75.0       (1 )   Large       9     Large  

Net interest expense

    23   9.0       25     12.3       3     23.1       (5 )   (12.8 )

Income from continuing operations

    104   34.0       57     17.9       10     62.5       37     Large  

Discontinued operations

    1   Large       N/A     N/A       N/A     N/A       1     Large  

Net income

  $ 105   34.4 %   $ 57     17.9 %   $ 10     62.5 %   $ 38     Large  
* Represents the consolidated financial results of Con Edison and its businesses.
** Includes inter-company and parent company accounting.

 

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Con Edison of New York

Electric

Con Edison of New York’s electric sales and deliveries, excluding off-system sales, for the six months ended June 30, 2007 compared with the 2006 period were:

 

    Millions of kWhs Delivered     Revenues in Millions  
    Six Months Ended               Six Months Ended            
Description   June 30,
2007
  June 30,
2006
  Variation     Percent
Variation
    June 30,
2007
  June 30,
2006
  Variation     Percent
Variation
 

Residential/Religious

  5,549   5,594   (45 )   (0.8 )%   $ 1,188   $ 1,155   $ 33     2.9 %

Commercial/Industrial

  6,139   6,559   (420 )   (6.4 )     1,145     1,148     (3 )   (0.3 )

Retail access customers

  10,047   8,573   1,474     17.2       565     425     140     32.9  

NYPA, Municipal Agency and other sales

  5,586   5,336   250     4.7       145     141     4     2.8  

Other operating revenues

                331     307     24     7.8  

Total

  27,321   26,062   1,259     4.8 %   $ 3,374   $ 3,176   $ 198     6.2 %

 

Con Edison of New York’s electric operating revenues were $198 million higher in the six months ended June 30, 2007 as compared with the 2006 period, due primarily to the third year of the electric rate plan ($81 million, which includes $46 million more relating to the reconciliation of Net T&D to the amounts reflected in electric rates), increased recoveries of demand side management programs ($69 million), an accrual for certain incentives ($13 million), sales growth ($17 million), the impact of the colder winter and warmer spring weather ($23 million), higher transmission revenues ($9 million), offset in part by a decrease in purchased power costs ($39 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K and Note B to the Second Quarter Financial Statements.

 

Electric sales and delivery volumes in Con Edison of New York’s service area increased 4.8 percent in the six months ended June 30, 2007 compared with the 2006 period, primarily reflecting the colder winter and warmer spring weather and sales growth in the 2007 period compared with 2006. After adjusting for variations, principally weather and billing days in each period, electric sales and delivery volumes in Con Edison of New York’s service area increased 2.4 percent in the six months ended June 30, 2007 compared with the 2006 period.

 

Con Edison of New York’s electric fuel costs increased $6 million in the six months ended June 30, 2007 compared with the 2006 period, reflecting higher sendout volumes from the company’s generating facilities ($5 million) and an increase in unit costs ($1 million). Electric purchased power

 

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costs decreased $39 million in the 2007 period compared with the 2006 period reflecting a decrease in purchased volumes ($67 million), primarily associated with additional customers obtaining their energy supply through competitive providers in the six months ended June 30, 2007, offset by an increase in unit costs ($28 million).

 

Con Edison of New York’s electric operating income increased $47 million in the six months ended June 30, 2007 compared with the 2006 period. The increase reflects higher net revenues ($231 million, due principally to provisions of the electric rate agreement), offset in part by higher operations and maintenance costs ($115 million, due primarily to the impact of storms, demand side management program expenses and increased transmission and distribution expenses), income taxes ($28 million), taxes other than income taxes ($25 million, principally property taxes) and depreciation ($16 million).

 

Gas

Con Edison of New York’s gas sales and deliveries, excluding off-system sales, in the six months ended June 30, 2007 compared with the 2006 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Six Months Ended                Six Months Ended             
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
 

Residential

   29,298    28,014    1,284     4.6 %   $ 554    $ 526    $ 28     5.3 %

General

   20,030    19,914    116     0.6       322      310      12     3.9  

Firm transportation

   23,726    13,950    9,776     70.1       98      60      38     63.3  

Total firm sales and transportation

   73,054    61,878    11,176     18.1       974      896      78     8.7  

Interruptible sales

   6,845    7,402    (557 )   (7.5 )     62      97      (35 )   (36.1 )

NYPA

   19,731    18,087    1,644     9.1       2      1      1     Large  

Generation plants

   32,504    23,405    9,099     38.9       24      22      2     9.1  

Other

   7,585    9,809    (2,224 )   (22.7 )     14      15      (1 )   6.7  

Other operating revenues

                   37      21      16     76.2  

Total

   139,719    120,581    19,138     15.9 %   $ 1,113    $ 1,052    $ 61     5.8 %

 

Con Edison of New York’s gas operating revenues in the six months ended June 30, 2007 increased $61 million compared with the 2006 period, reflecting an increase in purchased gas costs ($22 million), the gas rate plan ($22 million) and sales growth ($6 million). Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.

 

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Con Edison of New York’s sales and transportation volumes for firm customers increased 18.1 percent in the six months ended June 30, 2007 compared with the 2006 period, reflecting primarily the impact of the colder winter weather in 2007 compared with 2006 and the movement of certain customers from interruptible to firm service. After adjusting for variations, principally weather and billing days and net transfers to firm service in each period, firm gas sales and transportation volumes in the company’s service area increased 2.6 percent in the 2007 period. Con Edison of New York’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

 

Con Edison of New York’s purchased gas cost increased $22 million in the six months ended June 30, 2007 compared with the 2006 period due to higher sendout ($69 million) offset in part by lower unit costs ($47 million).

 

Con Edison of New York’s gas operating income increased $26 million in the six months ended June 30, 2007 compared with the 2006 period. The increase reflects primarily higher net revenues ($39 million), offset in part by higher operations and maintenance expense ($4 million), income taxes ($1 million), taxes other than income taxes ($5 million, principally property taxes), and depreciation ($2 million).

 

Steam

Con Edison of New York’s steam sales and deliveries in the six months ended June 30, 2007 compared with the 2006 period were:

 

     Millions of Pounds Delivered     Revenues in Millions  
     Six Months Ended               Six Months Ended            
Description    June 30,
2007
   June 30,
2006
   Variation    Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation    Percent  
Variation  
 

General

   433    385    48    12.5 %   $ 16    $ 15    $ 1    6.7 %

Apartment house

   4,588    4,092    496    12.1       122      114      8    7.0  

Annual power

   9,590    8,409    1,181    14.0       268      247      21    8.5  

Other operating revenues

                  16      5      11    Large  

Total

   14,611    12,886    1,725    13.4 %   $ 422    $ 381    $ 41    10.8 %

 

Con Edison of New York’s steam operating revenues increased $41 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to the impact of weather ($19 million) and higher revenues under the steam rate plan ($18 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.

 

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Steam sales and delivery volumes increased 13.4 percent in the six months ended June 30, 2007 compared with the 2006 period, reflecting primarily the impact of weather. After adjusting for variations, principally weather and billing days in each period, steam sales and deliveries increased 0.7 percent in the 2007 period.

 

Con Edison of New York’s steam purchased power costs decreased $9 million in the six months ended June 30, 2007 compared with the 2006 period due primarily to lower unit costs ($11 million), offset in part by higher sendout volumes ($2 million). Steam fuel costs increased $36 million due primarily to higher sendout volumes ($21 million) and higher unit costs ($15 million).

 

Steam operating income was the same in the six months ended June 30, 2007 compared with the 2006 period.

 

Net Interest Expense

Net interest expense increased $25 million in the six months ended June 30, 2007 compared with the 2006 period, due principally to new debt issuances since June 30, 2006, higher interest rates on variable-rate debt and interest accrued for the potential repayment of tax benefits from the timing of tax deductions of certain construction related costs (see Note H to the Second Quarter Financial Statements).

 

O&R

Electric

O&R’s electric sales and deliveries, excluding off-system sales, in the six months ended June 30, 2007 compared with the 2006 period were:

 

     Millions of kWhs Delivered     Revenues in Millions  
     Six Months Ended                Six Months Ended              
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
    Variation     Percent
Variation
 

Residential/Religious

   882    817    65     8.0 %   $ 132    $ 104     $ 28     26.9 %

Commercial/Industrial

   1,093    1,038    55     5.3       136      107       29     27.1  

Retail access customers

   779    830    (51 )   (6.1 )     32      34       (2 )   (5.9 )

Public authorities

   55    54    1     1.9       7      6       1     16.7  

Other operating revenues

                   2      (2 )     4     Large  

Total

   2,809    2,739    70     2.6 %   $ 309    $ 249     $ 60     24.1 %

 

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O&R’s electric operating revenues increased $60 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to increased recoverable purchased power costs ($53 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See Note B to the financial statements in Item 8 of the Form 10-K.

 

Electric delivery volumes in O&R’s service area increased 2.6 percent in the six months ended June 30, 2007 compared with the 2006 period, primarily as a result of the colder winter and warmer spring weather. After adjusting for weather variations and unbilled volumes, electric delivery volumes in O&R’s service area increased 1.3 percent in the 2007 period compared with the 2006 period.

 

Electric operating income increased by $7 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to higher net revenues ($7 million).

 

Gas

O&R’s gas sales and deliveries, excluding off-system sales, in six months ended June 30, 2007 compared with the 2006 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Six Months Ended                Six Months Ended             
Description    June 30,
2007
   June 30,
2006
   Variation     Percent
Variation
    June 30,
2007
   June 30,
2006
   Variation     Percent  
Variation  
 

Residential

   5,494    4,813    681     14.1 %   $ 93    $ 84    $ 9     10.7 %

General

   1,301    1,183    118     10.0       21      20      1     5.0  

Firm transportation

   6,188    5,500    688     12.5       22      18      4     22.2  

Total firm sales and transportation

   12,983    11,496    1,487     12.9       136      122      14     11.5  

Interruptible sales

   3,163    3,178    (15 )   (0.5 )     12      15      (3 )   (20.0 )

Generation plants

   1,162    954    208     21.8       1      1           

Other

   644    561    83     14.8                      

Other gas revenues

                   9      2      7     Large  

Total

   17,952    16,189    1,763     10.9 %   $ 158    $ 140    $ 18     12.9 %

 

O&R’s gas operating revenues increased $18 million in the six months ended June 30, 2007 compared with the 2006 period. The increase is due primarily to this year’s colder winter and warmer spring weather and the impact of the gas rate plan increase that went into effect November 1, 2006.

 

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (COMBINED FOR CON EDISON AND CON EDISON OF

NEW YORK) — CONTINUED

 

Sales and transportation volumes for firm customers increased 12.9 percent in the six months ended June 30, 2007 compared with the 2006 period, reflecting the impact of the weather in 2007. After adjusting for weather and other variations in each period, total firm sales and transportation volumes were 0.1 percent lower in the six months ended June 30, 2007 compared with the 2006 period. O&R’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

 

Non-firm transportation of customer-owned gas to electric generating plants increased in the six months ended June 30, 2007 compared with the 2006 period because certain facilities resumed burning gas to generate electricity. The increase in gas burned had minimal impact on earnings because most revenues from these customers result from a fixed demand charge for local transportation.

 

Gas operating income increased by $7 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to higher net revenues ($12 million), offset in part by higher income taxes ($3 million) and higher operations and maintenance costs ($3 million).

 

Competitive Energy Businesses and Other

Competitive Energy Businesses

The competitive energy businesses’ earnings increased $30 million in the six months ended June 30, 2007 compared with the 2006 period due primarily to lower mark-to-market losses. Excluding mark-to-market activity in both periods, earnings increased $3 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to higher non-operating income.

 

Operating revenues increased $165 million in the six months ended June 30, 2007 compared with the 2006 period, due primarily to higher electric retail and wholesale revenues, and lower mark-to-market losses. Electric retail revenues increased $75 million in the six months ended June 30, 2007 as compared with the 2006 period, of which $59 million was due to higher sales volumes and $16 million was due to an increase in unit prices. Electric wholesale revenues increased $31 million in the six months ended June 30, 2007 as compared with the 2006 period, primarily due to higher wholesale sales volumes. Pre-tax mark-to-market losses decreased $46 million in the six months ended June 30, 2007 compared with the 2006 period, while other revenues increased $13 million.

 

Operating expenses excluding income taxes increased $118 million in the six months ended June 30, 2007 compared with the 2006 period, reflecting an increase in purchased power costs ($119 million) and higher fuel costs ($8 million), partially offset by a decrease in gas purchased for resale costs ($9 million).

 

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (COMBINED FOR CON EDISON AND CON EDISON OF

NEW YORK) — CONTINUED

 

Income taxes increased $22 million in the six months ended June 30, 2007 as compared with the 2006 period, reflecting primarily higher income.

 

Other

For Con Edison, “Other” in 2006 reflects a $9 million expense to effectively reclassify from retained earnings to additional paid-in capital the tax benefits from the exercise of stock options that had been recognized in income in prior years. For Con Edison, “Other” also includes inter-company eliminations relating to operating revenues and operating expenses.

 

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information about the Companies’ primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see “Financial and Commodity Market Risks” in Part 1, Item 2 of this report, which information is incorporated herein by reference. Also, see Item 7A of the Form 10-K.

 

ITEM 4.    CONTROLS AND PROCEDURES

The Companies maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that they submit to the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. For each of the Companies, its management, with the participation of its principal executive officer and principal financial officer, has evaluated the company’s disclosure controls and procedures as of the end of the period covered by this report and, based upon such evaluation, has concluded that the controls and procedures were effective to provide such reasonable assurance. Reasonable assurance is not absolute assurance, however, and there can be no assurance that any design of controls or procedures would be effective under all potential future conditions, regardless of how remote.

 

There were no changes in the Companies’ internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companies’ internal control over financial reporting.

 

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PART II OTHER INFORMATION

 

ITEM 1    LEGAL PROCEEDINGS

 

Power Outage Proceedings

For information about proceedings relating to power outages in 2006, see “Power Outage Proceedings” in Note B to the financial statements included in Part I, Item 1 of this report and Part II, Item 1 of the First Quarter Form 10-Q, which information is incorporated herein by reference. In July 2007, the PSC indicated that the PSC staff’s report on the Westchester outages and the PSC’s review do not identify a basis for concluding that a prudence review relating to those outages is warranted. In July 2007, the PSC ordered Con Edison of New York to show cause why it should not be liable for certain food spoilage claims in connection with the September 2006 outage in Westchester resulting from Tropical Storm Ernesto.

 

Mirant Litigation

Reference is made to “Mirant Litigation” in Item 3 of the Form 10-K. In June 2007, the United States Bankruptcy Court for the Northern District of Texas approved the settlement of the legal proceedings relating to the June 1999 sale of generating assets by Con Edison of New York and O&R to affiliates of Mirant Corporation (which had filed a petition for reorganization under the U.S. Bankruptcy Code). Pursuant to the settlement, the proceedings against Con Edison of New York and O&R were dismissed, with prejudice, and the Utilities paid certain amounts to Mirant affiliates which, in aggregate, were not material to the Companies.

 

ITEM 1A RISK FACTORS

There were no material changes from the risk factors previously disclosed in the Companies’ Form 10-K.

 

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ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Con Edison

  (a) At the Annual Meeting of Stockholders of Con Edison on May 21, 2007, the stockholders of Con Edison voted to elect members of the Board of Directors, to ratify and approve the appointment of Con Edison’s independent accountants and not to adopt a stockholder’s proposal. 216,431,780 shares of Common Stock of Con Edison, representing approximately 84 percent of the 259,025,137 shares of Common Stock outstanding and entitled to vote, were present at the meeting or by proxy.

 

  (b) The name of each nominee for election as a member of Con Edison’s Board of Directors and the number of shares voted for or with respect to which authority to vote for was withheld are as follows:

 

     Votes For    Votes Withheld

Kevin Burke

   211,925,918    4,505,862

Vincent A. Calarco

   212,335,667    4,096,113

George Campbell, Jr.

   212,441,634    3,990,146

Gordon J. Davis

   209,644,338    6,787,442

Michael J. Del Giudice

   212,440,796    3,990,984

Ellen V. Futter

   203,494,915    12,936,865

Sally Hernandez

   212,372,461    4,059,319

Peter W. Likins

   212,459,769    3,972,011

Eugene R. McGrath

   212,282,705    4,149,075

L. Frederick Sutherland

   212,666,809    3,764,971

Stephen R. Volk

   206,353,343    10,078,437

 

  (c) The results of the vote on the appointment of PricewaterhouseCoopers LLP as independent accountants for Con Edison for 2007 were as follows: 212,034,960 shares were voted for this proposal; 1,892,060 shares were voted against the proposal; and 2,504,760 shares were abstentions.

 

  (d) The following stockholder-proposed resolution was voted upon at the Annual Meeting:

 

“RESOLVED: That the shareholders recommend that the Board take the necessary steps 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 $500,000 annually as a 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: 19,595,833 shares were voted for this proposal; 118,930,201 shares were voted against the proposal; 4,604,204 shares were abstentions; and 73,301,542 shares were broker non-votes.

 

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Con Edison of New York

At the Annual Meeting of Stockholders of Con Edison of New York on May 21, 2007, all 235,488,094 outstanding shares of common stock of Con Edison of New York, which are owned by Con Edison, were voted to elect Kevin Burke, Vincent A. Calarco, George Campbell, Jr., Gordon J. Davis, Michael J. Del Giudice, Ellen V. Futter, Sally Hernandez, Peter W. Likins, Eugene R. McGrath, L. Frederick Sutherland and Stephen R. Volk as members of Con Edison of New York’s Board of Trustees and to ratify and approve the appointment of PricewaterhouseCoopers, LLP as Con Edison of New York’s independent accountants for 2007.

 

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ITEM 6 EXHIBITS

 

(a) EXHIBITS

 

Con Edison

 

Exhibit 12.1

   Statement of computation of Con Edison’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2007 and 2006, and the 12-month period ended December 31, 2006.

Exhibit 31.1.1

   Rule 13a-14(a)/15d-14(a) Certifications—Chief Executive Officer.

Exhibit 31.1.2

   Rule 13a-14(a)/15d-14(a) Certifications—Chief Financial Officer.

Exhibit 32.1.1

   Section 1350 Certifications—Chief Executive Officer.

Exhibit 32.1.2

   Section 1350 Certifications—Chief Financial Officer.

 

Con Edison of New York

 

Exhibit 4.2

   By-laws of Con Edison of New York, effective September 1, 2007. Incorporated by reference from Exhibit 3.2 to Con Edison of New York’s Current Report on Form 8-K, dated July 19, 2007 (File No. 1-1217).

Exhibit 12.2

   Statement of computation of Con Edison of New York’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2007 and 2006, and the 12-month period ended December 31, 2006.

Exhibit 31.2.1

   Rule 13a-14(a)/15d-14(a) Certifications—Chief Executive Officer.

Exhibit 31.2.2

   Rule 13a-14(a)/15d-14(a) Certifications—Chief Financial Officer.

Exhibit 32.2.1

   Section 1350 Certifications—Chief Executive Officer.

Exhibit 32.2.2

   Section 1350 Certifications—Chief Financial Officer.

 

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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 2, 2007

     By   

/S/    ROBERT N. HOGLUND


           

Robert N. Hoglund

Senior Vice President, Chief Financial Officer and Duly

Authorized Officer

 

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