Consolidated Edison, Inc.

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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

/x/	Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 2002
or
/ /	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to

Commission File Number	Exact name of registrant as specified in its charter and principal office address and telephone number	State of Incorporation	I.R.S. Employer ID. Number
1-14514	Consolidated Edison, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600	New York	13-3965100
1-1217	Consolidated Edison Company of New York, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600	New York	13-5009340
1-4315	Orange and Rockland Utilities, Inc. One Blue Hill Plaza, Pearl River, New York 10965 (914) 352-6000	New York	13-1727729

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Consolidated Edison, Inc., Common Shares ($.10 par value)		New York Stock Exchange
7.25% Public Income NotES (7.25% Debentures, Series 2002A) due 2042		New York Stock Exchange
Consolidated Edison Company of New York, Inc., 7.35% Public Income NotES (7.35% Debentures, Series 1999A) due 2039		New York Stock Exchange
7.50% Public Income NotES (7.50% Debentures, Series 2001A) due 2041		New York Stock Exchange
$5 Cumulative Preferred Stock, without par value		New York Stock Exchange
Cumulative Preferred Stock, 4.65% Series C ($100 par value)		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

Title of each class

Consolidated Edison Company of New York, Inc.

Cumulative Preferred Stock, 4.65% Series D ($100 par value)

Indicate by check mark whether each 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, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / /

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes /x/ No / /

The aggregate market value of the common equity of Consolidated Edison, Inc. (Con Edison) held by non-affiliates of Con Edison, as of June 30, 2002, was approximately $8.9 billion.

As of January 31, 2003, Con Edison had outstanding 214,106,624 Common Shares ($.10 par value).

All of the outstanding common equity of Con Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R) is held by Con Edison.

O&R meets the conditions specified in general instruction (i) (1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Con Edison's definitive joint proxy statement for its Annual Meeting of Stockholders to be held on May 19, 2003, to be filed with the Commission pursuant to Regulation 14A not later than 120 days after December 31, 2002, are incorporated in Part III of this report.

Filing Format

This Annual Report on Form 10-K is a combined report being filed separately by the three different registrants: Con Edison, Con Edison of New York and O&R. Neither Con Edison of New York nor O&R makes any representations as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

TABLE OF CONTENTS

			PAGE
Glossary of Terms			5
Part I
Item 1.	Business
		Con Edison	7
		Con Edison of New York	9
		O&R	17
Item 2.	Properties
		Con Edison	20
		Con Edison of New York	20
		O&R	21
Item 3.	Legal Proceedings
		Con Edison	23
		Con Edison of New York	23
		O&R	30
Item 4.	Submission of Matters to a Vote of Security Holders		None
	Executive Officers of the Registrant
		Con Edison	31
		Con Edison of New York	32
		O&R	Omitted*
Part II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters
		Con Edison	34
		Con Edison of New York	34
		O&R	34
Item 6.	Selected Financial Data
		Con Edison	35
		Con Edison of New York	35
		O&R	Omitted*
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
		Con Edison	36
		Con Edison of New York	60
		O&R	Omitted*
		O&R Management's Narrative Analysis of Results of Operations	78

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
		Con Edison	83
		Con Edison of New York	83
		O&R	83
Item 8.	Financial Statements and Supplementary Data		85
		Con Edison	85
		Con Edison of New York	85
		O&R	85
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
		Con Edison	None
		Con Edison of New York	None
		O&R	None
	Forward-Looking Statements		203
Part III
Item 10.	Directors and Executive Officers		204
Item 11.	Executive Compensation		204
Item 12.	Security Ownership of Certain Beneficial Owners and Management		204
Item 13.	Certain Relationships and Related Transactions		204
		Con Edison	204
		Con Edison of New York	204
		O&R	Omitted*
Item 14.	Controls and Procedures		205
Part IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		206
Signatures			213
Certifications			214

*: O&R is omitting this information pursuant to General Instruction I of Form 10-K

Glossary of Terms

The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report:

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
Regulatory and State Agencies
DEC		New York State Department of Environmental Conservation
EPA		Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
NJBPU		New Jersey Board of Public Utilities
NYPA		New York Power Authority
NYSERDA		New York State Energy Research and Development Authority
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
ERISA		Employee Retirement Income Security Act of 1974
FASB		Financial Accounting Standards Board
FIN		FASB Interpretation No.
EITF		Emerging Issues Task Force
ENDRO		Equivalent number of days of revenue outstanding
KV		Kilovolts
kWh		Kilowatt-hour
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations.
mdths		Thousand dekatherms
MLBS		Thousands of pounds
MVA		Megavolt amperes
MW		Thousand kilowatts or megawatt
MWH		Megawatt hours
NYISO		New York Independent System Operator
NUGs		Non-utility generators
OCI		Other Comprehensive Income
PCBs		Polychlorinated biphenyls
POLR		Provider of last resort
PRP		Potentially responsible party
SFAS		Statement of Financial Accounting Standards
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980

			PAGE
Part I
Item 1.	Business Contents of Item 1
	Incorporation By Reference
	Available Information
	Con Edison	Corporate Overview	7
		Operating Segments	7
		Regulation	7
		Competition	8
		Unregulated Subsidiaries	8
		Capital Requirements	8
		State Anti-takeover Law	8
		Employees	8
	Con Edison of New York	Corporate Overview	9
		Operating Segments	9
		Electric Operations	9
		Gas Operations	11
		Steam Operations	12
		Regulation	12
		Competition	13
		Capital Requirements and Financing	13
		Environmental Matters	13
		Operating Statistics	15
	O&R	General Nature and Scope of Business	17
		Operating Statistics	18

Incorporation by Reference

Information in other Items of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1. The use of terms such as "see" or "refer to" shall be deemed to incorporate into this Item 1 the information to which such reference is made.

Available Information

Con Edison, Con Edison of New York and O&R file annual, quarterly and current reports, proxy or information statements and other information with the SEC. The public may read and copy any materials that the companies file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. The address of Con Edison's Internet website is http://www.conedison.com. Con Edison of New York's website address is at http://www.coned.com and O&R's website is at http://www.oru.com. The companies make available free of charge on or through the Investor Information section of their websites their Annual Report on Form 10-K, quarterly reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the SEC. Information on the three companies' websites is not incorporated herein.

CON EDISON

Corporate Overview

Consolidated Edison, Inc. (Con Edison), incorporated in New York State in 1997, owns all of the outstanding common stock of Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R). Con Edison has no significant business operations other than those of its regulated utility subsidiaries, Con Edison of New York and O&R, and its unregulated subsidiaries.

For information about legal proceedings relating to Con Edison's October 1999 agreement to acquire Northeast Utilities, see Note P to the Con Edison financial statements in Item 8.

Operating Segments

Con Edison's principal business segments are the regulated electric, gas and steam businesses of its utility subsidiaries and the unregulated businesses of its other subsidiaries. In 2002, the operating revenues of the regulated electric, gas and steam businesses and the unregulated businesses were 73.7 percent, 14.2 percent, 4.8 percent and 7.3 percent, respectively, of Con Edison's operating revenues. For a discussion of operating revenues and operating income for each segment, see "Results of Operations" in Con Edison's Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7. For additional segment information see Note N to the Con Edison financial statements in Item 8 and the discussions of the businesses of Con Edison of New York and O&R below in this Item 1.

Regulation

Con Edison's utility subsidiaries are subject to extensive federal and state regulation, including by state utility commissions and the Federal Energy Regulatory Commission (FERC). Con Edison, itself, is not subject to such regulation except to the extent that the rules or orders of these agencies impose restrictions on relationships between Con Edison and its utility subsidiaries.

Con Edison is a "holding company" under the Public Utility Holding Company Act of 1935 (PUHCA). Con Edison is exempt from all provisions of PUHCA, except Section 9(a)(2) (which requires SEC approval for a direct or indirect acquisition of 5 percent or more of the voting securities of any other electric or gas utility company) on the basis that Con Edison and its utility subsidiaries are organized and carry on their utility businesses substantially in the State of New York and that it does not derive any material part of its income from a public utility company organized outside of the State of New York. This exemption is available even though Con Edison subsidiaries that are neither an "electric utility company" nor a "gas utility company" under PUHCA will engage in interstate activities.

Con Edison has been and is expected to continue to be impacted by legislative and regulatory developments. Con Edison's utility subsidiaries are subject to extensive regulation in New York, New Jersey and Pennsylvania. Changes in regulation or legislation applicable to the company's subsidiaries could have a material adverse effect on the company and its subsidiaries. See "Regulatory Matters" in the MD&A of Con Edison and Con Edison of New York in Item 7.

Competition

Legislative and regulatory developments are promoting increased competition in Con Edison's businesses. For information about competition, see "Competition," below in the discussion of Con Edison of New York's business in this Item 1 and "Unregulated Subsidiaries," below.

Unregulated Subsidiaries

Con Edison has four unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity, gas and energy-related services to delivery customers of utilities, including Con Edison of New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; Consolidated Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and energy and other infrastructure projects; and Con Edison Communications, LLC (Con Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. The unregulated subsidiaries participate in competitive energy supply and services businesses that are subject to different risks than those found in the businesses of the regulated utility subsidiaries. The unregulated subsidiaries accounted for 7.3 percent of consolidated operating revenues and 2.9 percent of consolidated net income (before cumulative effect of change in accounting principle) in 2002, and 7.0 percent of consolidated total assets at December 31, 2002.

For additional information about Con Edison's unregulated subsidiaries, see "Results of Operations—Unregulated Business" in Con Edison's MD&A in Item 7.

Capital Requirements and Financing

For information about Con Edison's capital requirements, financing and securities ratings, see "Liquidity and Capital Resources—Capital Resources, Capital Requirements and Financial Market Risks" in Con Edison's MD&A in Item 7. Securities ratings assigned by rating organizations are expressions of opinion and are not recommendations to buy, sell or hold securities. A securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

State Anti-takeover Law

New York State law provides that a "resident domestic corporation," such as Con Edison, may not consummate a merger, consolidation or similar transaction with the beneficial owner of a 20 percent or greater voting stock interest in the corporation, or with an affiliate of the owner, for five years after the acquisition of voting stock interest, unless the transaction or the acquisition of the voting stock interest was approved by the corporation's board of directors prior to the acquisition of the voting stock interest. After the expiration of the five-year period, the transaction may be consummated only pursuant to a stringent "fair price" formula or with the approval of a majority of the disinterested stockholders.

Employees

Con Edison has no employees other than those of Con Edison of New York, O&R and Con Edison's unregulated subsidiaries (which at December 31, 2002 had 12,917, 1,015 and 361 employees, respectively).

CON EDISON OF NEW YORK

Corporate Overview

Con Edison of New York, incorporated in New York State in 1884, is a subsidiary of Con Edison and has no significant subsidiaries of its own. Con Edison of New York provides electric service in all of New York City (except part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than 8 million. It also provides gas service in Manhattan, the Bronx and parts of Queens and Westchester, and steam service in parts of Manhattan.

Operating Segments

Con Edison of New York's principal business segments are its regulated electric, gas and steam businesses. In 2002, electric, gas and steam operating revenues were 79.9 percent, 14.5 percent and 5.6 percent, respectively, of its operating revenues. For a discussion of the company's operating revenues and operating income for each segment, see "Results of Operations" in its MD&A in Item 7. For additional information about the segments, see Note N to the Con Edison of New York's financial statements in Item 8.

Electric Operations

There have been and are continuing to be significant changes in Con Edison of New York's electric operations, including the establishment of the company's electric retail access program (under which all of the company's electric customers are able to purchase electricity from other suppliers) and the company's sale of most of its electric generating capacity. See "Regulatory Matters—Electric" in the MD&A of Con Edison and Con Edison of New York in Item 7 and "Rate and Restructuring Agreements" in Note A to the Con Edison and Con Edison of New York financial statements in Item 8.

Electric Sales. Electric operating revenues were $5.8 billion in 2002 or 79.9 percent of Con Edison of New York's operating revenues. The percentages were 78.2 and 80.8, respectively, in the two preceding years. In 2002, 58.9 percent of the electricity delivered by Con Edison of New York in its service areas was sold by Con Edison of New York to its full-service customers, 22.0 percent was sold by other suppliers, including Con Edison Solutions, an unregulated subsidiary of Con Edison, to the company's customers under its electric retail access program and the balance was delivered to the state and municipal customers of the New York Power Authority (NYPA) and the economic development customers of municipal electric agencies. The company charges for the delivery of electricity sold by other suppliers to customers in its service area.

For additional information about electricity sales, see "Operating Statistics," below, and "Results of Operation—Electric" in the MD&As of Con Edison and Con Edison of New York in Item 7.

Electric Peak Load. The electric peak load in Con Edison of New York's service area occurs during the summer air conditioning season. The 2002 service area peak load, which occurred on July 3, was 12,086 thousand kilowatts (MW). The 2002 peak load included an estimated 7,874 MW for Con Edison of New York's full-service customers, 2,483 MW for the company's customers participating in its electric retail access program and 1,729 MW for NYPA's customers and municipal electric agency customers. If adjusted to historical design weather conditions, the 2002 peak load, would have been

12,400 MW. Con Edison of New York estimates that, under design weather conditions, the 2003 service area peak load would be 12,650 MW, including an estimated 8,055 MW for the company's full-service customers, 2,700 for its electric retail access program customers and 1,895 MW for NYPA's customers and municipal electric agency customers. "Design weather" for the electric system is a standard to which the actual peak load is adjusted for evaluation and planning purposes.

Electric Supply. Most of the electricity sold by Con Edison of New York to its customers in 2002 was purchased under firm power contracts or through the wholesale electricity market administered by the New York Independent System Operator (NYISO). The firm power contracts were with non-utility generators (NUGs) and utilities (including Hydro-Quebec). The company has sold most of its electric generating capacity (see Note I to the Con Edison and Con Edison of New York financial statements in Item 8).

The company plans to meet its continuing obligation to supply electricity to its customers with electric energy purchased under contracts with NUGs or others, generated from its electric generating facilities (which have a capacity of 630 MW) or purchased through the NYISO's wholesale electricity market. For additional information about electric power purchases, see "Electric Power Requirements" in Con Edison's and Con Edison of New York's MD&As in Item 7 and "Recoverable Energy Costs" in Note A to the Con Edison and Con Edison of New York financial statements in Item 8.

For information about the company's contracts with NUGs for approximately 3,100 MW of electric generating capacity, see Note H to the Con Edison and Con Edison of New York financial statements in Item 8.

For the period ending March 2004, Con Edison of New York has an agreement with Hydro-Quebec (a government-owned Canadian electric utility) to purchase 400 MW of firm capacity during the months of April through October. The amount and price of a "basic amount" of energy the company is entitled to purchase in each year is subject to negotiation with Hydro-Quebec. In accordance with the agreement, the company can also purchase additional energy during the summer, which it would be obligated to return to Hydro-Quebec during the following winter.

For information about the company's remaining electric generating facilities, see Item 2.

The NYISO is a not-for-profit organization which controls and operates most of the electric transmission facilities in New York State as an integrated system and administers a wholesale market for electricity in New York State. The NYISO, for reliability reasons, requires that entities supplying electricity to customers in New York State have generating capacity (either owned or contracted for) in an amount that is 18 percent or more above the expected peak load for their customers. In addition, entities that serve customers in New York City must have enough New York City-located capacity to cover 80 percent of their New York City customer peak load. Con Edison of New York met these requirements in 2002 with respect to its full-service customers and expects to meet them in 2003.

For additional information about the NYISO, see "Regulatory Matters—Electric" in Con Edison's and Con Edison of New York's MD&A in Item 7.

Gas Operations

There have been and are continuing to be significant changes in Con Edison of New York's gas operations in recent years, including the establishment of the company's gas retail access program under which all of the company's gas customers are able to purchase gas from other suppliers, which Con Edison of New York would deliver.

Gas Sales. Gas operating revenues in 2002 were $1.04 billion or 14.5 percent of Con Edison of New York's operating revenues. The percentages were 15.6 and 13.5, respectively, in the two preceding years. In 2002, 34 percent of the gas delivered by the company in its service area was sold by the company to its full-service (firm and interruptible) customers and 66 percent was sold by other suppliers, including Con Edison Solutions. For additional information about gas sales, see "Operating Statistics," below, and "Results of Operations—Gas" in the MD&As of Con Edison and Con Edison of New York in Item 7.

Gas Requirements. Firm demand for gas in Con Edison of New York's service area peaks during the winter heating season. The "design criteria" for the company's gas system assumes severe weather conditions, which have not occurred since the 1933-34 winter. Under these criteria, the company estimated that its requirements to deliver gas to firm customers during the November 2002/March 2003 winter heating season would amount to 77,400 thousand dekatherms (mdths) (including 63,600 mdths to its firm sales customers and 13,800 mdths to its firm transportation customers). For the period through January 31, 2003, the company's peak day occurred on January 7, 2003 when it delivered 1,022 mdths of gas (including 558 mdths to its firm sales customers, 157 mdths to NYPA, 209 mdths to its other transportation customers and 98 mdths for use by the company in generating electricity and steam).

Under its design criteria, the company projects that for the November 2003/March 2004 winter heating season, its requirements for firm gas customers will amount to 79,300 mdths (including 63,600 mdths to firm sales customers and 15,700 mdths to firm transportation customers) and that the peak day requirements for these customers will amount to 971 mdths. The company expects to be able to meet these requirements.

Gas Supply. Con Edison of New York has contracts with suppliers for the firm purchase of natural gas. Charges under these contracts, which are based on formulas or indexes or are subject to negotiation, are generally designed to approximate market prices. The contracts are for various terms extending to 2006. The company also has contracts with interstate pipeline companies for the purchase of firm transportation and storage services. Charges under these contracts are approved by the FERC. The contracts are for various terms extending to 2013. The company is required to pay certain charges under the supply, transportation and storage contracts whether or not it actually uses the contracted capacity. These fixed charges amounted to approximately $145 million in 2002. See "Contractual Obligations and Commercial Commitments" in the Con Edison of New York MD&A in Item 7. In addition, Con Edison of New York purchases gas on the spot market and has interruptible gas transportation contracts.

Con Edison of New York recovers its gas supply, transportation and storage costs, less net proceeds of sales of excess capacity (excluding any incentive earned by the company for such sales), from customers

pursuant to rate provisions approved by the New York State Public Service Commission (PSC). See "Recoverable Energy Costs" in Note A to the Con Edison and Con Edison of New York financial statements in Item 8.

Steam Operations

Steam Sales. Con Edison of New York sells steam in Manhattan south of 96th Street, mostly to large office buildings, apartment houses and hospitals. In 2002, steam operating revenues were $404.0 million or 5.6 percent of the company's operating revenues. The percentages were 6.2 and 5.7, respectively, in the two preceding years.

For additional information about Con Edison of New York's steam operations, see "Regulatory Matters—Steam" and "Results of Operations—Steam" in the MD&As of Con Edison and Con Edison of New York in Item 7, the discussion of Con Edison of New York's steam facilities in Item 2 and "Operating Statistics," below.

Steam Peak Load and Capacity. Demand for steam in Con Edison of New York's service area peaks during the winter heating season. The one-hour peak load during the winter of 2002/2003 (through January 31, 2003) occurred on January 24, 2003 when the load reached 9.7 million pounds per hour. The company's estimate for the winter of 2003/2004 peak demand of its steam customers is 10.8 million pounds per hour under design criteria, which assume severe weather.

On December 31, 2002, the steam system had the capability of delivering about 12.8 million pounds of steam per hour. Con Edison of New York estimates that the system will have the capability to deliver 12.8 million pounds of steam per hour in the 2003/2004 winter.

Steam Supply. Forty-nine percent of the steam sold by Con Edison of New York in 2002 was produced in the company's steam-only generating stations; 38 percent was produced in the company's steam/electric generating stations, where it is first used to generate electricity; and 13 percent was purchased from others. See Item 2 for a discussion of Con Edison of New York's steam facilities (which information is incorporated herein by reference).

Regulation

The PSC regulates, among other things, Con Edison of New York's electric, gas and steam rates, the siting of its transmission lines and the issuance of its securities. Certain activities of Con Edison of New York are subject to the jurisdiction of the FERC. In addition, various matters relating to the construction and operations of Con Edison of New York's facilities are subject to regulation by other governmental agencies. Changes in regulation or legislation applicable to Con Edison of New York could have a material adverse effect on the company. For additional information, including information about the company's electric, gas and steam rates, see "Regulatory Matters" in Con Edison of New York's MD&A in Item 7.

The PSC is conducting a statewide proceeding to consider issues relating to electric and gas utilities' exiting the business of selling commodity (i.e., electric energy and gas, at retail) and related retail services. In particular, the PSC is examining utility "provider of last resort" responsibilities and seeking to identify the consumer protections that will be needed as markets are opened to competition. In March 2002, Con

Edison of New York filed its cost of service studies for electric and gas service in a separate phase of this proceeding established to address the unbundling of rates into various services (e.g., meter reading, billing services), with a view to having these services provided by competitive markets. A "generic" PSC decision is expected in 2003, followed by a proceeding to apply the generic principles to Con Edison of New York's electric and gas rates. In March 2002, the PSC rejected proposals for partial or total disallowance of "stranded costs" resulting from migration of customers to competitive markets and directed the utilities to propose recovery mechanisms, which were filed in May 2002. However, there is disagreement regarding which costs would be considered stranded and eligible for recovery. In December 2002, the company asked the PSC to terminate or suspend the "unbundling" proceeding on the grounds that the objectives of the proceeding were not being accomplished.

Competition

For information about federal and state initiatives promoting the development of competition in the supply of electricity, see "Regulatory Matters" in the MD&As of Con Edison and Con Edison of New York in Item 7. Competition from other suppliers of electricity or gas, suppliers of oil and other sources of energy, including distributed generation (such as fuel cells and micro-turbines) may provide alternatives for Con Edison of New York customers. The company's electric, gas and steam rates are among the highest in the country.

Capital Requirements and Financing

For information about Con Edison of New York's capital requirements, financing and securities ratings, see "Liquidity and Capital Resources—Capital Resources, Capital Requirements and Financial Market Risks" in Con Edison of New York's MD&A in Item 7.

Securities ratings assigned by rating organizations are expression of opinion and are not recommendations to buy, sell or hold securities. A securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Environmental Matters

General. Con Edison of New York's capital expenditures for environmental protection facilities and related studies were $69 million in 2002 and are estimated to be $66 million in 2003.

Superfund. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) by its terms imposes joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. In the course of Con Edison of New York's operations, materials are generated that are deemed to be hazardous substances under Superfund. The materials include asbestos and dielectric fluids containing polychlorinated biphenyls (PCBs). Other hazardous substances are generated in Con Edison of New York's operations or may be present at company locations. Also, hazardous substances were generated at the manufactured gas plants that the company and its predecessor companies used to operate. See "Superfund" in the discussion of Con Edison of New York's legal proceedings in Item 3 and Note F to the Con Edison and Con Edison of New York financial statements in Item 8.

Asbestos. Asbestos is present in numerous Con Edison of New York facilities and was present in facilities formerly owned by the company. For information about asbestos, see "Asbestos Litigation" in the discussion of the company's legal proceedings in Item 3 and Note F to the Con Edison and Con Edison of New York financial statements in Item 8.

Toxic Substances Control Act. Virtually all electric utilities, including Con Edison of New York, own equipment containing PCBs. PCBs are regulated under the Federal Toxic Substances Control Act of 1976.

Water Quality. Certain governmental authorities are investigating contamination in the Hudson River and the New York Harbor. These waters are along the shoreline of Con Edison of New York's service area. Governmental authorities could require entities that generated hazardous substances that contaminated these waters to bear the cost of investigation and remediation, which could be substantial.

Con Edison of New York

OPERATING STATISTICS

		Year Ended December 31
		2002	2001	2000	1999	1998

ELECTRIC ENERGY (MWH)
Generated		1,259,533	6,793,393	3,259,790	15,266,628	16,541,078
Purchased from others		32,712,723	27,877,154	35,780,429	29,303,386	26,372,576

TOTAL GENERATED AND PURCHASED		33,972,256	34,670,547	39,040,219	44,570,014	42,913,654
Less: Used by Company		172,873	187,773	191,445	151,090	155,172
Distribution losses and other variances		2,008,530	1,931,694	2,768,249	2,682,629	2,429,369

NET GENERATED AND PURCHASED		31,790,853	32,551,080	36,080,525	41,736,292	40,329,113
Electric Energy Sold
	Residential	12,481,689	12,048,743	11,637,167	11,854,995	11,282,669
	Commercial and Industrial	19,110,770	19,839,340	19,930,376	20,238,777	24,455,265
	Railroads and Railways	55,186	16,003	95,457	71,447	87,514
	Public Authorities	125,651	150,069	257,706	465,287	548,569

Con Edison of New York full service customers		31,773,296	32,054,155	31,920,706	32,630,506	36,374,017
Off-System Sales (a)		17,557	496,925	4,159,819	9,105,786	3,955,096

TOTAL ELECTRIC ENERGY SOLD		31,790,853	32,551,080	36,080,525	41,736,292	40,329,113

ELECTRIC ENERGY DELIVERED
Con Edison of New York full service customers		31,773,296	32,054,155	31,920,706	32,630,506	36,374,017
Delivery service for retail access customers		11,861,981	10,499,056	9,321,630	7,935,827	2,417,321
Delivery service to NYPA
	customers and others	9,504,526	9,815,259	9,631,618	9,335,230	9,039,674
Delivery service for municipal agencies		762,660	660,220	526,816	624,229	814,575

TOTAL DELIVERIES IN FRANCHISE AREA		53,902,463	53,028,690	51,400,770	50,525,792	48,645,587

AVERAGE ANNUAL KWHR USE PER RESIDENTIAL CUSTOMER (b)		4,652	4,502	4,372	4,487	4,303
AVERAGE REVENUE PER KWHR SOLD (CENTS)
	RESIDENTIAL (b)	17.0	18.1	18.5	15.9	16.2
	COMMERCIAL AND INDUSTRIAL (b)	14.4	15.6	15.5	12.7	12.7

(a): For 2000, 1999 and 1998, included sales to Con Edison Solutions. See "Unregulated Subsidiaries," above.
(b): Includes Municipal Agency sales.

Con Edison of New York

OPERATING STATISTICS (CONTINUED)

		Year Ended December 31,
		2002			2001			2000			1999			1998

GAS (DTH)
Purchased			134,126,768			140,633,193			157,800,083			245,496,798			232,560,023
Storage - net change			5,728,684			(6,474,137	)		774,660			1,964,581			(4,404,888	)
Used as boiler fuel at Electric and Steam Stations			(29,386,788	)		(27,725,598	)		(27,674,312	)		(67,331,325	)		(109,240,109	)

GAS PURCHASED FOR RESALE			110,468,664			106,433,458			130,900,431			180,130,054			118,915,026
Less: Gas used by the company			323,915			299,057			294,937			369,938			376,577
Off-System Sales & NYPA			16,120,307			12,666,668			29,563,339			92,072,772			26,104,143
Distribution losses and other variances			4,555,763			(2,887,761	)		7,060,117			1,998,637			(820,174	)

TOTAL GAS PURCHASED FOR CON EDISON OF NEW YORK CUSTOMERS			89,468,679			96,355,494			93,982,038			85,688,707			93,254,480
GAS SOLD
Firm Sales
	Residential		44,162,920			46,506,365			47,602,792			44,705,689			45,106,269
	General		32,681,926			35,118,342			30,468,676			27,271,134			30,685,310

TOTAL FIRM SALES			76,844,846			81,624,707			78,071,468			71,976,823			75,791,579
Interruptible Sales			12,623,833			14,730,787			15,910,570			13,711,884			17,462,901

TOTAL GAS SOLD TO CON EDISON OF NEW YORK CUSTOMERS			89,468,679			96,355,494			93,982,038			85,688,707			93,254,480

Transportation of customer-owned gas
	Firm transportation		15,695,403			14,279,816			18,215,120			17,382,490			8,634,659
	NYPA		25,466,325			13,762,339			19,857,321			11,268,947			4,260,908
	Other		116,953,158			78,709,049			97,155,425			22,560,029			14,478,269
Off-System Sales			8,354,940			6,206,522			23,067,713			32,942,436			25,982,200

TOTAL SALES AND TRANSPORTATION			255,938,505			209,313,220			252,277,617			169,842,609			146,610,516

AVERAGE REVENUE PER DTH SOLD
	RESIDENTIAL	$	12.30		$	14.25		$	11.62		$	11.20		$	11.75
	GENERAL	$	8.90		$	10.76		$	8.44		$	7.70		$	7.95
STEAM SOLD (MLBS)			24,519,476			25,327,694			26,733,260			26,532,797			24,995,694
AVERAGE REVENUE PER MLB SOLD		$	15.52		$	18.86		$	16.37		$	12.80		$	12.83
CUSTOMERS - AVERAGE FOR YEAR
Electric			3,117,542			3,100,642			3,078,648			3,054,693			3,030,746
Gas			1,054,312			1,051,540			1,051,555			1,046,133			1,040,410
Steam			1,838			1,853			1,861			1,879			1,898

O & R

General Nature and Scope of Business

O & R, a subsidiary of Con Edison incorporated in New York State in 1926, two wholly-owned utility subsidiaries, Rockland Electric Company (RECO), a New Jersey corporation, and Pike County Light & Power Company (Pike), a Pennsylvania corporation.

O&R and its utility subsidiaries provide electric service in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area. They also provide gas service in southeastern New York and Pennsylvania. O&R's business is subject to regulation by the PSC, the New Jersey and Pennsylvania state utility commissions and the FERC. Changes in regulation or legislation applicable to O&R could have a material adverse effect on the company's financial position, results of operations or liquidity.

O&R's principal business segments are its regulated electric and gas utility businesses. In 2002, electric and gas operating revenues were 75.0 percent and 25.0 percent, respectively, of its operating revenues.

For additional information about O&R's business, see O&R Management's Narrative Analysis of the Results of Operations in Item 7 and the notes to the O&R financial statements in Item 8. For information about O&R's legal proceedings, see Item 3.

O&R

OPERATING STATISTICS

		Year Ended December 31,
		2002	2001	2000	1999	1998

ELECTRIC ENERGY (MWH)
Generated		- -	- -	- -	1,871,898	4,061,371
Purchased from others		4,506,217	4,565,551	4,879,400	3,153,359	1,198,709

TOTAL GENERATED AND PURCHASED		4,506,217	4,565,551	4,879,400	5,025,257	5,260,080
Less: Used by Company		14,305	14,572	19,337	134,587	251,947
Distribution losses and other variances		172,374	101,368	410,489	369,456	315,075

NET GENERATED AND PURCHASED		4,319,538	4,449,611	4,449,574	4,521,214	4,693,058
ELECTRIC ENERGY SOLD
	Residential	1,815,262	1,772,576	1,881,680	1,942,347	1,836,916
	Commercial and Industrial	2,393,181	2,566,726	2,463,744	2,373,415	2,228,938
	Public Authorities	111,095	110,309	104,150	96,294	70,525

Total sales to Orange & Rockland customers		4,319,538	4,449,611	4,449,574	4,412,056	4,136,379
Off-System Sales		-	-	-	109,158	556,679

TOTAL ELECTRIC ENERGY SOLD		4,319,538	4,449,611	4,449,574	4,521,214	4,693,058

Total sales to Orange & Rockland customers		4,319,538	4,449,611	4,449,574	4,412,056	4,136,379
Delivery service for Retail Choice customers		1,235,047	798,814	606,794	589,223	691,891

TOTAL SALES IN FRANCHISE AREA		5,554,585	5,248,425	5,056,368	5,001,279	4,828,270

AVERAGE ANNUAL KWH USE PER RESIDENTIAL CUSTOMER		8,801	8,506	7,854	8,065	7,716
AVERAGE REVENUE PER KWH SOLD (CENTS)
	RESIDENTIAL	11.23	12.79	12.22	11.84	12.01
	COMMERCIAL AND INDUSTRIAL	8.65	10.04	9.93	8.18	8.38

O&R

OPERATING STATISTICS (CONTINUED)

		Year Ended December 31,
		2002			2001		2000			1999			1998

GAS (DTH)
Purchased			19,723,917			18,588,275		25,042,346			36,711,658			53,030,119
Storage - net change			(2,195,456	)		854,482		(1,099,134	)		890,604			(278,878	)
Used as boiler fuel at O&R electric generating stations			-			-		-			(15,252,652	)		(31,757,453	)

GAS PURCHASED FOR RESALE			17,528,461			19,442,757		23,943,212			22,349,610			20,993,788
Less: Gas used by the company			56,939			45,979		57,828			77,613			54,392
Distribution losses and other variances			799,625			578,186		841,296			705,214			1,395,333

TOTAL GAS PURCHASED FOR O&R CUSTOMERS			16,671,897			18,818,592		23,044,089			21,566,784			19,544,064

GAS SOLD
Firm Sales
	Residential		10,203,403			11,724,341		14,281,013			13,702,735			12,913,578
	General		3,294,624			3,750,851		4,080,178			4,389,977			3,410,481

TOTAL FIRM SALES			13,498,027			15,475,192		18,361,191			18,092,712			16,324,059
Interruptible Sales			3,173,870			3,343,400		3,653,684			3,474,072			3,220,005
Sales to Con Edison			-			-		1,029,214			-			-

TOTAL GAS SOLD TO O&R CUSTOMERS			16,671,897			18,818,592		23,044,089			21,566,784			19,544,064
Transportation of customer-owned gas
	Firm transportation		6,367,990			4,723,695		3,415,804			2,207,541			1,614,284
	Interruptible transportation		4,192,062			3,920,901		4,222,835			1,905,807			4,059,829
	Sales for resale		1,057,156			1,039,083		1,138,937			17,740			7,092
	Sales to divested electric generating stations		13,983,048			11,427,428		11,640,751			-			-
Off-System Sales			2,883,913			2,526,829		4,984,794			264,277			-

TOTAL SALES AND TRANSPORTATION			45,156,066			42,456,528		48,447,210			25,962,149			25,225,269

AVERAGE REVENUE PER DTH SOLD
	RESIDENTIAL	$	8.29		$	10.29	$	8.32		$	7.77		$	7.25
	GENERAL	$	7.87		$	9.73	$	7.65		$	6.92		$	6.87
CUSTOMERS - AVERAGE FOR YEAR
Electric			285,519			282,191		278,851			275,640			272,111
Gas			121,437			120,108		118,707			117,283			115,708

ITEM 2.

PROPERTIES

CON EDISON

Con Edison has no significant properties other than those of Con Edison of New York, O&R and Con Edison's unregulated subsidiaries.

At December 31, 2002, the capitalized cost of Con Edison's utility plant, net of accumulated depreciation, was as follows (in millions of dollars):

		Con Edison of New York				O&R				Con Edison
		Amount		Percent		Amount		Percent		Amount		Percent

Electric
	Generation	$	326.6	3	%		-	-	%	$	326.6	3	%
	Transmission		1,082.1	9	%		98.0	13	%		1,180.1	9	%
	Distribution		6,303.8	53	%		371.1	48	%		6,674.9	53	%
Gas			1,663.9	14	%		205.0	27	%		1,868.9	15	%
Steam			566.7	5	%		-	-	%		566.7	4	%
General			938.0	8	%		70.7	9	%		1,008.7	8	%
Held for Future Use			3.5	-	%		1.7	-	%		5.2	-	%
Construction Work in Progress			965.5	8	%		23.0	3	%		988.5	8	%

NET UTILITY PLANT		$	11,850.1	100	%	$	769.5	100	%	$	12,619.6	100	%

CON EDISON OF NEW YORK

Electric Facilities

Generating Facilities. Con Edison of New York has sold most of its electric generating facilities. See Note I to the Con Edison and Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference). The company's remaining electric generating facilities consist of plants located in New York City with an aggregate capacity of 630 MW. The company expects to have sufficient amounts of fuel available in 2003 for use in these facilities. The company intends to add incremental generating capacity of approximately 200 MW based on a winter nominal rating (or approximately 125 MW based on a summer nominal rating) through the repowering of its East River station and the closing of its Waterside station.

Transmission Facilities. Con Edison of New York's transmission facilities, other than those located underground, are controlled and operated by the NYISO. See "Electric Operations—Electric Supply" in Item 1 (in which information is incorporated herein by reference). At December 31, 2002, Con Edison of New York's transmission system had 432 miles of overhead circuits operating at 138, 230, 345 and 500 kV and 138 miles of underground circuits operating at 138 and 345 kV. There are 267 miles of radial subtransmission circuits operating at 69 kV and above. The company's 14 transmission substations, supplied by circuits operated at 69kV and above, have a total transformer capacity of 15,731 MVA. The company's transmission facilities are located in New York City and Westchester, Orange, Rockland, Putnam and Dutchess counties in New York State.

Con Edison of New York has transmission interconnections with Niagara Mohawk, Central Hudson Gas & Electric Corporation, O&R, New York State Electric and Gas Corporation, Connecticut Light

and Power Company, Long Island Power Authority, NYPA and Public Service Electric and Gas Company.

Distribution Facilities. Con Edison of New York owns various distribution substations and facilities located throughout New York City and Westchester County. At December 31, 2002, the company's distribution system had a transformer capacity of 20,300 MVA, with 32,763 miles of overhead distribution lines and 89,910 miles of underground distribution lines.

Gas Facilities

Natural gas is delivered by pipeline to Con Edison of New York at various points in its service territory and is distributed to customers by the company through 4,249 miles of mains and 372,083 service lines. The company owns a natural gas liquefaction facility and storage tank at its Astoria property in Queens, New York. The plant can store approximately 1,000 mdth of which a maximum of about 250 mdth can be withdrawn per day. The company has about 1,230 mdth of additional natural gas storage capacity at a field in upstate New York, owned and operated by Honeoye Storage Corporation, a corporation 28.8 percent owned by Con Edison of New York.

Steam Facilities

Con Edison of New York generates steam for distribution at three steam/electric generating stations and five steam-only generating stations and distributes steam to customers through approximately 87 miles of mains and 18 miles of service line. For information about the planned repowering of the East River steam-electric station, see "Electric Facilities—Generating Facilities," above.

O&R

Electric Transmission and Distribution Facilities

O&R and its utility subsidiaries, RECO and Pike, own, in whole or in part, transmission and distribution facilities which include 602 circuit miles of transmission lines, 14 transmission substations (with a total transformer capacity of 3,762 MVA), 58 distribution substations (with a transformer capacity of 1,997 MVA), 92,829 in-service line transformers, 5,109 pole miles of overhead distribution lines and 2,630 miles of underground distribution lines.

Gas Facilities

O&R and Pike own their gas distribution systems, which include 1,795 miles of mains.

RECO & Pike Mortgages

Substantially all of the utility plant and other physical property of O&R's utility subsidiaries, RECO and Pike, is subject to the liens of the respective indentures securing first mortgage bonds of each company.

UNREGULATED SUBSIDIARIES

For information about the unregulated subsidiaries' interests in electric generating facilities, see "Electric Power Requirements" in Con Edison's MD&A in Item 7 (which information is incorporated herein by reference). These interests, the capitalized cost of which at December 31, 2002 amounted to $526 million (net of accumulated depreciation), are included in Con Edison's financial statements as unregulated generating assets and construction work in progress. In addition, Con Edison Development has an operating lease arrangement for a 525 MW generating facility which was placed in service in 2002. See

Note S to the Con Edison financial statements in Item 8 (which information is incorporated herein by reference). The generating facilities, which use primarily natural gas for fuel, are located primarily in New Hampshire, Massachusetts, New Jersey and Maryland.

Con Edison Communications' properties, the capitalized cost of which at December 31, 2002 amounted to $123 million (net of accumulated depreciation), are included in Con Edison's financial statements as non-utility property and construction work in progress. The properties include network facilities and approximately 130 miles of fiber optic cable that has been installed in the New York City metropolitan area primarily through Con Edison of New York underground conduits and other rights of way. Con Edison Communications pays a fee for the use of such conduits and rights of way.

ITEM 3. LEGAL PROCEEDINGS

Con Edison

Northeast Utilities

For information about legal proceedings relating to Con Edison's October 1999 agreement to acquire Northeast Utilities, see Note P to the Con Edison financial statements in Item 8 (which information is incorporated herein by reference).

Newington Project

For a description of the Newington Project, see Note S to the Con Edison financial statements included in Item 8 (which information is incorporated herein by reference). In September 2002, Duke/Fluor Daniel, the general contractor for the Newington Project, initiated an arbitration proceeding with respect to its contract claims for an additional payment to it of $89 million for alleged project costs and a 176-day extension of the project's scheduled substantial completion date. In September 2002, Con Edison Development commenced an action in the Supreme Court of the State of New York (Hawkeye Funding, Limited Partnership), seeking to adjudicate certain contract disputes with the general contractor. Presently, the arbitration proceeding and Supreme Court action are stayed pending resolution of an appeal in the New York State Supreme Court, Appellate Division. In September 2002, the general contractor commenced an action in Superior Court in the State of New Hampshire, and obtained a pre-judgment attachment on the project as security for the payment of its claim for additional project costs. The New Hampshire Superior Court is presently reviewing a motion to reconsider the propriety of its earlier decision allowing the pre-judgment attachment.

Con Edison of New York

Nuclear Generation

For information about the PSC proceeding relating to the nuclear generating unit that Con Edison of New York sold in 2001, see Note G to the Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference).

In December 2002, the United States Supreme Court denied defendants request to review a June 2002 decision by the United States Court of Appeals for the Second Circuit which had unanimously affirmed the October 2000 decision by the United States District Court for the Northern District of New York, in an action entitled Consolidated Edison Company of New York, Inc. v. Pataki, et al. In its decision, the district court determined that the New York State law that directed the PSC to prohibit Con Edison of New York from recovering replacement power costs for the outage from customers was unconstitutional and granted the company's motion for a permanent injunction to prevent its implementation.

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note F to the Con Edison of New York financial statement in Item 8 (which information is incorporated herein by reference).

Superfund

The following is a discussion of significant proceedings pending under Superfund or similar statutes involving sites, including manufactured gas sites, for which Con Edison of New York has been asserted

to have a liability. See "Environmental Matters—Superfund" in Item 1. Additional such proceedings may arise in the future.

Under Con Edison of New York's current electric, gas and steam rate agreements, site investigation and remediation costs in excess of $5 million annually are to be deferred and subsequently reflected in rates.

For a further discussion of claims and possible claims against Con Edison of New York under Superfund, its estimated liability accrued for Superfund claims and recovery from customers of site investigation and remediation costs, see Note F to Con Edison of New York's financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites. Con Edison of New York and its predecessors formerly manufactured gas and maintained storage holders for manufactured gas at sites in New York City and Westchester County, New York (MGP Sites). Many of these sites are now owned by parties other than Con Edison of New York and have been redeveloped by them for other uses, including schools, residential and commercial developments and hospitals. The New York State Department of Environmental Conservation (DEC) is requiring the company to investigate and, if necessary, develop and implement remediation programs for the MGP Sites, which include 33 manufactured gas plant sites and 17 storage holder sites.

The information available to Con Edison of New York for most of the MGP Sites is incomplete as to the extent of contamination and remediation and monitoring methods, if any, to be used. Investigation at most of the MGP Sites has not yet started and has been completed at only two of the MGP Sites. Coal tar and/or other manufactured gas plant-related environmental contaminants have been detected at nine other MGP Sites, including sites in Manhattan and other parts of New York City and in Westchester County.

For additional information about MGP Sites, see Note F to the Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference).

Astoria Site. Con Edison of New York is permitted by the DEC to operate a PCB storage facility on property the company owns in the Astoria section of Queens, New York. The company has submitted to the DEC and the New York State Department of Health a report indicating PCB contamination of a portion of the site. As a condition of its DEC permit, the company is required, where necessary, to conduct a remediation program. The company is investigating the extent of contamination at the Astoria site. The company estimates that its undiscounted potential liability for the cleanup of PCB contamination at the site will be at least $7 million.

Maxey Flats Nuclear Disposal Site. In 1986, the EPA designated Con Edison of New York a potentially responsible party (PRP) under Superfund for the investigation and cleanup of the Maxey Flats Nuclear Disposal Site in Morehead, Kentucky. The site is owned by the State of Kentucky and was operated as a disposal facility for low level radioactive waste from 1963 through 1977 by the Nuclear Engineering Corporation (now known as U.S. Ecology Corporation). In 1995, the United States, the State of Kentucky and various de minimis PRPs, large private party PRPs (including Con Edison of New York) and large federal agency PRPs entered into consent decrees with respect to the funding and

implementation of the cleanup program required by EPA for the site. Under the consent decrees, the large private party PRPs are responsible for implementing phase one of the program and any corrective actions required during the first 10 years following completion of phase one. The costs of those activities are being shared with the large federal agency PRPs. Also, if during this ten-year period the EPA determines that horizontal flow barriers are required, the large private party PRPs will construct the barriers and share the cost of that work with the large federal agency PRPs and the State of Kentucky. The large private party PRPs are not responsible for any costs after the ten-year period expires. The State of Kentucky will implement and fund the remainder of the cleanup program. Construction work for the phase one program is expected to end this year. Con Edison of New York's share of the cleanup costs is estimated to be between $600,000 and $700,000.

Curcio Scrap Metal Site. In 1987, the EPA designated Con Edison of New York a Superfund PRP for the Curcio Scrap Metal, Inc. Site in Saddle Brook, New Jersey, because the company had previously sold PCB-contaminated scrap electric transformers to a metal broker who in turn sold them to the owner of the site for salvaging. In 1991, the EPA issued a Unilateral Administrative Order which required Con Edison of New York and three other PRPs to implement a soil and sediment cleanup program at and around the site. In 1997, the EPA issued a Record of Decision in which it concluded that the soil and sediment cleanup had successfully remediated the principal threats associated with the site and required periodic groundwater monitoring at the site for five years. Con Edison of New York is conducting the required groundwater monitoring program, which is expected to cost between $500,000 and $600,000 to complete, under an EPA Administrative Consent Order. Depending on the results of the monitoring, the EPA could extend the monitoring program for an additional five years or require remedial measures, such as groundwater treatment or cleanup work.

Metal Bank of America Site. In 1987, the EPA designated Con Edison of New York a Superfund PRP for the Metal Bank of America Site in Philadelphia. The site, a former metal recycling facility, was placed on the EPA's national priority list in 1983. PCBs have been found in the site soil and groundwater and in the sediment from areas of tidal mudflat and the Delaware River along the site's shoreline. During the 1970's, Con Edison of New York sold approximately 125 transformers to scrap metal dealers who salvaged or may have salvaged the transformers at the site. In 1997, the EPA issued a Record of Decision that calls for, among other things, the removal and disposal of contaminated sediments in the areas of the tidal mudflat and the Delaware River along the site's shoreline. In 1998, the EPA ordered the current and former site owners and operators and various electric utility PRPs, including Con Edison of New York, to design and implement the cleanup program. The cost of the required cleanup program is estimated at between $24 million and $30 million. Con Edison of New York's share of the costs allocated to the electric utilities is 0.97 percent. The utilities are pursuing Superfund cost contribution litigation against current and former site owners and operators.

Narrowsburg Site. In 1987, the New York State Attorney General notified Con Edison of New York that it is a Superfund PRP for the Cortese Landfill Site in Narrowsburg, New York, because during 1974 the company had disposed of waste oil at the landfill. The Cortese Landfill is listed on the EPA's Superfund National Priorities List. In 1983, the Attorney General commenced an action under Superfund in the United States District Court for the Southern District of New York against the Cortese

Landfill site owner and operator and SCA Services (SCA), the successor in interest of an alleged transporter of hazardous substances to the site. In 1989, SCA commenced a third-part action for contribution against Con Edison of New York and various other parties whose chemical waste was allegedly disposed of at the site. Con Edison of New York and SCA have reached a settlement of the third-party action under which Con Edison of New York paid $114,485 toward the cost of the site environmental studies and will pay six percent of the first $25 million of remedial costs for the sites. SCA has agreed to indemnify Con Edison of New York for any other remedial costs and natural resource damages that it has to pay. The EPA has selected a cleanup program for the site that is estimated to cost $12 million and the court has approved a consent decree under which SCA, Con Edison of New York and various other site PRPs have agreed to implement the cleanup program, pay the EPA's oversight costs for the site, and pay approximately $220,000 for natural resource damages.

Carlstadt Site. In 1990, Con Edison of New York was served with a third-party complaint in a Superfund cost contribution action for a former waste solvent and oil recycling facility located in Carlstadt, New Jersey. The complaint in the action, which is pending before the United States District Court for the District of New Jersey, alleges that Con Edison of New York is one of several hundred parties who are responsible under Superfund for the study and cleanup of the facility. The plaintiffs in the action, which include a group of former customers of the facility, have completed a $3 million remedial investigation and feasibility study for the site. Plaintiffs estimate that seven to 15 million gallons of waste solvents and oil were recycled at the site. Based on this estimate, Con Edison of New York's share of the cleanup costs is estimated at about 0.8 to 1.7 percent. The costs of the cleanup alternatives that were evaluated in the remedial investigation and feasibility study range from $8 million to $321 million. Plaintiffs have completed an interim remedy, which plaintiffs claim cost more than $10 million, to control releases from the site while the EPA evaluates and develops a final cleanup remedy.

Global Landfill Site. Con Edison of New York is a PRP under Superfund and the New Jersey Spill Compensation and Control Act (Spill Act) for the Global Landfill Site in Old Bridge, New Jersey. The site, a former sanitary landfill that was authorized to accept municipal refuse and industrial waste, is included on the Superfund National Priorities List and is being administered by the New Jersey Department of Environmental Protection (NJDEP) pursuant to an agreement between the EPA and the State of New Jersey. In 1993, a group of site PRPs, including Con Edison of New York, entered into a consent decree with the NJDEP to implement, with partial funding from NJDEP, a Phase I remedy, estimated to cost $30 million. In 1997, the EPA issued a Record of Decision in which it selected a Phase II remedy. The site PRP group and the NJDEP are currently negotiating a consent decree under which the site PRP group would also design and implement the Phase II remedy. Con Edison of New York's share of the costs of the Phase I and Phase II remedies is not expected to exceed $150,000.

Chemsol Site. In 1991, the EPA advised Con Edison of New York that it had documented the release of hazardous substances at the Chemsol Site in Piscataway, New Jersey and that it had reason to believe that the company sent waste materials to the site during the period from 1960 through 1965. In response to the EPA's demand for records relating to Con Edison of New York's dealings with the site and various specified companies, including Cenco Instruments Corporation, the company submitted to

the EPA records of payments to Central Scientific Company, a Division of Cenco Instruments Corporation. Con Edison of New York is unable at this time to determine either the purpose of the payments to the Central Scientific Company or the connection of that company to the site. The EPA has not designated Con Edison of New York as a PRP and has not yet selected a final cleanup program for the site. However, the EPA has selected an interim remedy, expected to cost about $8 million, for the site groundwater contamination and has ordered several designated PRPs to implement that remedy.

PCB Treatment, Inc. Sites. In 1994, the EPA designated Con Edison of New York as a Superfund PRP for the PCB Treatment, Inc. (PTI) Sites in Kansas City, Kansas and Kansas City, Missouri, because during the mid-1980's it shipped almost 2.9 million pounds of PCB-containing oil and electric equipment to two buildings that PTI used at the sites for the storage, processing, and treatment of PCB-containing electric equipment, dielectric oils, and materials. Con Edison of New York is member of a PRP steering committee that, in May 2000, completed environmental studies and engineering evaluations for the sites under an EPA administrative consent order. The results of the studies indicate that portions of the buildings' floor slabs, support columns and walls and the soil around the buildings' outdoor loading dock areas are contaminated with PCBs. In August 2000, EPA selected a removal action program for the contaminated buildings and soil at the sites. Under the program, which EPA projects will cost $21 million to complete, the buildings will be demolished and the contaminated soil will be excavated and shipped to off-site disposal facilities. EPA, the members of the PRP steering committee (including Con Edison of New York) and the federal agencies that shipped PCB-containing waste materials to the sites are entering into an administrative order on consent under which the members of the PRP steering committee will design and implement EPA's removal action program with funding from both EPA and the settling federal agencies. Based on allocation information recently developed by EPA, Con Edison of New York believes that its share of the investigation and remediation costs for the sites could range between $1.5 and $3 million.

Borne Chemical Site. In 1997, Con Edison of New York was named as an additional third-party defendant in a private cost recovery action in the New Jersey Superior Court (Union County) under the New Jersey Spill Compensation and Control Act for the Borne Chemical site in Elizabeth, New Jersey. Borne Chemical used the site for the processing and blending of various types of petroleum, dyes and chemical products from approximately 1917 until 1985 when it became bankrupt and abandoned the site. Between 1971 and 1981, a portion of the site was occupied by a waste transporter and oil spill cleanup contractor that did work for Con Edison of New York at various times. Con Edison of New York and four other third-party defendants in the lawsuit have entered into a settlement with the third-party plaintiffs under which the company paid approximately $70,000 towards the cost of certain work that plaintiffs had already completed and agreed to assume responsibility for approximately 0.67 percent of the expenses that the third-party plaintiffs incurred conducting the site investigation study ordered by the NJDEP and any soil or groundwater cleanup program that the NJDEP may require after the site investigation study is completed.

Capasso Site. In 1997, Con Edison of New York was served with a complaint by DMJ Associates seeking to compel Con Edison of New York and 16 other defendants to clean up contamination at the Capasso property located in Long Island City, New York. The complaint alleges that Con Edison of

New York sent waste to the Quanta Resources facility (Quanta) and that contamination, including PCB contamination, has migrated from Quanta to the Capasso property and is contributing to the contamination on or about the Capasso property. Con Edison of New York is continuing to investigate whether it sent any waste to Quanta. Con Edison of New York is defending this action pursuant to a joint defense agreement with the other generator defendants.

Arthur Kill Transformer Site. Following a September 1998 transformer fire at Con Edison of New York's former Arthur Kill generating station, it was determined that oil containing high levels of PCBs was released to the environment during the incident. The company has completed DEC-approved cleanup programs for the station's facilities and various soil and pavement areas of the site affected by the PCB release. Pursuant to a July 1999 DEC consent order, the company is also carrying out a DEC-approved Remedial Investigation/Feasibility Program to assess the nature and extent of the contamination in, and to recommend a proposed remediation program for the waterfront area of the station. After soliciting public comments, the DEC will select the remedial program to be implemented. In 1999, Con Edison of New York completed the sale of the generating station pursuant to an agreement in which the buyer generally agreed to assume all environmental liabilities relating to the assets sold other than those for prior offsite disposal of hazardous waste and liabilities arising out of the transformer fire. In April 2000, Con Edison of New York entered into a Stipulation and Order of Consent with the United States Attorney for the Southern District of New York pursuant to which the United States Attorney agreed not to prosecute the company in connection with its response to the release of PCBs during the September 1998 transformer fire and, among other things, the company agreed to continue to develop, implement and maintain an effective environmental compliance program and to submit the program to an examination and evaluation by a person selected by the United States Attorney.

BCF Oil Refining Site. In May 2000, the EPA designated Con Edison of New York and numerous other parties as PRPs for the BCF oil refining site in Brooklyn, New York. The site was operated as a waste oil reprocessing facility from the late 1970's until August 1994, when the facility was forced to close down because its storage and processing tank had become contaminated with elevated concentrations of PCBs. In November 1994, the owners of the site sued Con Edison of New York, alleging that its shipments of waste oil and oily wastewater to the facility were the source of the high concentration of PCBs that had contaminated the facility's tanks. The action was dismissed after a jury verdict in Con Edison of New York's favor. However, the facility's tanks still contain significant quantities of PCB-contaminated oil and the EPA has determined that an emergency cleanup program estimated to cost $2.1 million is required for them. The EPA is attempting to negotiate with the owners of the facility for the implementation of the required emergency cleanup program, but has indicated that it may order PRPs who shipped waste oil to the facility to implement or to fund the program if the facility owners do not agree to carry out the program.

Mattiace Petrochemical Company Site. In July 2000, Con Edison of New York was served with an EPA Superfund information request for the Mattiace Petrochemical Company Superfund site in Glen Cove, New York. According to the EPA, the Mattiace Petrochemical Company processed, blended, repacked and distributed solvents at the site from the mid-1960's until 1987. Between 1974 and 1982, Mattiace Petrochemical's affiliate, the M&M Drum Company, cleaned and refurbished metal

drums at the site. The EPA has reportedly incurred expenses totaling approximately $23.5 million since 1988 in conducting emergency removal and cleanup work and other response actions at the site, including the portions of the site used by the M&M Drum Company. During the late 1970's and early 1980's, Con Edison of New York purchased naphtha and a mineral spirit-based solvent product from Mattiace Petrochemical and sold empty scrap drums to Mattiace Petrochemical and M&M Drum. Under a proposed Consent Decree, Con Edison of New York will settle its obligations with respect to this site with a $4.9 million payment and TRC Company, an environmental contractor, will be responsible to complete the remediation of the site. In addition, TRC Company is to insure its obligations under the Consent Decree with a $25 million insurance policy. If TRC Company were to default on its obligations under the Consent Decree and such default was not covered by the insurance policy, Con Edison of New York could have additional liability with respect to the site.

Croton Point Sanitary Landfill Site. The New York Attorney General has alleged that Con Edison of New York and numerous other businesses with commercial and industrial facilities within Westchester County, New York are Superfund PRPs for the County of Westchester's Croton Point Sanitary Landfill in Croton on the Hudson, New York, because they formerly used the landfill for the disposal of refuse and waste materials that contained hazardous substances. According to the New York Attorney General, the State of New York has spent over $27 million since 1993 assisting the County of Westchester in implementing response actions needed to prevent releases of hazardous substances from the landfill and to properly close the landfill. Con Edison of New York has joined a group of other designated site PRPs that has negotiated a settlement with the Attorney General, under which the settling PRPs will pay $9.5 million of the State of New York's past response costs. Con Edison of New York expects that its share of the settlement, which must be approved by the United States District Court for the Southern District of New York before becoming effective, will approximate $370,000.

Washington Heights Power Outage

Lawsuits relating to a July 1999 interruption of electric service to customers served by Con Edison of New York's Washington Heights distribution network were brought in New York State Supreme and Civil Courts, New York County. A number of cases, including purported class action lawsuits, have been dismissed, discontinued or settled for de minimis amounts. The company does not expect that the remaining cases will have a material adverse effect on its financial position, results of operation or liquidity.

Ronel Bennett

In December 1999, Ronel Bennett, Inc. and its president commenced an action in Supreme Court of the State of New York, County of Queens, against Con Edison of New York and six of its employees seeking $300 million in damages and alleging breach of contract and torts. Ronel Bennett performed work for the company at its former Ravenswood generating station from September 1996 to Spring 1997. Plaintiffs claim that the company failed to maintain a safe working environment, misrepresented conditions, failed to disclose information about hazardous and toxic substances, violated federal and New York laws regarding hazardous substances and retaliated against the plaintiffs. The company does not expect this proceeding to have a material adverse effect on its financial condition, results of operation or liquidity.

O&R

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note F to the O&R financial statements in Item 8 (which information is incorporated herein by reference).

Superfund

The following is a discussion of significant proceedings pending under Superfund or similar statutes involving sites, including manufactured gas sites, for which O&R has been asserted to have a liability. Additional such proceedings may arise in the future.

O&R is permitted under its current rate agreements to defer for subsequent recovery through rates certain site investigation and remediation costs.

For a further discussion of claims and possible claims against O&R under Superfund, its estimated liability accrued for Superfund claims and recovery from customers of site investigation and remediation costs, see "Environmental Matters" in Note F to the O&R financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites. O&R and its predecessors formerly owned and operated manufactured gas plants at seven sites (O&R MGP Sites) in Orange County and Rockland County, New York. Five of these sites are now owned by parties other than O&R and have been redeveloped by them for residential, commercial or industrial uses. The DEC is requiring O&R to develop and implement remediation programs for the O&R MGP Sites.

O&R has investigated and detected soil and/or groundwater contamination to varying degrees at all of the O&R MGP Sites. However, additional investigation will be required at most of the O&R MGP Sites and the remediation and monitoring methods have not yet been determined.

For additional information about the O&R MGP Sites, see Note F to the O&R financial statements in Item 8 (which information is incorporated herein by reference).

Metal Bank of America Site. O&R is a PRP with respect to the site described under "Superfund-Metal Bank of America Site" above in the description of Con Edison of New York's legal proceedings in this Item 3. O&R's share of the estimated $24 million to $30 million cost of the cleanup program is expected to be approximately 4.6 percent.

Borne Chemical Site. O&R is a PRP with respect to the site described under "Superfund-Borne Chemical Site" above in the description of Con Edison of New York's legal proceedings in this Item 3. In October 1995, various site PRPs, including O&R, entered into an administrative consent order with the NJDEP which obligates them to perform a remedial investigation to determine what, if any, subsurface remediation is required.

West Nyack Site. In 1994 and 1997, O&R entered into consent orders with the DEC pursuant to which O&R agreed to conduct a remedial investigation and remediate certain property it owns in West Nyack, New York at which PCBs were discovered. Petroleum contamination related to a leaking underground storage tank was found as well. O&R has completed all remediation at the site that the

DEC has required to date. The DEC is expected to determine whether any additional groundwater remediation will be required.

Orange County Landfill Site. In August 2000, the New York Attorney General informed O&R that it has been identified as a Superfund PRP for the Orange County Landfill Site in Goshen, New York. The site, a former sanitary landfill, was operated by the Orange County Department of Works between 1974 and January 1992 and was reportedly used for the disposal of approximately seven million cubic yards of municipal waste as well as small quantities of waste oil, industrial waste, septic sludge and hazardous waste. In March 1992, the DEC designated the landfill site a Class 2 Inactive Hazardous Waste Disposal Site after finding groundwater contamination in the vicinity of the site. Since then, the State of New York has incurred expenses totaling more than $12 million in connection with various required response actions for the site, including the capping and closure of the landfill. Orange County has reportedly spent an additional $5 million in connection with those actions. O&R's records indicate that during the period 1988 through 1990, it disposed of approximately 1.5 cubic yards of oil-soaked debris and four cubic yards of oil and/or solvent-contaminated metal at the landfill. O&R is investigating whether private refuse carters that picked up trash from its facilities may have used the landfill for the disposal of the trash.

Ramapo Landfill Site. In November 2000, the New York Attorney General informed O&R that it was considered a Superfund PRP for the Ramapo Landfill Site in the Town of Ramapo, New York because a commercial carting company that had picked up trash from its facilities in Rockland County, New York during the early 1980's may have disposed of that material at the site. The site, a former municipal waste and construction and demolition debris landfill, is included on the Superfund National Priorities List and is being administered by the DEC. In 1992, the EPA issued a Record of Decision selecting a comprehensive cleanup program for the site, which is estimated will cost between $21 million and $28 million to complete. The State of New York has reportedly spent more than $19 million assisting the Town of Ramapo to implement the required cleanup program.

O&R Clean Air Act Proceeding

For information relating to alleged violations of the federal Clean Air Act and the New York State Environmental Conservation Law relating to the Lovett Generating Station that it sold in June 1999, See Note F to the O&R financial statements included in Item 8 (which information is incorporated herein by reference).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information about the executive officers of Con Edison and Con Edison of New York, as of February 20, 2003. As indicated, certain of the executive officers are executive officers of each of Con Edison and Con Edison of New York and others are executive officers of Con Edison or Con Edison of New York. The term of office of each officer is until the next election of directors (trustees) of their company and until his or her successor is chosen and qualifies. Officers are

subject to removal at any time by the board of directors (trustees) of their company. Mr. McGrath has an employment agreement with Con Edison, which provides that he will serve as Chairman of the Board and Chief Executive Officer of Con Edison and Con Edison of New York through August 31, 2005 (subject to one year extensions unless terminated on six months prior notice). Messrs. Burke and McMahon and Ms. Freilich have employment agreements with Con Edison, which provide that they will serve in senior executive positions through August 31, 2005.

Name	Age	Offices and Positions During Past Five Years
Executive Officers of Con Edison and Con Edison of New York
Eugene R. McGrath	61	10/97 to present—Chairman, President, Chief Executive Officer and Director of Con Edison 3/98 to present—Chairman, Chief Executive Officer and Trustee of Con Edison of New York 9/90 to 2/98—Chairman, President, Chief Executive Officer and Trustee to Con Edison of New York
Kevin Burke	52	9/00 to present—President of Con Edison of New York 7/99 to 8/00—President of O&R 7/98 to 6/99—Senior Vice President—Customer Service of Con Edison of New York 3/98 to 6/98—Senior Vice President—Corporate Planning of Con Edison of New York 3/93 to 2/98—Vice President—Corporate Planning
Joan S. Freilich	61	3/98 to present—Executive Vice President, Chief Financial Officer and Director (Trustee) of Con Edison and Con Edison of New York 10/97 to 2/98—Senior Vice President, Chief Financial Officer and Director of Con Edison 4/97 to 2/98—Trustee of Con Edison of New York 7/96 to 2/98—Senior Vice President and Chief Financial Officer
Frances A. Resheske	42	2/02 to present—Senior Vice President—Public Affairs of Con Edison of New York 5/99 to 2/02—Vice President—Public Affairs of Con Edison of New York 2/99 to 4/99—Director—Public Affairs of Con Edison of New York 6/95 to 2/99—General Manager—Government Relations and Community Development, Brooklyn Union
Charles E. McTiernan, Jr.	58	1/03 to present—General Counsel of Con Edison and Con Edison of New York 10/85 to 12/02—Associate General Counsel of Con Edison of New York
Edward J. Rasmussen	54	12/00 to present—Vice President and Controller of Con Edison and Con Edison of New York 12/00 to present—Vice President, Controller and Chief Financial Officer of O&R 4/93 to 11/00—Assistant Controller of Con Edison of New York
Hyman Schoenblum	54	12/00 to present—Vice President—Corporate Planning of Con Edison of New York 12/97 to 11/00—Vice President and Controller of Con Edison and Con Edison of New York 7/99 to 11/00—Vice President and Chief Financial Officer of O&R

Robert P. Stelben	60	12/97 to present—Vice President and Treasurer of Con Edison and Con Edison of New York 7/99 to present—Vice President and Treasurer of O&R
Executive Officers of Con Edison but not Con Edison of New York
Stephen B. Bram	60	1/03 to present—Group President, Energy and Communications of Con Edison 9/00 to 12/02—President and Chief Executive Officer of O&R 4/95 to 8/00—Senior Vice President—Central Operations of Con Edison of New York
John D. McMahon	51	1/03 to present—President and Chief Executive Officer of O&R 8/98 to 12/02—Senior Vice President and General Counsel of Con Edison and Con Edison of New York 10/97 to 8/98—Deputy General Counsel, Corporate and Regulatory, of Con Edison of New York
Executive Officers of Con Edison of New York but not Con Edison (all offices and positions listed are with Con Edison of New York)
Louis L. Rana	54	2/03 to present—Senior Vice President—Electric Operations 10/01 to 1/03—Vice President—Manhattan Electric Operations 4/00 to 9/01—Vice President—Manhattan Customer Service 3/98 to 3/00—Vice President—System and Transmission Operations 10/97 to 2/98—General Manager—Central Operations
Mary Jane McCartney	54	10/93 to present—Senior Vice President—Gas
Robert A. Saya	61	9/01 to present—Senior Vice President—Central Operations 4/00 to 8/01—Vice President—System and Transmission Operations 1/95 to 3/00—Chief Engineer, Substation and Transmission Engineering
Luther Tai	54	9/01 to present—Senior Vice President—Central Services 9/00 to 8/01—Senior Vice President—Central Operations 7/98 to 8/00—Vice President—Corporate Planning 7/94 to 6/98—Director Corporate Planning
Marilyn Caselli	48	8/98 to present—Vice President—Customer Operations 10/97 to 7/98—Vice President—Staten Island Customer Service

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

CON EDISON

Con Edison's Common Shares ($.10 par value), the only class of common equity of Con Edison, are traded on the New York Stock Exchange. As of January 31, 2003, there were 97,987 holders of record of Con Edison's Common Shares.

The market price range for Con Edison's Common Shares during 2002 and 2001, as reported in the consolidated reporting system, and the dividends paid by Con Edison in 2002 and 2001 were as follows:

	2002						2001
	High		Low		Dividends Paid		High		Low		Dividends Paid

1st Quarter	$	42.50	$	40.03	$	0.555	$	38.38	$	31.44	$	0.55
2nd Quarter	$	45.10	$	40.55	$	0.555	$	40.00	$	35.76	$	0.55
3rd Quarter	$	43.44	$	33.58	$	0.555	$	43.37	$	36.90	$	0.55
4th Quarter	$	44.30	$	39.18	$	0.555	$	42.20	$	36.50	$	0.55

On January 16, 2003, Con Edison's Board of Directors declared a quarterly dividend of $0.56 per Common Share. The first quarter 2003 dividend will be paid on March 15, 2003.

Con Edison expects to pay dividends to its shareholders primarily from dividends and other distributions it receives from subsidiaries. The payment of future dividends, which, is subject to approval and declaration by Con Edison's Board of Directors, will depend on a variety of factors, including business, financial and regulatory considerations. For additional information see "Dividends" in Note B to the Con Edison financial statements in Item 8 (which information is incorporated herein by reference).

CON EDISON OF NEW YORK

The outstanding shares of Con Edison of New York's Common Stock ($2.50 par value), the only class of common equity of Con Edison of New York, are held by Con Edison and are not traded.

The dividends declared by Con Edison of New York in 2002 and 2001 are shown in its Consolidated Statement of Retained Earnings included in Item 8 (which information is incorporated herein by reference). For additional information about the payment of dividends by Con Edison of New York, and restrictions thereon, see "Dividends" in Note B to the Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference).

O&R

The outstanding shares of O&R's Common Stock ($5.00 par value), the only class of common equity of O&R, are held by Con Edison and are not traded.

The dividends declared by O&R in 2002 and 2001 are shown in its Consolidated Statement of Retained Earnings included in Item 8 (which information is incorporated herein by reference). See Note B to the O&R financial statements in Item 8 for information about restrictions on the payment of dividends by O&R.

ITEM 6. SELECTED FINANCIAL DATA

CON EDISON*

	For the Year Ended December 31
	2002		2001		2000		1999		1998

	(Millions of Dollars)
Operating revenues	$	8,481.9	$	9,388.8	$	9,317.2	$	7,491.3	$	7,093.0
Purchased power		3,180.4		3,380.3		3,536.3		1,824.0		1,253.8
Fuel		288.7		393.8		350.8		430.1		579.0
Gas purchased for resale		596.6		860.1		789.1		485.2		437.3
Operating income		1,060.1		1,127.6		1,016.1		1,019.8		1,053.3
Income before cumulative effect of changes in accounting principles		668.1		682.2		582.8		700.6		712.7
Cumulative effect of changes in accounting principles		22.1		-		-		-		-
Net income for common stock		646.0		682.2		582.8		700.6		712.7
Total assets		18,820.3		17,034.5		16,767.2		15,531.5		14,381.4
Long-term debt		6,168.4		5,501.2		5,415.4		4,524.6		4,050.1
Preferred stock subject to mandatory redemption		-		37.1		37.1		37.1		37.1
Common shareholders' equity		5,921.1		5,666.3		5,472.4		5,412.0		6,025.6

BASIC EARNINGS PER SHARE
Before cumulative effect of changes in accounting principles	$	3.14	$	3.22	$	2.75	$	3.14	$	3.04
Cumulative effect of changes in accounting principles	$	0.11		-		-		-		-
After cumulative effect of changes in accounting principles	$	3.03	$	3.22	$	2.75	$	3.14	$	3.04
DILUTED EARNINGS PER SHARE
Before cumulative effect of changes in accounting principles	$	3.13	$	3.21	$	2.74	$	3.13	$	3.04
Cumulative effect of changes in accounting principles	$	0.11		-		-		-		-
After cumulative effect of changes in accounting principles	$	3.02	$	3.21	$	2.74	$	3.13	$	3.04
Cash dividends per common share	$	2.22	$	2.20	$	2.18	$	2.14	$	2.12

Average common shares outstanding (millions)		213.0		212.1		212.2		223.4		234.3

CON EDISON OF NEW YORK

	For the Year Ended December 31
	2002		2001		2000		1999		1998

	(Millions of Dollars)
Operating revenues	$	7,224.0	$	8,122.2	$	8,000.7	$	6,956.0	$	6,998.7
Purchased power		2,622.3		2,818.9		2,988.1		1,669.2		1,252.0
Fuel		231.8		350.6		322.1		430.2		579.0
Gas purchased for resale		471.8		666.0		490.6		351.8		370.1
Operating income		954.1		1,046.5		952.1		1,001.5		1,067.1
Net income for common stock		605.4		649.5		570.1		698.3		728.1
Total assets		16,018.0		14,518.8		14,547.9		13,682.2		14,172.8
Long-term debt		5,394.0		5,011.8		4,915.1		4,243.1		4,050.1
Preferred stock subject to mandatory redemption		-		37.1		37.1		37.1		37.1
Common shareholders' equity		4,890.5		4,665.8		4,479.6		4,393.8		5,842.7

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONSOLIDATED EDISON, INC.

This discussion and analysis relates to the accompanying consolidated financial statements of Consolidated Edison, Inc. (Con Edison) and should be read in conjunction with the consolidated financial statements and the notes thereto. Except where noted, this discussion and analysis is presented on a consolidated basis. Information in the notes referred to in this discussion and analysis is hereby 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.

CON EDISON

Con Edison is a holding company that provides a wide range of energy-related and telecommunications services to its customers through its regulated and unregulated subsidiaries. Con Edison's core business is energy distribution and it is also pursuing related growth opportunities in competitive businesses.

Con Edison's principal subsidiary is Consolidated Edison Company of New York, Inc. (Con Edison of New York), a regulated utility that provides electric service to over 3.1 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan.

Orange and Rockland Utilities, Inc. (O&R) is also a regulated utility subsidiary of Con Edison. O&R, along with its regulated utility subsidiaries, provides electric service to over 285,000 customers in southeastern New York and adjacent sections of New Jersey and northeastern Pennsylvania and gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

Con Edison has four unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity, gas and energy-related services to delivery customers of utilities, including Con Edison of New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; Consolidated Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and energy and other infrastructure projects; and Con Edison Communications, LLC (Con Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. The unregulated subsidiaries participate in competitive businesses that are subject to different risks than those found in the businesses of the regulated utility subsidiaries. The unregulated subsidiaries accounted for 7.3 percent of consolidated operating revenues and 2.9 percent of consolidated net income in 2002 (before the cumulative effect of changes in accounting principles) and 7.0 percent of consolidated total assets at December 31, 2002.

RESULTS OF OPERATIONS – SUMMARY

Con Edison's earnings per share in 2002 were $3.03 ($3.02 on a diluted basis). Earnings per share in 2001 and 2000 were $3.22 ($3.21 on a diluted basis) and $2.75 ($2.74 on a diluted basis), respectively.

Earnings per share for 2002, before the cumulative effect of changes in accounting principles of $22.1 million after tax, were $3.14 ($3.13 on a diluted basis). See Notes K and O to the financial statements.

Earnings for the years ended December 31, 2002, 2001 and 2000 were as follows:

		2002			2001			2000

		(Millions of Dollars)
Con Edison of New York		$	605.4		$	649.5		$	570.1	*
O&R			44.9			40.2			39.1
Unregulated subsidiaries			(2.6	)**		11.5			7.7
Other***			(1.7	)		(19.0	)		(34.1	)

	CON EDISON	$	646.0		$	682.2		$	582.8

*: Includes a pre-tax charge for the possible disallowance of $130 million of replacement power expenses.
**: Includes charges for the cumulative effect of two changes in accounting principles totaling $22.1 million after tax.
***: Includes parent company expenses, inter-company eliminations, goodwill amortization (in the years 2001 and 2000) and a $32.1 million charge in 2000 for merger-related expenses.

Con Edison's earnings in 2002 were $36.2 million lower than in 2001, reflecting the following factors (after tax, in millions):

Con Edison of New York:
	Lower operation and maintenance expenses (excluding nuclear operations)	$	21.6
	Impact of weather (estimated)		18.4
	Reserve for electric excess earnings		(26.0	)
	Amortization of divestiture gain in 2001		(25.0	)
	Reduction in gas base rates and lower non-firm gas sales		(21.3	)
	Economic conditions (estimated)		(7.5	)
Cumulative effect of changes in accounting principles			(22.1	)
Cessation of goodwill amortization			10.8
Unregulated businesses			8.0
Orange and Rockland Utilities			4.7
Other			2.2

TOTAL		$	(36.2	)

Con Edison's earnings in 2001 were $99.4 million higher than in 2000, reflecting the following factors (after tax, in millions):

Con Edison of New York:
	Lower nuclear production expenses	$	64.0
	Impact of weather and economic conditions (estimated)		47.5
	Lower depreciation expense		45.5
	Amortization of divestiture gain		37.5
	Increased pension credits		34.5
	Recognition of deferred NYPA rate increase		22.9
	Unrecovered Indian Point replacement power costs in 2000		84.5
	Electric rate reductions		(243.4	)
	Taxes other than income, principally property taxes		(12.2	)
	Merger-related expenses in 2000		20.9
	Unregulated businesses		3.8
Other			(6.1	)

Total		$	99.4

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Con Edison's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in the United States of America. The company's critical accounting policies include industry-specific accounting applicable to regulated public utility subsidiaries and accounting for pensions and other postretirement benefits, contingencies, derivative instruments, goodwill and leases.

The application of certain of these accounting policies requires the company to use estimates. These estimates may require the company to make assumptions about matters that are highly uncertain and for which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

The major critical accounting policies are as follows:

Accounting for Regulated Public Utilities—SFAS No. 71

Con Edison's principal subsidiaries, Con Edison of New York and O&R, are regulated public utilities subject to Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, are subject to the accounting requirements of the Federal Energy Regulatory Commission (FERC) and state public utility regulatory authorities having jurisdiction.

SFAS No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

Con Edison's principal regulatory assets and liabilities are detailed on the company's consolidated balance sheet. The company is receiving or being credited with a return on all of its regulatory assets for which a cash outflow has been made. The company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Accounting for Pensions and Other Postretirement Benefits

Con Edison provides pensions and other postretirement benefits to substantially all employees and retirees of its utility subsidiaries and certain employees of its unregulated subsidiaries. Con Edison accounts for these benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." In applying these accounting policies, the company has made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future compensation, health care cost trends, and appropriate discount rates. See Notes D and E to the financial statements for information about

these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2002, 2001 and 2000.

Primarily because of the amortization of previous years' net investment gains, Con Edison's pension expense for 2002, 2001 and 2000 was negative, resulting in a credit to and increase in net income in each year. Investment gains and losses on plan assets are fully recognized in expense over a 15-year period (20 percent of the gains and losses for each year begin to amortize in each of the following five years and the amortization period for each 20 percent portion of the gains and losses is ten years). This amortization is in accordance with the Statement of Policy issued by the New York State Public Service Commission (PSC) and is permitted under SFAS No. 87, which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains and losses.

Con Edison's expense or credit for actual pension and other postretirement benefits in future periods will depend upon actual returns on plan assets and the assumptions the company makes for future periods. The company's current estimate for 2003 is a reduction, compared to 2002, in the pension and other postretirement benefits net credit of $54 million after tax. This reduction reflects, among other factors, an actual loss on the pension fund of 8.6 percent in 2002 as compared with an expected annual asset return assumption of 9.2 percent. This variation will reduce net income by $21.3 million after tax in 2003, as compared to 2002. In addition, the company has lowered its expected annual asset return assumption for the plans for 2003 to 8.8 percent. This revised assumption will reduce net income by $14.5 million after tax in 2003, as compared to 2002.

Amortization of market gains and losses experienced in previous years is expected to reduce the pension and other post retirement benefit net credit by an additional $25 million, after tax, in 2004. A 5.0 percentage point variation in the actual annual return in 2003 as compared to the expected annual asset return of 8.8 percent would change net income by approximately $6 million in 2004. Under the terms of its current regulatory agreements, O&R would defer as a regulatory asset any difference between expenses recognized under SFAS No. 87 and the amounts reflected in rates for such expenses.

An actuarial valuation of the plan's funded status was performed as of December 31, 2002. The valuation showed that the fair value of the company's pension plan assets exceeded its Accumulated Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the plan's ABO in future years. In that event, Con Edison would be required, under SFAS No. 87 and SFAS No. 132 "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a liability equal in amount to the difference between the fair value of the plan assets and the ABO, plus its total accrued pension credits, through a non-cash charge to other comprehensive income (OCI). The charge to OCI, which would be net of taxes, would not affect the company's net income for common stock.

Con Edison was not required to make cash contributions to its pension plan in 2002 nor will it be required to do so in 2003.

Accounting for Contingencies

SFAS No. 5, "Accounting for Contingencies," applies to an existing condition, situation, or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Con Edison's known material contingencies include litigation relating to its October 1999 merger agreement with Northeast Utilities, a proceeding relating to outages at the nuclear generating unit the company sold in 2001, workers' compensation claims, and its responsibility for hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, that have been used or generated in the course of the operations of its subsidiaries. See Notes F, G and P to the financial statements. In accordance with SFAS No. 5, the company has accrued estimates of losses relating to the contingencies as to which loss is probable and can be reasonably estimated and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated.

Accounting For Derivative Instruments

Con Edison's subsidiaries use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity or gas and interest rate risk on certain debt securities. See "Financial Market Risks" below and Note O to the financial statements.

Accounting for Goodwill

Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. In accordance with this standard, Con Edison ceased amortizing goodwill and began testing remaining goodwill balances for impairment on an annual basis. Con Edison completed initial goodwill impairment tests and recorded a loss of $34.1 million ($20.2 million after tax) as of January 1, 2002, relating to certain generation assets owned by an unregulated subsidiary. The unamortized goodwill of $405.8 million, relating to the acquisition of O&R, was tested for impairment and determined not to be impaired. See Note K to the financial statements.

In determining whether or not its goodwill is impaired, Con Edison is required to make certain estimates and assumptions that could affect the results of the goodwill impairment test. Actual results could differ from the estimates used.

Accounting for Leases

Con Edison applies SFAS No. 13, "Accounting for Leases" and other related accounting pronouncements to its leasing transactions. See Notes J and S to the financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Con Edison's liquidity reflects cash flows from operating, investing and financing activities, as shown on the accompanying consolidated statement of cash flows and discussed below. As a result of these activities, cash and temporary cash investments (including restricted cash) decreased $226.9 million at December 31, 2002 compared to December 31, 2001.

Cash Flows From Operating Activities

Con Edison's cash flows from operating activities reflect principally its energy sales and its cost of operations. The volume of energy sales is dependent on factors external to Con Edison such as weather, economic conditions and technological developments. The prices at which Con Edison's utility subsidiaries provide energy to their customers are determined in accordance with rate agreements approved by

the state public utility regulatory authority having jurisdiction—the New York State Public Service Commission (PSC), the New Jersey Board of Public Utilities (NJBPU) and the Pennsylvania Public Utility Commission (PPUC). See "Regulatory Matters" below. In general, changes in the utility subsidiaries' cost of purchased power, fuel and gas 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.

Net income for common stock is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect Con Edison's cash flow from operations. Principal non-cash charges include depreciation and deferred taxes. Principal non-cash credits include accrued pension credits. Pension credits result from past favorable performance in Con Edison of New York's pension fund and assumptions about future performance. See "Application of Critical Accounting Policies—Accounting for Pensions and Other Postretirement Benefits" and Notes D and E to the financial statements.

Net cash flows from operating activities in 2002 were $82.6 million less than the 2001 period. This decrease is due principally to higher energy costs and sales in December 2002 as compared to December 2001, resulting in increased customer accounts receivable and recoverable energy costs, offset in part by increased accounts payable balances. The net benefit to cash flow from these activities in 2001 was greater than the benefit in 2002 because high energy costs at year-end 2000 were collected in 2001 and energy purchases at year-end 2001 were lower than the prior year. The change in cash flows also reflect the timing of federal income tax payments and refunds and net cash received related to regulatory liabilities, such as transmission congestion contracts, offset by increased cash expended related to regulatory assets. Net cash flows from operating activities in 2001 increased $245.5 million compared with 2000, due principally to lower energy costs which are reflected in decreased customer accounts receivable and recoverable energy costs, offset in part by decreased accounts payable balances. See Note G to the financial statements.

The following analysis reflects variations in balance sheet accounts, which impact specific line items within the consolidated statement of cash flows. The changes in these balance sheet line items are utilized to reconcile income to cash flow from operations.

Accounts receivable—customers, less allowance for uncollectible accounts were $96.4 million higher at December 31, 2002 than at year-end 2001, due primarily to higher electric, gas and steam sales in December 2002 as compared to December 2001. Con Edison of New York's equivalent number of days of revenue outstanding (ENDRO) of customer accounts receivable was 29.3 days at December 31, 2002, compared with 29.6 days at December 31, 2001. For O&R, the ENDRO was 23.0 days at December 31, 2002, compared with 23.6 days at year-end 2001.

Recoverable energy costs increased $113.0 million at December 31, 2002 as compared with year-end 2001 due primarily to increased fuel, purchased power and gas costs, resulting from higher sales volumes in December 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Other receivables increased $70.0 million at December 31, 2002 as compared with year-end 2001, due primarily to increased receivables associated with electric and gas commodity transactions at the unregulated subsidiaries (accounts payable for such transactions also increased) and increased gas hedging

program receivables at the utility subsidiaries. See "Financial Market Risks—Commodity Price Risks," below.

Gas in storage decreased $31.0 million at December 31, 2002 as compared with year-end 2001, reflecting primarily the lower volumes in storage as a result of higher withdrawals due to the colder weather at year-end 2002 as compared to 2001.

Other current assets increased $18.9 million at December 31, 2002 compared with year-end 2001, due primarily to an increase in the value of energy marketing contracts at the regulated and unregulated subsidiaries.

Deferred loss on the sale of the nuclear generating unit decreased $47.6 million at December 31, 2002 as compared to year-end 2001 reflecting the recovery of these costs from Con Edison of New York's customers in accordance with the company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Divestiture—capacity replacement reconciliation balance decreased $30.0 million at December 31, 2002 as compared to year-end 2001 representing the amortization of capacity costs incurred prior to the opening of the New York Independent System Operator (NYISO) market, in accordance with the company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Deferred environmental remediation costs increased $20.5 million at December 31, 2002 as compared to year-end 2001 representing primarily additional liabilities accrued for costs related to Superfund and other sites, which Con Edison's regulated subsidiaries are permitted to recover under current rate agreements. See Note F to the financial statements.

For information about the regulatory asset for World Trade Center restoration costs, see Note Q to the financial statements.

Deferred asbestos-related costs increased $33.7 million at December 31, 2002 as compared to year-end 2001 due to increased liabilities accrued for Con Edison of New York's non-employee related asbestos claims (which Con Edison of New York is permitted to recover under its current rate agreements). See Note F to the financial statements.

Other regulatory assets increased $34.4 million at December 31, 2002 as compared to year-end 2001 due principally to the reconciliation of taxes collected and the tax expense resulting from New York State tax law changes in accordance with PSC authorization. See Note A to the financial statements and "Other Regulatory Liabilities," below.

Accumulated provision for injuries and damages increased $21.8 million at December 31, 2002 as compared with year-end 2001, reflecting primarily workers' compensation claims relating to asbestos exposure. See Note F to the financial statements.

Accounts payable increased $239.7 million at December 31, 2002 as compared with year-end 2001. This increase is due primarily to higher electric, gas and steam energy costs at December 31, 2002 as compared to December 31, 2001, reflecting higher sales volumes, and an increase in payables associated with settled

electric and gas commodity transactions at the unregulated subsidiaries. See discussion of electric power costs in "Results of Operations," below.

Accrued taxes decreased $45.3 million at December 31, 2002 compared with year-end 2001, due primarily to the payment of the 2001 fourth quarter federal income tax liability in January 2002. The federal government delayed the timing of the payment in light of the World Trade Center attack.

Transmission congestion contracts increased $119.9 million at December 31, 2002 as compared to year-end 2001 reflecting proceeds from the sale of transmission rights on Con Edison of New York's transmission system. These proceeds are being retained for customer benefit.

The gas rate plan balance of $36.3 million at December 31, 2002 was established in accordance with the 2002 gas rate agreement to provide for the recovery of costs (net of reimbursement) related to the World Trade Center attack.

Electric excess earnings balance of $40.0 million at December 31, 2002 represents a reserve established in 2002 for earnings in excess of a specified rate of return that are to be retained for customer benefit in accordance with Con Edison of New York's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

During 2002, other regulatory liabilities increased $125.5 million, due primarily to the reconciliation of taxes collected and the expense resulting from New York State tax law changes in accordance with PSC authorization and the establishment of a liability to customers for interest earned on a federal income tax refund. Changes in the New York State tax laws applicable to utility companies, effective January 1, 2000, repealed or reduced certain revenue-based taxes and instituted a net income-based tax. In June 2001, the PSC issued its final Order relating to these tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and tax expense resulting from tax law changes, until those changes are incorporated into base rates.

Cash Flows Used in Investing Activities

Cash flows used in investing activities were $686.8 million higher in 2002 compared with 2001, due primarily to the receipt of proceeds from generation divestiture, net of contributions to the nuclear decommissioning trust, in the 2001 period. See "Generation Divestiture," below. In addition, construction expenditures increased $112.3 million in 2002 compared with 2001, principally to meet load growth on the company's electric distribution systems, to effect permanent restoration of portions of the electric, gas and steam systems in lower Manhattan following the World Trade Center attack and for the ongoing project to add incremental generating capacity at Con Edison of New York's East River steam-electric generating plant (the East River Repowering Project). Cash flows used in investing activities in 2001 decreased $605.5 million compared with 2000, due primarily to the receipt of proceeds from generation divestiture, which offset increased utility construction expenditures related to meet load growth on the company's electric distribution systems. See "Generation Divestiture" and "Capital Expenditures" below.

expected price of $576 million to $680 million, depending on zoning and other adjustments. The sale is subject to PSC approval and other conditions. The buyer paid Con Edison of New York $50 million in 2000 as a down payment, which Con Edison of New York used to fund a portion of the demolition and remediation expenses. The down payment has been recorded as a regulatory liability.

Cash Flows Used in Financing Activities

Net cash flows used in financing activities in 2002 decreased $278.0 million compared with 2001, reflecting principally increased financing for construction expenditures at Con Edison of New York, the issuance of common stock and a reduction in the amount of common stock dividends paid in cash. In 2002, the company began issuing new common shares for its Automatic Dividend Reinvestment and Cash Payment Plan instead of purchasing previously issued shares on the open market (approximately 1.0 million shares for $39.6 million).

In September 2001, the company used the proceeds from the sale of Con Edison of New York's nuclear plant to repay all outstanding short-term borrowing. Net repayments of short-term debt increased $221.8 million for the year-ended December 31, 2002 compared with 2001 period. Cash flows used in financing activities in 2001 increased $196.3 million compared with 2000, as a result of decreased borrowings and increased debt redemption.

Con Edison had $161.7 million of commercial paper and other short-term notes outstanding at December 31, 2002 and $343.7 million outstanding at December 31, 2001. Con Edison's average daily short-term borrowing outstanding in 2002 was $256.1 million compared with $241.8 million in 2001. The weighted average interest rate was 1.7 percent in 2002 compared to 4.6 percent in 2001. For additional information about Con Edison's short-term borrowing, see Note C to the financial statements.

In February 2002, Con Edison of New York redeemed at maturity $150 million of 6.625 percent 9-year, Series 1993C Debentures. In April 2002, Con Edison issued $325 million of 7.25 percent long-term debt (Public Income Notes, Series 2002A), with a 40-year maturity, callable at par after five years. In June 2002, Con Edison of New York redeemed at maturity $150 million of variable rate 5-year, Series 1997A Debentures and issued $300 million of non-callable 5.625 percent 10-year Series 2002A Debentures. In August 2002, Con Edison of New York redeemed at maturity $37.1 million of Cumulative Preferred Stock, $100 par value, 6.125 percent, Series J. In December 2002, Con Edison of New York issued $500 million 4.875 percent 10-year Series 2002B Debentures. In January 2003, Con Edison of New York redeemed $275 million of 7.75 percent 35-year, Series 1996A, Subordinated Deferrable Interest Debentures.

In October 2002, Con Edison of New York changed the interest rate method applicable to $224.6 million aggregate principal amount of its tax-exempt Facilities Revenue Bonds, Series 2001A from a variable weekly rate mode to a 10-year term mode, callable at par after three years with a 4.70 percent annual interest rate. In addition, Con Edison of New York entered into a swap agreement in connection with these bonds pursuant to which the company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate of 5.375 percent. See Note O to the financial statements.

External borrowings are a source of liquidity for Con Edison that could be affected by changes in credit ratings, financial performance and capital markets. For information about Con Edison's ratings and certain financial ratios, see "Capital Resources" below.

Generation Divestiture

In 2001, Con Edison of New York completed the sale of its interest in the jointly owned Roseton generating station and its nuclear generating unit and related assets. See Note I to the financial statements.

Capital Resources

Con Edison is a holding company that operates only through its subsidiaries and has no material assets other than its interests in its subsidiaries. Con Edison expects to finance its capital requirements primarily from dividends it receives from its subsidiaries and through the sale of securities, including commercial paper. In addition, Con Edison's ability to make payments on its external borrowings and dividends on its common shares is dependent upon its receipt of dividends from its subsidiaries or proceeds from the sale of its securities or its interests in its subsidiaries. For information about restrictions on the payment of dividends by Con Edison's utility subsidiaries, see Note B to the financial statements.

For information about Con Edison's $950 million commercial paper programs and revolving credit agreements with banks, see Note C to the financial statements.

In 2002, Con Edison issued 1.7 million shares of previously unissued shares of its common stock for its Automatic Dividend Reinvestment and Cash Payment Plan, Stock Purchase Plan and Stock Option Plan, which increased common equity by $68.5 million.

Con Edison expects its utility subsidiaries to finance their operations, capital requirements and payment of dividends to Con Edison from internally generated funds and external borrowings.

In December 2001, the PSC authorized Con Edison's utility subsidiaries to issue up to $1.95 billion of debt securities prior to 2006, of which Con Edison of New York issued $525 million of debt securities in 2002. In addition, the PSC authorized the refunding of the utility subsidiaries' outstanding debt securities and preferred stock.

Con Edison's unregulated subsidiaries have financed their operations and capital requirements primarily with capital contributions from Con Edison, internally generated funds and external borrowings and off-balance sheet financings guaranteed by Con Edison. See Note S to the financial statements.

In August 2002, President Bush signed into law an appropriations bill that authorizes funds for which the company is eligible to apply for the recovery of costs it incurred in connection with the World Trade Center attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. See Note Q to the financial statements.

Con Edison's ratio of earnings to fixed charges for 2002, 2001 and 2000 and common equity ratio at December 31, 2002, 2001 and 2000 were:

	2002	2001	2000

Earnings to fixed charges (SEC basis)	3.25	3.49	3.10
Common equity ratio	48.2	49.6	49.1

Con Edison's ratio of earnings to fixed charges decreased for 2002 compared to 2001 primarily as a result of decreased earnings, including a non-cash, after-tax charge of $22.1 million related to changes in accounting principles. Excluding this charge, the ratio of earnings to fixed charges for 2002 would have been 3.3. See Notes K and O to the financial statements. Con Edison's ratio of earnings to fixed charges increased for 2001 compared to 2000 primarily as a result of increased earnings, reflecting charges in 2000 for replacement power costs ($130.0 million) and merger related expenses ($32.1 million). See Notes G and P to the financial statements.

The commercial paper of Con Edison and its utility subsidiaries is rated P-1, A-1 and F-1, respectively, by Moody's Investors Service, Inc. (Moody's), Standard & Poor's Rating Services (S&P) and Fitch Ratings (Fitch). Con Edison's unsecured debt is rated A2, A and A-, respectively, by Moody's, S&P and Fitch. The senior unsecured debt of Con Edison's subsidiaries, Con Edison of New York and O&R, is rated A1, A+ and A+, respectively, by Moody's, S&P and Fitch.

Capital Requirements

The following table compares Con Edison's capital requirements relating to its regulated and unregulated subsidiaries for the years 2000 through 2002 and estimated amounts for 2003 and 2004:

		2000		2001		2002		2003			2004

		(Millions of Dollars)
Regulated utility construction expenditures		$	959	$	1,043	$	1,157	$	1,179		$	1,104
Investment in unregulated subsidiaries			121		187		277		134			47

	Sub-total		1,080		1,230		1,434		1,313			1,151
Retirement of long-term securities at maturity			395		638		348		460	*		150

	Total	$	1,475	$	1,868	$	1,782	$	1,773		$	1,301

*: Includes redemption in advance of maturity of $275 million of Con Edison of New York's Subordinated Deferrable Interest Debentures Series 1996A in January 2003.

The increased regulated utility construction expenditures in 2002 and 2003 reflect expenditures for permanent electric, gas and steam system restoration following the World Trade Center attack, programs to meet increased electric load growth and reliability needs, a higher level of gas infrastructure expenditures and the East River Repowering Project.

The investment in unregulated subsidiaries reflects Con Edison's funding to the unregulated subsidiaries as well as the subsidiaries' own investments, but does not include off-balance sheet financing (which is guaranteed by Con Edison). See Notes R and S to the financial statements. At December 31, 2002 and 2001, Con Edison's investment in these subsidiaries, on an unconsolidated basis, was $789.8 million and $473.5 million, respectively.

Contractual Obligations and Commercial Commitments

The following table summarizes Con Edison's material obligations at December 31, 2002, to make payments pursuant to contracts. Long-term debt and capital lease obligations are included on Con Edison's balance sheet. Operating leases and non-utility generator (NUGs) contracts (for which undiscounted future annual payments are shown) are disclosed in the notes to the financial statements.

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

	(Millions of Dollars)
Long-term debt (Note B)	$	6,668	$	473	$	627	$	385	$	5,183
Capital lease obligations (Note J)		72		8		15		14		35
Operating leases (Notes J and S)		418		79		129		88		122
Non-utility generator contracts (Note H)		8,145		543		1,076		1,061		5,465
Natural gas supply, transportation and storage contracts		424		144		135		120		25

Total	$	15,727	$	1,247	$	1,982	$	1,668	$	10,830

Con Edison's material commercial commitments to make payments in addition to these contractual commitments are its guarantees of certain obligations of its subsidiaries. See Notes R and S to the financial statements.

ELECTRIC POWER REQUIREMENTS

In 2002, Con Edison's utility subsidiaries purchased substantially all of the energy they sold to customers pursuant to firm contracts with NUGs and others or through the NYISO's wholesale electricity market. Con Edison expects that these resources will again be adequate to meet the requirements of its customers in 2003.

In general, Con Edison's utility subsidiaries recover prudently incurred purchase power costs pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction. See "Financial Market Risks - Commodity Price Risk" below and "Recoverable Energy Costs" in Note A to the financial statements. From time to time certain parties have petitioned the PSC to review these provisions, the elimination of which could have a material adverse effect on Con Edison's financial position, results of operations or liquidity.

To reduce the volatility of electric energy costs, Con Edison's utility subsidiaries have firm contracts to purchase electric energy (including the output of the nuclear generating unit divested in 2001) and have entered into derivative transactions to hedge the costs of expected purchases, which together cover a substantial portion of the electric energy expected to be sold to customers in the summer of 2003. See Notes H and O to the financial statements. Con Edison of New York also owns approximately 630 MW of electric generating stations located in New York City, the electricity from which it sells through the NYISO's wholesale electricity market.

In December 2002, Con Edison of New York issued a request for proposals seeking a contract to purchase, for no more than 10 years, 500 MW of electric capacity from a new facility located in New York City (or outside the City if there is dedicated new transmission).

The East River Repowering Project will add incremental electric capacity of approximately 200 MW based on a winter nominal rating or approximately 125 MW based on a summer nominal rating. Con Edison's utility subsidiaries do not expect to add any other long-term electric generation resources. In a July 1998 order, the PSC indicated that it "agree(s) generally that Con Edison of New York need not plan on constructing new generation as the competitive market develops," but considers "overly broad" and did not adopt Con Edison of New York's request for a declaration that, solely with respect to providing generating capacity, it will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer have the obligation to construct new generating facilities, regardless of the market price of capacity. Con Edison of New York monitors the adequacy of the electric capacity resources and related developments in its service area, and works with other parties on long-term resource adequacy issues within the framework of the NYISO.

Con Edison's unregulated subsidiaries sell electricity in the wholesale and retail NYISO and other markets. At December 31, 2002, Con Edison Development owned interests in electric generating facilities with an aggregate capacity of 588 MW and had under construction additional generating facilities with an aggregate capacity of 665 MW of capacity. In addition, Con Edison Development has an operating lease arrangement for a 525 MW generating facility (see Notes J and S) that was placed in service in December 2002. Con Edison Energy sells the electricity from these generating facilities under contract or on the wholesale electricity markets. See "Financial Market Risks - Commodity Price Risk," below.

REGULATORY MATTERS

Electric

In July 2002, FERC issued a Notice of Proposed Rulemaking (NOPR) to establish a Standard Market Design (SMD) for wholesale electricity markets across the country. The proposed SMD has many of the elements of the markets that have been established in the Northeast, and if adopted, could facilitate transactions among energy markets across the country. The SMD proposes that transmission owners would join Independent Transmission Providers, or ITPs, which would be independent of market participants, would have operational authority for all transmission assets under their control, and would perform certain functions related to day-ahead and real-time energy markets, determine resource adequacy requirements, financial congestion management, regional planning, market monitoring, and interregional coordination with neighboring ITPs. Transmission facilities of Con Edison's utility subsidiaries, other than those located underground, are currently controlled by the NYISO.

In September 1997, the PSC approved a restructuring agreement among Con Edison of New York, the PSC staff and certain other parties (the 1997 Restructuring Agreement). Pursuant to the 1997 Restructuring Agreement, Con Edison of New York reduced electric rates on an annual basis by $129 million in 1998, $80 million in 1999, $103 million in 2000 and $209 million in 2001, divested most of its electric generating capacity, and enabled all of its electric customers to be served by competitive energy suppliers.

In November 2000, the PSC approved an October 2000 agreement (the 2000 Electric Rate Agreement) that, among other things, revised and extended the electric rate plan provisions of the 1997 Restructuring Agreement and addressed certain generation divestiture-related issues.

The electric rate plan provisions of the 2000 Electric Rate Agreement cover the five-year period ending March 2005. Pursuant to the 2000 Electric Rate Agreement, Con Edison of New York reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

The 2000 Electric Rate Agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy Costs" in Note A to the financial statements.

For additional information about the 1997 Restructuring Agreement and the 2000 Electric Rate Agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

O&R has entered into settlement agreements or similar arrangements with the PSC, NJBPU and PPUC that provide for a transition to a competitive electric market. See "Rate and Restructuring Agreements" in Note A to the financial statements.

In August 2002, O&R's New Jersey utility subsidiary submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act (EDECA) of $110 million of electric purchased power costs in excess of amounts previously billed to customers, associated interest, and other deferred charges. See "Recoverable Energy Costs" in Note A to the financial statements.

Gas

In April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The rate agreement reduces retail sales and transportation rates by $25 million, on an annual basis.

In November 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties that revised and extended the 1996 gas rate settlement agreement through September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

In November 2000, the PSC also approved a gas rate agreement between O&R, PSC Staff and certain other parties covering the three-year period November 2000 through October 2003.

In November 2002, O&R filed a request with the PSC for approval of a $27.2 million rate increase effective November 2003. O&R also submitted a multi-year plan that addresses rates for two additional years, with an increase of $2.5 million per year to cover adjustments to infrastructure costs, inflation and property taxes. The Administrative Law Judge is expected to issue a recommended decision in the third quarter 2003.

For additional information about the new gas rate agreements, see "Rate and Restructuring Agreements" in Note A to the financial statements.

Steam

In December 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties with respect to the steam rate plan filed by Con Edison in November 1999. The agreement provides for a $16.6 million steam rate increase, which took effect October 2000 and, with limited exceptions, provided for no further changes in steam rates prior to October 2004.

For additional information about the agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

FINANCIAL MARKET RISKS

Con Edison's primary market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction expenditures and maturing debt securities. Con Edison and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of $809.8 million would result in a change in annual interest expense of $1.2 million.

In addition, Con Edison and its subsidiaries, from time to time, enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See "Interest Rate Hedging" in Note O to the financial statements.

Commodity Price Risk

Con Edison's commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The regulated and unregulated subsidiaries have risk management strategies to mitigate their related exposures. See Note O to the financial statements.

In general, the rates the utility subsidiaries charge customers for electric, gas and steam service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation of steam and electricity, including gains or losses on certain derivative instruments used to hedge energy purchases and related transaction costs. See "Recoverable Energy Costs" in Note A to the financial statements.

Con Edison estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $7.4 million for the derivative instruments used by its regulated utility subsidiaries to hedge purchases of electricity and gas. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased.

Con Edison's unregulated subsidiaries use a value-at-risk model to assess the market risk of their electricity and gas commodity fixed price purchase and sales commitments, physical forward contracts, and commodity derivative instruments. Value-at-risk represents the potential change in the fair value of instruments or portfolios due to changes in market factors, for a specified time period and confidence

level. The unregulated subsidiaries estimate value-at-risk across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a 95 percent confidence level. Since the value-at-risk calculation involves complex calculation methodologies, estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. The average, high and low values-at-risk for the 12 months ended December 31, 2002 were $1.4 million, $3.0 million and $0.6 million, respectively.

Credit Risk

Con Edison is exposed to credit risk related to over-the-counter transactions entered into primarily for the various energy supply and hedging activities for its regulated and unregulated subsidiaries. Credit risk is the loss that may result from a counterparty's nonperformance. Con Edison uses credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, master netting agreements and collateral or prepayment arrangements. Con Edison measures credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the company has a legally enforceable right of setoff.

Con Edison's unregulated energy subsidiaries had $64.8 million of credit exposure, net of collateral, at December 31, 2002, of which $45.0 million was with investment grade counterparties and $14.2 million was with the New York Mercantile Exchange or independent system operators.

Investment Risk

Con Edison's investment risk relates to the investment of the assets in the company's pension and other postretirement benefit plans. See "Critical Accounting Policies - Accounting for Pensions and Other Postretirement Benefits," above.

ENERGY TRADING ACTIVITIES

Unregulated subsidiaries of Con Edison engage in energy trading activities that are accounted for in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. Con Edison Energy markets energy through specialized products and provides wholesale capacity, risk management and load forecasting and scheduling services to wholesale and retail energy providers and asset optimization services for the electric generating plants of Con Edison Development. Con Edison Energy also procures and markets energy for other Con Edison subsidiaries and utilizes commodity contracts such as two-party forward contracts for the purchase or sale of electricity and capacity, over-the counter swap contracts, exchange-traded natural gas and crude oil futures and options, transmission congestion contracts, natural gas transportation contracts and other physical and financial contracts.

Prior to October 2002, these contracts were accounted for under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." As of October 2002, energy and energy-related trading contracts that meet the definition of a derivative are accounted for under SFAS No. 133. Such contracts are marked to market with gains and losses recognized in earnings. For the years ended December 31, 2002 and 2001, Con Edison recognized in income net unrealized pre-tax losses of $1.4 million, excluding the effect of a cumulative adjustment

due to a change in accounting principle, and net gains of $9.6 million, respectively. Contracts that did not fall within the scope of SFAS No. 133 were included in the cumulative effect of a change in accounting principle recognized in December 2002. See Note T to the financial statements.

The changes in fair value of energy trading net assets for the years ended December 31, 2002 and 2001 were as follows:

		2002			2001

		(Millions of Dollars)
Fair value of net assets outstanding - beginning of period		$	11.2		$	1.6
Change in fair value during the period:
	Unrealized gain at inception		10.9			-
	Net premium paid/(received)		(1.7	)		-
	Cumulative effect of a change in accounting principle		(3.2	)		-
	Changes in fair value prior to settlement		6.4			(1.6	)
	Fair value realized at settlement of contracts		(18.7	)		11.2

Total change in fair value during the period			(6.3	)		9.6

Fair value of net assets outstanding - end of period		$	4.9		$	11.2

As of December 31, 2002, the sources of fair value of the energy trading net assets were as follows:

				Fair Value of Net Assets at Period End (Millions of Dollars)

Source of Fair Value	Maturity less than 1 year			Maturity 1-3 years			Maturity 4-5 years		Maturity in excess of 5 years		Total fair value

Prices provided by external sources	$	12.6		$	(4.8	)	$	-	$	-	$	7.8
Prices based on models and other valuation methods		(2.9	)		-			-		-		(2.9	)

Total	$	9.7		$	(4.8	)	$	-	$	-	$	4.9

"Prices provided by external sources" represents the fair value of exchange-traded futures and options and the fair value of positions for which price quotations are available through or derived from brokers or other market sources.

"Prices based on models and other valuation methods" represents the fair value of positions calculated using internal models when directly and indirectly quoted external prices or prices derived from external sources are not available. Internal models incorporate the use of options pricing and estimates of the present value of cash flows based upon underlying contractual terms. The models reflect management's estimates, taking into account observable market prices, estimated market prices in the absence of quoted market prices, the risk-free market discount rate, volatility factors, estimated correlations of energy commodity prices and contractual volumes. Counterparty specific credit quality, market price uncertainty and other risks are also factored into the models.

ENVIRONMENTAL MATTERS

For information concerning potential liabilities arising from laws and regulations protecting the environment, including the Superfund, and from claims relating to alleged exposure to asbestos, see Note F to the financial statements.

IMPACT OF INFLATION

Con Edison is affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits Con Edison's utility subsidiaries to recover through depreciation only the historical cost of their plant assets even though in an inflationary economy the cost to replace the assets upon their retirement will substantially exceed historical costs. The impact is, however, partially offset by the repayment of the utility subsidiaries' long-term debt in dollars of lesser value than the dollars originally borrowed.

RESULTS OF OPERATIONS

Con Edison's results of operations (which were discussed above under "Results of Operations - Summary") are discussed below for each of its business segments. Con Edison's principal business segments are its electric, gas and steam utility businesses of its regulated utility subsidiaries and the businesses of its unregulated subsidiaries. For additional information about its business segments, see Note N to the financial statements.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Electric

Con Edison's electric operating revenues in 2002 decreased $637.0 million compared with 2001, reflecting primarily lower fuel and purchased power costs of $297.1 million (discussed below). The decrease also reflects the completion in March 2002 of amortizations of a previously deferred gain on the sale of divested plants and a previously deferred NYPA revenue increase ($43.3 million), a reserve established in 2002 for earnings in excess of a specified rate of return that are to be retained for customer benefit in accordance with Con Edison of New York's 2000 Electric Rate Agreement ($40.0 million), the amortization of the loss ($29.9 million) related to the sale of the company's nuclear generating unit and rate reductions and other amortizations in accordance with the company's rate agreements. The decrease in electric operating revenues was offset, in part, by an increase in electric sales revenues ($24.0 million) reflecting principally the hot summer weather. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the financial statements.

Electricity delivery volumes for Con Edison's utility subsidiaries increased 2.0 percent in 2002 compared with 2001. After adjusting for variations, principally weather and billing days in each period, electricity delivery volumes for Con Edison of New York and O&R increased 0.5 percent and 3.2 percent, respectively, in the 2002 period.

Con Edison's electric purchased power costs decreased $244.8 million in 2002 compared with 2001, due to a decrease in the price of purchased power and an increase in volumes of electricity purchased from other suppliers by participants in the retail access programs of Con Edison's utility subsidiaries. This decrease was offset in part by Con Edison of New York's increased purchased volumes resulting from the sale of the company's nuclear generating unit in September 2001 and the hot summer weather in 2002. Fuel costs decreased $52.3 million as a result of decreased generation at Con Edison of New York's owned power plants. In general, Con Edison's utility subsidiaries recover prudently incurred fuel and

purchased power costs pursuant to rate provisions approved by the PSC. See "Recoverable Energy Costs" in Note A to the financial statements.

Con Edison's electric operating income decreased $85.4 million in 2002 compared with 2001. The principal component of the decrease was lower net electric revenues (operating revenues less fuel and purchased power costs) of $339.9 million. The decrease in net electric revenues reflects the sale of the nuclear generation unit and the same factors (other than lower fuel and purchased power costs) as discussed above with respect to the decrease in electric operating revenues. The decrease in net revenues was offset in part by reduced other operations and maintenance expenses ($135.0 million) reflecting nuclear production expenses incurred in 2001, but not in 2002 and productivity improvements, lower depreciation and amortization expense ($30.3 million) and lower revenue taxes ($27.2 million). The decrease is also offset by lower income tax of $63.9 million.

Gas

Con Edison's gas operating revenues decreased $261.9 million, resulting primarily from the lower cost of purchased gas ($233.9 million) in 2002 compared with 2001. The lower cost of purchased gas reflects primarily lower unit costs at Con Edison of New York. The lower revenues also reflect reduced sales volumes, resulting primarily from the mild winter weather in the first quarter of 2002 and for Con Edison of New York, revenue reductions implemented in accordance with the gas rate agreement approved by the PSC in April 2002. Gas operating income decreased $6.5 million in 2002, reflecting a $28.0 million decrease in net revenues (operating revenues less gas purchased for resale), and increased property tax expense ($10.0 million), offset in part by reduced operations and maintenance expenses ($16.6 million), reduced revenue taxes ($12.1 million) and lower income taxes ($7.8 million).

Con Edison's gas sales and transportation volumes for firm customers decreased 3.2 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001. After adjusting for variations, principally weather and billing days in each period, firm gas sales and transportation volumes for Con Edison of New York and O&R decreased 1.5 percent and 0.3 percent, respectively, in the 2002 period.

Con Edison's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. A weather-normalization provision that applies to the gas business of Con Edison's utility subsidiaries moderates, but does not completely eliminate, the effect of weather-related changes on gas operating income.

Steam

Con Edison of New York's steam operating revenues decreased $99.7 million. The lower revenues reflect reduced sales volumes and lower fuel and purchased power costs primarily as a result of the loss of the World Trade Center as a customer, the mild winter weather in the first quarter of 2002, and the soft economy. The lower fuel and purchased power costs reflect primarily lower unit costs. Steam operating income increased $8.2 million for 2002 compared with 2001 due primarily to reduced operations and maintenance expenses of $9.3 million and lower income taxes of $10.5 million, offset in part by a

decrease in net revenues (operating revenues less fuel and purchased power costs) of $11.1 million. See "Recoverable Energy Costs" in Note A to the financial statements.

Steam sales volume decreased 3.2 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001, reflecting primarily the loss of the World Trade Center as a customer, the mild winter weather in the first quarter of 2002 and the soft economy. After adjusting for variations, principally weather and billing days in each period, steam sales volume decreased 1.4 percent.

Unregulated Business

Earnings for the unregulated subsidiaries decreased $14.0 million in 2002 compared with 2001, reflecting a non-cash, after-tax charge in 2002 of $22.1 million for changes in accounting principles (see Notes K, O and S to the financial statements) and continued start-up losses in the company's wholesale telecommunications business, including a non-cash, after-tax charge in 2002 of $5.0 million for a write-down of an investment in Neon Communications, Inc. (NEON). The decrease in earnings was offset, in part, by higher electric retail sales volumes and gross margins, the capitalization of previously expensed project development costs on generation assets ($4.2 million after tax) and unrealized mark-to-market gains on derivative instruments ($6.9 million after tax), which are also discussed below in "Other Income."

Taxes Other Than Income Taxes

At $1.1 billion, taxes other than income taxes remain one of Con Edison's largest operating expenses.

The principal components of, and variations in, operating taxes were:

	Increase/(Decrease)
	2002 Amount			2002 compared to 2001

	(Millions of Dollars)
Property taxes	$	660.6		$	11.5
State and local taxes related to revenue receipts		365.2			(38.1	)
Payroll taxes		60.1			(0.7	)
Other taxes		28.3			2.0

Total	$	1,114.2	*	$	(25.3	)

*: Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2002 were $1,463.7 million.

Effective in 2003, New York City increased Con Edison of New York's annual property taxes by $96 million. Under Con Edison of New York's rate agreements, the company is deferring the property tax increase as a regulatory asset to be recovered from customers.

Other Income

Investment income decreased $6.1 million in 2002 compared to 2001, due principally to reduced interest income earned on short-term cash investments in the 2002 period as compared to the 2001 period. For the 2001 period, the company had more cash on hand than the 2002 period, primarily as a result of the sale of its nuclear generating unit. Allowance for equity funds used during construction increased $8.7 million in 2002 compared to 2001 primarily reflecting the East River Repowering Project. Other

income increased $52.5 million in 2002 compared to 2001 due primarily to $26.7 million of interest income on a federal income tax refund claim, a $10.2 million write-off in 2001 of an investment in the New York Discovery Fund in 2001, a $9.4 million increase in interest earned on Con Edison of New York's regulatory assets (See "Application of Critical Accounting Policies - Accounting for Regulated Public Utilities - SFAS No. 71," above) and a $11.7 million mark-to-market gain on derivative contracts for an unregulated subsidiary. These increases were offset in part by reduced income of $2.5 million from Con Edison of New York's non-utility operations. Other income deductions decreased $8.1 million due principally to lower legal fees relating to the Northeast Utilities litigation. See Note P to the financial statements.

Net Interest Charges

Net interest charges increased $10.7 million in 2002 compared to 2001. The increase reflects principally the interest expense associated with a net federal income tax deficiency related to a prior period audit ($19.1 million), partially offset by decreased interest expense on long-term debt of $11.6 million.

Income Tax

Federal income tax decreased $11.8 million in 2002 compared to 2001, reflecting lower income before tax and deductions related to removal costs and tax credits. In 2000, New York State implemented a tax law change that reduced or repealed certain revenue-based taxes and replaced them with the imposition of a net income-based tax. State income taxes decreased $54.4 million in 2002 compared to 2001, reflecting lower income before tax, lowering of the tax rate and prior period adjustments. The state income tax expense is offset against the savings from the eliminated or reduced revenue taxes. Any over- or under-collection of these taxes is deferred for return to, or recovery from, customers. See Notes A and L to the financial statements.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Electric

Con Edison's electric operating revenues in 2001 decreased $50.3 million from 2000. The decrease in 2001 reflects decreased purchased power costs (see "Recoverable Energy Costs" in Note A to the financial statements) and electric rate reductions of $375.6 million in 2001, offset by the effects of the warmer than normal summer weather when compared to cooler than normal weather for the 2000 period.

Electricity sales volume for Con Edison's utility subsidiaries increased 3.1 percent in 2001 compared with 2000. The increase reflects the warmer than normal summer weather and economic growth. Con Edison's electric sales vary seasonally in response to weather and peak in the summer.

After adjusting for variations, principally weather and billing days, in each period, electricity sales volume for Con Edison New York increased 2.4 percent in 2001 compared with 2000. For O&R, weather-adjusted electric sales increased 3.3 percent in 2001 compared with 2000.

Con Edison's electric operating income increased $93.2 million in 2001 compared with 2000. The increase reflects an increase in net revenues (operating revenues less fuel and purchased power) of $73 million. The increase in net revenues reflects principally increased sales ($76.3 million), recognition

of revenue related to previously deferred NYPA rate increases ($35.2 million), gains on the sale of divested generation plants ($37.5 million), increased system benefit charges ($41 million), recovery of incremental NUG cost ($31.0 million), reconciliation of state income tax and gross receipts tax ($110.8 million; see "Income Tax" below) and the reduction in net revenues in 2000 for replacement power costs ($130.0 million), offset by electric rate reductions of $375.6 million in 2001. Electric operating income also increased due to decreased other operations and maintenance expenses of $107.9 million and decreased depreciation and amortization expense of $69.1 million, offset in part by increased property taxes of $33.7 million, federal income tax of $42.3 million and state income tax of $99.1 million (see "Income Tax" below).

The $107.9 million decrease in other operations and maintenance expenses reflects principally lower expenses related to Con Edison of New York's nuclear generating unit which was sold in September 2001 ($98.4 million), increased pension credits ($42.5 million) and decreased transmission expenses ($11.3 million), offset in part by higher distribution expenses for the relocation of company facilities to avoid interference with municipal infrastructure projects ($13.4 million) and increased system benefit charges ($41 million).

Gas

Con Edison's gas operating revenues increased $204.0 million in 2001 compared with 2000, reflecting increased cost of purchased gas, offset in part by a reduction in customers' bills of $20.0 million, reflecting a refund of previously deferred credits and other provisions of the gas rate agreement approved by the PSC in November 2000. The increase in operating income of $3.7 million reflects principally an increase in net revenues (operating revenues less gas purchased for resale) of $5.4 million, increased pension credits of $8.2 million, and the recognition in income in the 2001 period of previously deferred gas credits ($7.0 million), offset in part by increased depreciation and amortization expense ($5.3 million), increased state income tax ($8.7 million; see "Income Tax" below) and higher distribution expenses of $3.0 million for the relocation of company facilities to avoid interference with municipal infrastructure projects.

Firm gas sales and transportation volume for Con Edison's utility subsidiaries decreased 2.0 percent in 2001 compared with 2000.

Con Edison's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. The decrease in volume in 2001 compared with 2000 reflects the warmer 2001 winter compared with 2000.

After adjusting for variations, principally weather and billing days, in each period, gas sales and transportation volume to firm customers for Con Edison of New York increased 2.8 percent in 2001 compared with 2000. For O&R, weather-adjusted gas sales decreased 0.1 percent in 2001 compared with 2000.

Steam

Con Edison of New York's steam operating revenues increased $51.6 million in 2001 compared to 2000, reflecting primarily increased purchased steam and fuel costs (see "Recoverable Energy Costs" in Note A

to the financial statements). Steam operating income increased $2.3 million in 2001 compared with 2000, reflecting an October 2000 rate increase of $16.6 million.

Steam sale volume decreased 5.3 percent in 2001 compared with 2000. The decrease in 2001 reflects the mild winter weather compared with 2000.

After adjusting for variations, principally weather and billing days, in each period, steam sales volume decreased 2.7 percent in 2001.

Unregulated Business

Operating revenues of Con Edison's unregulated subsidiaries decreased $133.7 million in 2001 compared to 2000, principally reflecting lower gas revenues as result of lower gas sales volumes in the 2001 period compared to 2000. The decrease in operating revenues was offset by a comparable decrease in the cost of gas purchased and other expenses.

The unregulated subsidiaries' operating income increased $11.6 million in 2001 compared to 2000 due principally to higher electric commodity gross margins and higher wholesale energy trading volumes.

Taxes Other Than Income Taxes

The principal components of, and variations, in operating taxes were:

	2001 Amount			Increase/(Decrease) 2001 compared to 2000

	(Millions of Dollars)
Property taxes	$	649.1		$	35.1
State and local taxes related to revenue receipts		403.3			(22.2	)
Payroll taxes		60.8			1.4
Other taxes		26.3			3.4

Total	$	1,139.5	*	$	17.7

*: Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2001 were $1,520.3 million.

Other Income

Other income increased $11.4 million in 2001 compared with 2000, due principally to reduced federal income tax expense and the recognition in 2000 of $32.1 million of merger-related expenses, offset by the write-off in 2001 of an investment of $10.2 million in the New York City Discovery Fund.

Net Interest Charges

Net interest charges increased $23.4 million in 2001 compared with 2000, reflecting $28.4 million of increased interest expense for Con Edison of New York related to long-term borrowings and $5.7 million of interest expense related to long-term borrowing for a 236 MW electric generating facility located in Lakewood, New Jersey (which was purchased in June 2000 by an unregulated subsidiary), offset in part by $10.6 million in 2000 for interest accrued on the net after-tax gain from Con Edison of New York's 1999 generation divestiture, prior to the disposition of this gain in 2000. See Note I to the financial statements.

Income Tax

Federal income tax increased $14.9 million in 2001 compared with 2000, reflecting the changes in income before tax, deductions related to removal costs and tax credits. State income taxes increased $120.6 million in 2001 compared with 2000 as a result of the change in New York State tax law, offset by a corresponding increase in other operating revenues for taxes no longer applicable but still being recovered through rates. See Notes A and L to the financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

This discussion and analysis relates to the accompanying consolidated financial statements of Consolidated Edison Company of New York, Inc. (Con Edison of New York or the Company) and should be read in conjunction with the financial statements and the notes thereto. Information in the notes referred to in this discussion and analysis is hereby 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.

CON EDISON OF NEW YORK'S BUSINESS

Con Edison of New York is a regulated utility that provides electric service to over 3.1 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan. All of the common stock of Con Edison of New York is owned by Consolidated Edison, Inc. (Con Edison).

RESULTS OF OPERATIONS – SUMMARY

Con Edison of New York's net income for common stock for the year ended December 31, 2002 was $605.4 million. Earnings for the years ended December 31, 2001 and 2000 were $649.5 million and $570.1 million, respectively.

Con Edison of New York's earnings in 2002 were $44.1 million lower than in 2001, reflecting the following factors (after tax, in millions):

Lower operation and maintenance expenses (excluding nuclear operations)	$	21.6
Impact of weather (estimated)		18.4
Reserve for electric excess earnings		(26.0	)
Amortization of divestiture gain in 2001		(25.0	)
Reduction in gas base rates and lower non-firm gas sales		(21.3	)
Economic conditions (estimated)		(7.5	)
Other		(4.3	)

Total	$	(44.1	)

The Company's earnings in 2001 were $79.4 million higher than in 2000, reflecting the following factors (after tax, in millions):

Lower nuclear production expenses	$	64.0
Impact of weather and economic conditions (estimated)		47.5
Lower depreciation expense		45.5
Amortization of divestiture gain		37.5
Increased pension credits		34.5
Recognition of deferred NYPA rate increase		22.9
Unrecovered Indian Point replacement power costs in 2000		84.5
Electric rate reductions		(243.4	)
Taxes other than income, principally property taxes		(12.2	)
Other		(1.4	)

Total	$	79.4

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Con Edison of New York's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in the United States of America. The Company's critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits and contingencies.

The application of certain of these accounting policies requires the Company to use estimates. These estimates require the Company to make assumptions about matters that are highly uncertain and for which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

The major critical accounting policies are as follows:

Accounting for Regulated Public Utilities—SFAS No. 71

Con Edison of New York is a regulated public utility subject to Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, is subject to the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the New York State Public Service Commission (PSC).

Con Edison of New York's principal regulatory assets and liabilities are detailed on the Company's consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for which a cash outflow has been made. The Company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The Company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the PSC.

Accounting for Pensions and Other Postretirement Benefits

Con Edison of New York provides pensions and other postretirement benefits to substantially all employees and retirees. The Company accounts for these benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." In applying these accounting policies, the Company has made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future compensation, health care cost trends, and appropriate discount rates. See Notes D and E to the financial statements for information about these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2002, 2001 and 2000.

Primarily because of the amortization of previous years' net investment gains, Con Edison of New York's pension expense for 2002, 2001 and 2000 was negative, resulting in a credit to and increase in net income in each year. Investment gains and losses on plan assets are fully recognized in expense over a 15-year period (20 percent of the gains and losses for each year begin to amortize in each of the following five years and the amortization period for each 20 percent portion of the gains and losses is ten years). This amortization is in accordance with the Statement of Policy issued by the PSC and is permitted under SFAS No. 87, which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains and losses.

Con Edison of New York's expense or credit for actual pension and other postretirement benefits in future periods will depend upon actual returns on plan assets and the assumptions the Company makes for future periods. The Company's current estimate for 2003 is a reduction, compared to 2002, in the pension and other postretirement benefits net credit of $54 million after tax. This reduction reflects, among other factors, an actual loss on the pension fund of 8.6 percent in 2002 as compared with an expected annual asset return assumption of 9.2 percent. This variation will reduce net income by $21.3 million after tax in 2003, as compared to 2002. In addition, the Company has lowered its expected annual asset return assumption for the plans for 2003 to 8.8 percent. This revised assumption will reduce net income by $14.5 million after tax in 2003, as compared to 2002.

An actuarial valuation of the plan's funded status (which applies to both Con Edison of New York and O&R) was performed as of December 31, 2002. The valuation showed that the fair value of the pension plan assets exceeded its Accumulated Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the plan's ABO in future years. In that event, Con Edison would be required, under SFAS No. 87 and SFAS No. 132 "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a liability equal in amount to the difference between the fair value of the plan assets and the ABO, plus its total accrued pension credits, through a non-cash charge to other comprehensive income (OCI). The charge to OCI, which would be net of taxes, would not affect the Company's net income for common stock.

Con Edison of New York was not required to make cash contributions to its pension plan in 2002 nor will it be required to do so in 2003.

Accounting for Contingencies

proceeding relating to outages at the nuclear generating unit the Company sold in 2001, workers' compensation claims, and its responsibility for hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs), and coal tar, that have been used or generated in the course of its operations. See Notes F and G to the financial statements. In accordance with SFAS No. 5, the Company has accrued estimates of losses relating to the contingencies as to which loss is probable and can be reasonably estimated and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated.

LIQUIDITY AND CAPITAL RESOURCES

Con Edison of New York's liquidity reflects cash flows from its operating, investing and financing activities as shown on the accompanying consolidated statement of cash flows and discussed below. As a result of these activities, cash and temporary cash investments (including restricted cash) decreased $176.7 million at December 31, 2002 compared to December 31, 2001.

Cash Flows From Operating Activities

Con Edison of New York's cash flows from operating activities reflect principally its energy sales and its cost of operations. The volume of energy sales is dependent on factors external to the Company such as weather, economic conditions and technological developments. The prices at which the Company provides energy to its customers are determined in accordance with rate agreements approved by the PSC. See "Regulatory Matters," below. In general, changes in the cost of purchased power, fuel and gas 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.

Net income for common stock is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect Con Edison of New York's cash flow from operations. Principal non-cash charges included depreciation and deferred taxes. Principal non-cash credits included accrued pension credits. Pension credits result from past favorable performance in the Company's pension fund and assumptions about future performance. See "Application of Critical Accounting Policies—Accounting for Pensions and Other Postretirement Benefits," above, and Notes D and E to the financial statements.

Net cash flows from operating activities in 2002 were $10.1 million more than the 2001 period. The change in cash flows reflect the aforementioned impact of energy sales and its cost of operations, the timing of federal income tax payments and refunds and cash received or expended related to regulatory liabilities and regulatory assets, respectively.

The following analysis reflects variations in balance sheet accounts, which also impact specific line items within the consolidated statement of cash flows. The change in these balance sheet line items are utilized to reconcile income to cash flow from operations.

Accounts receivable—customers, less allowance for uncollectible accounts were $74.7 million higher at December 31, 2002 than at year-end 2001, due primarily to higher electric, gas and steam sales in December 2002 as compared to December 2001. The Company's equivalent number of days of revenue outstanding (ENDRO) of customer accounts receivable was 29.3 days at December 31, 2002, compared with 29.6 days at December 31, 2001.

Recoverable energy costs increased $101.8 million at December 31, 2002 as compared with year-end 2001 due primarily to increased fuel, purchased power and gas costs, resulting from higher sales volumes in December 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Other receivables increased $19.9 million at December 31, 2002 as compared with year-end 2001, due primarily to increased gas hedging program receivables.

Gas in storage decreased $22.5 million at December 31, 2002 as compared with year-end 2001, reflecting primarily the lower volumes in storage as a result of higher withdrawals due to the colder weather at year-end 2002 as compared to 2001.

Other current assets increased $20.8 million at December 31, 2002 compared with year-end 2001, due primarily to an increase in the value of energy marketing contracts.

Deferred loss on the sale of the nuclear generating unit decreased $47.6 million at December 31, 2002 as compared to year-end 2001 reflecting the recovery of these costs from customers in accordance with the Company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Divestiture—capacity replacement reconciliation balance decreased $30.0 million at December 31, 2002 as compared to year-end 2001 representing the amortization of capacity costs incurred prior to the opening of the New York Independent System Operator (NYISO) market in accordance with the Company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Deferred environmental remediation costs increased $30.3 million at December 31, 2002 as compared to year-end 2001 representing primarily additional liabilities accrued for costs related to Superfund and the other sites, which the Company is permitted to recover under its current rate agreements. See Note F to the financial statements.

For information about the regulatory asset for World Trade Center restoration costs, see Note P to the financial statements.

Deferred asbestos-related costs increased $33.7 million at December 31, 2002 as compared to year-end 2001 due to increased liabilities accrued for non-employee related asbestos claims (which the Company is permitted to recover under its current rate agreements). See Note F to the financial statements.

Other regulatory assets increased $37.4 million at December 31, 2002 as compared to year-end 2001 due principally to the reconciliation of taxes collected and the tax expense resulting from New York State tax law changes in accordance with PSC authorization. See Note A to the financial statements and "Other Regulatory Liabilities," below.

Accumulated provision for injuries and damages increased $24.5 million at December 31, 2002 as compared with year-end 2001, reflecting primarily workers' compensation claims relating to asbestos exposure. See Note F to the financial statements.

Accounts payable increased $152.0 million at December 31, 2002 as compared with year-end 2001. This increase is due primarily to higher electric, gas and steam energy costs at December 31, 2002 as compared to December 31, 2001, reflecting higher sales volumes. See discussion of electric power costs in "Results of Operations," below.

Accrued taxes decreased $48.6 million at December 31, 2002 compared with year-end 2001, due primarily to the payment of the 2001 fourth quarter federal income tax liability in January 2002. The federal government delayed the timing of the payment in light of the World Trade Center attack.

Transmissions congestion contracts increased $119.9 million at December 31, 2002 as compared to year-end 2001 reflecting proceeds from the sale of transmission rights on Con Edison of New York's transmission system. These proceeds are being retained for customer benefit.

The gas rate plan balance of $36.3 million at December 31, 2002 was established in accordance with the 2002 gas rate agreement to provide recovery of costs (net of reimbursement) related to the World Trade Center attack.

Electric excess earnings balance of $40.0 million at December 31, 2002 represents a reserve established in 2002 for earnings in excess of a specified rate of return that are to be retained for customer benefit in accordance with the 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

During 2002, other regulatory liabilities increased $127.7 million, due primarily to the reconciliation of taxes collected and the tax expense resulting from New York State tax law changes in accordance with PSC authorization and the establishment of a liability to customers for interest earned on a federal income tax refund. Changes in the New York State tax laws applicable to utility companies, effective January 1, 2000, repealed or reduced certain revenue-based taxes and instituted a net income-based tax. In June 2001, the PSC issued its final Order relating to these tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and tax expense resulting from tax law changes, until those changes are incorporated into base rates.

Cash Flows Used in Investing Activities

Cash flows used in investing activities were $710.3 million higher in 2002 compared with 2001, due primarily to the receipt of proceeds from generation divestiture, net of contributions to the nuclear decommissioning trust, in the 2001 period. See "Generation Divestiture," below. In addition, construction expenditures increased $119.6 million in 2002 compared with 2001, principally to meet load growth on the Company's electric distribution systems, to effect permanent restoration of portions of the electric, gas and steam systems in lower Manhattan following the World Trade Center attack and for the ongoing project to add incremental generating capacity at the Company's East River steam-electric generating plant (the East River Repowering Project). Cash flows used in investing activities in 2001 decreased $612.7 million compared with 2000, due primarily to the receipt of proceeds from generation divestiture in the 2001 period, which offset increased utility construction expenditures ($93.3 million) related to meet load growth on the Company's electric distribution systems. See "Generation Divestiture" and "Capital Expenditures" below.

Deferred real estate sale costs related to the demolition and remediation of a nine-acre development site in midtown Manhattan along the East River were $134.4 million at December 31, 2002, compared to $105.4 million at December 31, 2001. In 2000, the Company agreed to sell this site for an expected price of $576 million to $680 million, depending on zoning and other adjustments. The sale is subject to PSC approval and other conditions. The buyer paid Con Edison of New York $50 million in 2000 as a down payment, which the Company used to fund a portion of the demolition and remediation expenses. The down payment has been recorded as a regulatory liability.

Cash Flows Used in Financing Activities

Net cash flows used in financing activities in 2002 decreased $329.1 million compared with 2001, reflecting principally increased financing for construction expenditures, and reduced dividend payments to the parent.

In September 2001, the Company used the proceeds from the sale of its nuclear plant to repay all outstanding short-term borrowing. Net repayments of short-term debt increased $140.0 million for the year-ended December 31, 2002 compared with 2001 period. The common stock dividend to parent decreased $79.3 million in 2002 compared with 2001. Cash flows used in financing activities in 2001 increased $376.0 million compared with 2000, as a result of decreased borrowings and increased debt redemption.

External borrowings are a source of liquidity that could be affected by changes in credit ratings, financial performance and capital markets. For information about the Company's credit ratings and certain financial ratios, see "Capital Resources," below.

Con Edison of New York had no commercial paper outstanding at December 31, 2002 and at December 31, 2001. The Company's average daily commercial paper outstanding in 2002 was $156.7 million compared to $163.8 million in 2001. The weighted average interest rate was 1.8 percent in 2002 compared to 4.9 percent in 2001. For additional information about the Company's commercial paper program, see Note C to the financial statements.

In February 2002, the Company redeemed at maturity $150 million of 6.625 percent 9-year Series 1993C Debentures. In June 2002, the Company redeemed at maturity $150 million of variable rate 5-year Series 1997A Debentures and issued $300 million of non-callable 5.625 percent 10-year Series 2002A Debentures. In August 2002, the Company redeemed at maturity $37.1 million of Cumulative Preferred Stock, $100 par value, 6.125 percent, Series J. In December 2002, the Company issued $500 million 4.875 percent 10-year Series 2002B Debentures. In January 2003, the Company redeemed $275 million of 7.75 percent 35-year, Series 1996A, Subordinated Deferrable Interest Debentures.

bonds pursuant to which the Company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate of 5.375 percent. See Note O to the financial statements.

Generation Divestiture

Capital Resources

Con Edison of New York expects to finance its operations, capital requirements and the payment of dividends to Con Edison from internally generated funds and external borrowings, including commercial paper. For information about Con Edison of New York's commercial paper program and revolving credit agreements with banks, see Note C to the financial statements.

In December 2001, the PSC authorized Con Edison of New York to issue up to $1.8 billion of debt securities prior to 2006, of which the Company issued $525 million of debt securities in 2002. The PSC also authorized the refunding of the Company's outstanding debt securities and preferred stock.

In August 2002, President Bush signed into law an appropriations bill that authorizes funds for which the Company is eligible to apply for the recovery of costs it incurred in connection with the World Trade Center attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. See Note P to the financial statements.

Con Edison of New York's ratio of earnings to fixed charges for 2002, 2001 and 2000 and common equity ratio at December 31, 2002, 2001 and 2000 were:

	2002	2001	2000

Earnings to fixed charges (SEC basis)	3.35	3.66	3.23
Common equity ratio	46.6	47.2	46.4

The changes in interest coverage in these years reflect changes in pre-tax income and changes in interest charges due to debt issuances and refunding. The Company's ratio of earnings to fixed charges increased for 2001 compared to 2000 primarily as a result of increased earnings, reflecting charges in 2000 for replacement power costs ($130 million). See Note G to the financial statements.

The commercial paper of Con Edison of New York is rated P-1, A-1 and F-1, respectively, by Moody's Investors Service, Inc. (Moody's), Standard & Poor's Rating Services (S&P) and Fitch Ratings (Fitch). The senior unsecured debt of Con Edison of New York is rated A1, A+ and A+, respectively, by Moody's, S&P, and Fitch.

Capital Requirements

The following table compares Con Edison of New York's capital requirements for the years 2000 through 2002 and estimated amounts for 2003 and 2004:

		2000		2001		2002		2003			2004

		(Millions of Dollars)
Utility construction expenditures		$	908	$	983	$	1,098	$	1,107		$	1,031
Retirement of long-term securities at maturity			275		628		337		425	*		150

	Total	$	1,183	$	1,611	$	1,435	$	1,532		$	1,181

* Includes redemption in advance of maturity of $275 million of Con Edison of New York's Subordinated Deferrable Interest Debentures Series 1996A in January 2003.

Contractual Obligations and Commercial Commitments

The following tables summarize Con Edison of New York's material obligations to make payments pursuant to contracts. Long-term debt and capital lease obligations are included on the Company's balance sheet. Operating leases and non-utility generator contracts (NUGs) (for which undiscounted future annual payments are shown) are disclosed in the notes to financial statements.

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

	(Millions of Dollars)
Long-term debt (Note B)	$	5,845	$	425	$	600	$	330	$	4,490
Capital lease obligations (Note N)		72		8		15		14		35
Operating leases (Note N)		116		38		47		10		21
Non-utility generator contracts (Note H)		8,085		526		1,043		1,051		5,465
Natural gas supply, transportation and storage contracts		339		115		108		96		20

Total	$	14,457	$	1,112	$	1,813	$	1,501	$	10,031

The Company has no material commercial commitments to make payments other than these contractual commitments.

ELECTRIC POWER REQUIREMENTS

In 2002, Con Edison of New York purchased substantially all of the energy it sold to customers pursuant to firm contracts with NUGs and others or through the NYISO's wholesale electricity market.

The Company recovers prudently incurred purchased power costs pursuant to rate provisions approved by the PSC. See "Financial Market Risks—Commodity Price Risk" below and "Recoverable Energy Costs" in Note A to the financial statements. From time to time certain parties have petitioned the PSC to review these provisions, the elimination of which could have a material adverse effect on the Con Edison of New York's financial position, results or operations or liquidity.

To reduce the volatility of electric energy costs, the Company has firm contracts to purchase electric energy (including the output of the nuclear generating unit divested in 2001) and has entered into derivative transactions to hedge the costs of expected purchases which together cover a substantial portion of the electric energy expected to be sold to its customers in the summer of 2003. See Notes H and O to the financial statements. The Company also owns 630 MW of electric generating stations located in New York City, the electricity from which it sells through the NYISO's wholesale electricity market.

In December 2002, the Company issued a request for proposals seeking a contract to purchase, for no more than 10 years, 500 MW of electric capacity from a new facility located in New York City (or outside the City if there is dedicated new transmission).

The East River Repowering Project will add incremental electric capacity of approximately 200 MW based on a winter nominal rating or approximately 125 MW based on a summer nominal rating. The Company does not expect to add any other long-term electric generation resources. In a July 1998 order, the PSC indicated that it "agree(s) generally that the Company need not plan on constructing new generation as the competitive market develops," but considers "overly broad" and did not adopt its request for a declaration that, solely with respect to providing generating capacity, the Company will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer have the obligation to construct new generating facilities, regardless of the market price of capacity. The Company monitors the adequacy of the electric capacity resources and related developments in its service area, and works with other parties on long-term resource adequacy issues within the framework of the NYISO.

REGULATORY MATTERS

Electric

In July 2002, FERC issued a Notice of Proposed Rulemaking (NOPR) to establish a Standard Market Design (SMD) for wholesale electricity markets across the country. The proposed SMD has many of the elements of the markets that have been established in the Northeast, and if adopted, could facilitate transactions among energy markets across the country. The SMD proposes that transmission owners would join Independent Transmission Providers, or ITPs, which would be independent of market participants, would have operational authority for all transmission assets under their control, and would perform certain functions related to day-ahead and real-time energy markets, determine resource adequacy requirements, financial congestion management, regional planning, market monitoring, and interregional coordination with neighboring ITPs. The Company's transmission facilities, other than those located underground, are currently controlled by the NYISO.

In September 1997, the PSC approved a restructuring agreement among Con Edison of New York, PSC staff and certain other parties (the 1997 Restructuring Agreement). Pursuant to the 1997 Restructuring Agreement, the Company reduced electric rates on an annual basis by $129 million in 1998, $80 million in 1999, $103 million in 2000 and $209 million in 2001, divested most of its electric generating capacity, and enabled all of its electric customers to choose to be served by competitive energy suppliers.

The electric rate plan provisions of the 2000 Electric Rate Agreement cover the five-year period ending March 2005. Pursuant to the Agreement, the Company reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

The 2000 Electric Rate Agreement continues the rate provisions pursuant to which the Company recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy Costs" in Note A to the financial statements.

For additional information about the 1997 Restructuring Agreement and the 2000 Electric Rate Agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

Gas

In November 2000, the PSC approved an agreement between Con Edison of New York, PSC staff and certain other parties that revised and extended the 1996 gas rate settlement agreement through September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

For additional information, see "Rate and Restructuring" in Note A to the financial statements.

Steam

In December 2000, the PSC approved an agreement between Con Edison of New York, PSC staff and certain other parties with respect to the steam rate plan filed by the Company in November 1999. The agreement provides for a $16.6 million steam rate increase, which took effect October 2000 and, with limited exceptions, no further changes in steam rates prior to October 2004.

For additional information about the agreement, see "Rate and Restructuring" in Note A to the financial statements.

FINANCIAL MARKET RISKS

Con Edison of New York's primary financial market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction expenditures and maturing debt securities. Con Edison of New York manages interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. The Company estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of $615.3 million would result in a change in annual interest expense of $1.1 million.

In addition, the Company, from time to time, enters into derivative financial instruments to hedge interest rate risk on certain debt securities. See "Interest Rate Hedging" in Note O to the financial statements.

Commodity Price Risk

Con Edison of New York's commodity price risk relates primarily to the purchase and sale of electricity and gas that the Company delivers to its customers. The Company has risk management strategies to mitigate its related exposure and uses derivative instruments to hedge this price risk. See "Energy Price Hedging" in Note O to the financial statements. Also, see Item 2 of this report for a discussion of the Company's generating capacity.

In general, the rates the Company charges customers for electric, gas and steam service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation of steam and electricity, including gains or losses on certain derivative instruments and related transaction costs. See "Recoverable Energy Costs" in Note A to the financial statements.

The Company estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $5.7 million for the derivative instruments used by it to hedge purchases of electricity and gas. The Company expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased.

Credit Risk

Con Edison of New York is exposed to credit risk related to over-the-counter transactions entered into primarily for the various energy supply and hedging activities. Credit risk is the loss that may result from a counterparty's nonperformance. The Company uses credit policies to manage its credit risk, including an established credit approval process, monitoring of counterparty limits, master netting agreements and credit mitigation measures such as margin, collateral, or prepayment arrangements.

Investment Risk

Con Edison of New York's investment risk relates to the investment of the assets in the Company's pension and other postretirement benefit plans. See "Critical Accounting Policies—Accounting for Pensions and Other Postretirement Benefits," above.

ENERGY TRADING ACTIVITIES

Con Edison of New York has not engaged to a material extent in trading activities that are accounted for at fair value. See "Financial Market Risks" above.

ENVIRONMENTAL MATTERS

IMPACT OF INFLATION

Con Edison of New York is affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits the Company to recover through depreciation only the historical cost of its plant assets even though in an inflationary economy the cost to replace the assets upon their retirement

will substantially exceed historical cost. The impact is, however, partially offset by the repayment of the Company's long-term debt in dollars of lesser value than the dollars originally borrowed.

RESULTS OF OPERATIONS

The Company's results of operations (which were discussed above under "Results of Operations—Summary") are discussed below for each of its business segments. The Company's principal business segments are its electric, gas and steam businesses. For additional information about its business segments, see Note L to the financial statements.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Electric

Con Edison of New York's electric operating revenues in 2002 decreased $575.2 million compared with 2001, reflecting primarily lower fuel and purchased power costs of $226.9 million (discussed below). The decrease also reflects the completion in March 2002 of amortizations of a previously deferred gain on the sale of divested plants and a previously deferred NYPA revenue increase ($43.3 million), a reserve established in 2002 for earnings in excess of a specified rate of return that are to be retained for customer benefit in accordance with the 2000 Electric Rate Agreement ($40.0 million), a reserve established in 2002 related to the sale of the Company's nuclear generating unit ($24.8 million), the amortization of the loss ($29.9 million) related to the sale of the Company's nuclear generating unit and rate reductions and other amortizations in accordance with the Company's rate agreements. The decrease in electric operating revenues was offset, in part, by an increase in electric sales revenues ($24.0 million) reflecting principally the hot summer weather. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the financial statements.

Electricity delivery volume in Con Edison of New York's service territory increased 1.6 percent in 2002 compared with 2001. The increase reflects the impact of the hot summer weather, offset in part, by the mild winter weather in the first quarter of 2002 and the soft economy. After adjusting for variations, principally weather and billing days in each period, electricity delivery volume in the service territory increased 0.5 percent in the 2002 period.

The Company's electric purchased power costs decreased $174.6 million in 2002 compared with 2001, due to a decrease in the price of purchased power and an increase in volumes of electricity purchased from other suppliers by participants in the retail access programs. This decrease was offset in part by the Company's increased purchased volumes resulting from the sale of the Company's nuclear generating unit in September 2001 and the hot summer weather in 2002. Fuel costs decreased $52.3 million as a result of decreased generation at Company-owned power plants. In general, the Company recovers prudently incurred fuel and purchased power costs pursuant to rate provisions approved by the PSC. See "Recoverable Energy Costs" in Note A to the financial statements.

The Company's electric operating income decreased $92.7 million in 2002 compared with 2001. The principal component of the decrease was lower net electric revenues (operating revenues less fuel and purchased power costs) of $348.3 million. The decrease in net electric revenues reflects the sale of the nuclear generation unit and the same factors (other than lower fuel and purchased power costs) as discussed above with respect to the decrease in electric operating income. The decrease in net electric

revenues was offset in part by reduced other operations and maintenance expenses ($136.8 million) reflecting nuclear production expenses incurred in 2001 but not in 2002, and productivity improvements, lower depreciation and amortization expense ($31.5 million) and lower revenue taxes ($26.2 million). The decrease is also offset by lower operating income tax of $61.8 million.

Gas

Con Edison of New York's gas operating revenues decreased $223.4 million, resulting primarily from the lower cost of purchased gas ($194.2 million) in 2002 compared with 2001. The lower cost of purchased gas reflects primarily lower unit costs. The lower revenues also reflect reduced sales volumes, resulting primarily from the mild winter weather in the first quarter of 2002 and revenue reductions implemented in accordance with the gas rate agreement approved by the PSC in April 2002. Gas operating income decreased $7.9 million in 2002, reflecting a $29.2 million decrease in net revenues (operating revenues less gas purchased for resale), and increased property tax expense ($9.6 million), offset in part by reduced operations and maintenance expenses ($16.2 million), reduced revenue taxes ($10.3 million) and lower income taxes ($8.7 million).

Gas sales and transportation volumes for firm customers decreased 3.5 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001. After adjusting for variations, principally weather and billing days in each period, firm gas sales and transportation volumes in the Company's service territory decreased 1.5 percent in the 2002 period.

The Company's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. A weather-normalization provision that applies to the Company's gas business moderates, but does not completely eliminate, the effect of weather-related changes on gas operating income.

Steam

Con Edison of New York's steam operating revenues decreased $99.7 million. The lower revenues reflect reduced sales volumes and lower fuel and purchased power costs primarily as a result of the loss of the World Trade Center as a customer, the mild winter weather in the first quarter of 2002 and the soft economy. The lower fuel and purchased power costs reflect primarily lower unit costs. Steam operating income increased $8.2 million for 2002 compared with 2001 due primarily to reduced operations and maintenance expenses of $9.3 million and lower income taxes of $10.5 million, offset in part by a decrease in net revenues (operating revenues less fuel and purchased power costs) of $11.1 million. See "Recoverable Energy Costs" in Note A to the financial statements.

Taxes Other Than Income Taxes

At $1.0 billion, taxes other than income taxes remain one of Con Edison of New York's largest operating expenses.

The principal components of, and variations in, operating taxes were:

	Increase/(Decrease)
	2002 Amount			2002 compared to 2001

	(Millions of Dollars)
Property taxes	$	629.8		$	9.4
State and local taxes related to revenue receipts		326.9			(37.6	)
Payroll taxes		54.4			(1.7	)
Other taxes		28.3			2.0

Total	$	1,039.4	*	$	(27.9	)

*Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2002 were $1,351.0 million.

Effective in 2003, New York City increased the Company's annual property taxes by $96 million. Under the Company's rate agreements, the Company is deferring the property tax increase as a regulatory asset to be recovered from customers.

Other Income

Investment income decreased $4.1 million in 2002 compared to 2001, due principally to reduced interest income earned on short-term cash investments in the 2002 period as compared to the 2001 period. For the 2001 period, the Company had more cash on hand than the 2002 period, primarily as a result of the sale of its nuclear generating unit. Allowance for equity funds used during construction increased $8.2 million in 2002 compared to 2001 primarily reflecting the East River Repowering Project. Other income increased $41.7 million in 2002 compared to 2001 due primarily to $26.7 million of interest income on a federal income tax refund claim, a $10.2 million write-off in 2001 of an investment in the New York Discovery Fund in 2001, a $9.4 million increase in interest earned on regulatory assets (See "Application of Critical Accounting Policies—Accounting for Regulated Public Utilities—SFAS No. 71," above), offset in part by reduced income of $2.5 million from non-utility operations. Income tax expense decreased $4.4 million in 2002 compared to 2001 due primarily to the recognition of tax benefits relating to the September 2001 sale of the Company's nuclear generating unit.

Net Interest Charges

Net interest charges increased $6.6 million in the twelve months ended December 31, 2002 compared to the twelve months ended December 31, 2001. The increase reflects principally the interest expense associated with a net federal income tax deficiency related to a prior period audit ($19.1 million), partially offset by decreased interest expense on long-term debt of $14.9 million.

Income Tax

Federal income tax decreased $28.6 million in 2002 compared to 2001, reflecting lower income before tax and deductions related to removal costs and tax credits. In 2000, New York State implemented a tax law change that reduced or repealed certain revenue-based taxes and replaced them with the imposition of a net income-based tax. State income taxes decreased $56.8 million in 2002 compared to 2001, reflecting lower income before tax, lowering of the tax rate and prior period adjustments. The state income tax expense is offset against the savings from the eliminated or reduced revenue taxes. Any over- or under-

collection of these taxes is deferred for return to, or recovery from, customers. See Notes A and L to the financial statements.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Electric

Con Edison of New York's electric operating revenues in 2001 decreased $116.7 million from 2000. The decrease in 2001 reflects decreased purchased power costs (see "Recoverable Energy Costs" in Note A to the financial statements) and electric rate reductions of $374.5 million, offset by economic growth and the effects of the warmer than normal summer weather when compared to cooler than normal weather for the 2000 period.

Electricity sales volume in the Company's service territory increased 3.0 percent in 2001. The increase in sales volume reflects the warmer than normal summer weather and economic growth. The Company's electric sales vary seasonally in response to weather and peak in the summer. After adjusting for variations, principally weather and billing days, in each period, electricity sales volume in Con Edison of New York's service territory increased 2.4 percent in 2001.

The Company's electric operating income increased $90.5 million in 2001 compared with 2000. The increase in electric operating income was primarily comprised of an increase in net revenues (operating revenues less fuel and purchased power costs) of $63.6 million. The increase in net revenues reflects principally increased sales ($64.1 million), recognition of revenue related to previously deferred NYPA rate increases ($35.2 million), gain on the sale of divested generating plants ($37.5 million), increased revenues associated with system benefits charges ($32.8 million), recovery of incremental NUG cost ($31.0 million), reconciliation of state income tax and gross receipts tax ($110.8 million; see "Income Tax," below) and non-recurring charges in 2000 for replacement power costs ($130.0 million), offset by electric rate reductions of $374.5 million. Electric operating income also increased due to decreased other operations and maintenance expenses of $108.4 million (discussed below) and decreased depreciation expense of $73.6 million, offset in part by increased property taxes of $33.7 million, federal income tax of $40.1 million and state income tax of $98.8 million (see "Income Tax," below).

The $108.4 million decrease in other operations and maintenance expenses reflects principally lower expenses related to the Company's nuclear generating unit which was sold in September 2001 ($98.4 million), increased pension credits ($42.5 million) and decreased transmission expenses ($9.9 million), offset in part by higher distribution expenses for the relocation of Company facilities to avoid interference with municipal infrastructure projects ($13.4 million) and increased system benefits charges ($32.8 million).

Gas

Con Edison of New York's gas operating revenues increased $186.6 million in 2001 compared with 2000, reflecting increased cost of purchased gas, offset in part by a reduction in customers' bills of $20.0 million, reflecting a refund of previously deferred credits and other provisions of the gas rate agreement approved by the PSC in November 2000. Operating income in 2001 increased $1.6 million compared with 2000, reflecting an increase in net revenues (operating revenues less gas purchased for resale) of $11.2 million and increased pension credits of $8.2 million, offset in part by increased depreciation and

amortization expense ($3.9 million), increased state income tax ($8.2 million; see "Income Tax" below), increased uncollectible account write-offs ($1.9 million) and higher distribution expenses for the relocation of Company facilities to avoid interference with municipal infrastructure projects ($3.0 million).

Gas sales and transportation volume to firm customers decreased 0.4 percent in 2001 compared with 2000.

The Company's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. The decrease in volume in 2001 compared with 2000 reflects the warmer 2001 winter compared with 2000. After adjusting for variations, principally weather and billing days, in each period, gas sales and transportation volume to firm customers increased 2.8 percent in 2001.

Steam

Con Edison of New York's steam operating revenues increased $51.6 million in 2001 compared with 2000, reflecting primarily increased purchased steam and fuel costs (see "Recoverable Energy Costs" in Note A to the financial statements). Steam operating income increased $2.3 million in 2001 compared with 2000, reflecting an October 2000 rate increase of $16.6 million.

Steam sales volume decreased 5.3 percent in 2001 and increased 0.8 percent in 2000. The decrease in 2001 reflects the mild 2001 winter weather compared with 2000. After adjusting for variations, principally weather and billing days, in each period, steam sales volume decreased 2.7 percent in 2001.

Taxes Other Than Income Taxes

The principal components of and variations in operating taxes were:

	Increase/(Decrease)
	2001 Amount			2001 compared to 2000

	(Millions of Dollars)
Property taxes	$	620.4		$	33.6
State and local taxes related to revenue receipts		364.5			(19.2	)
Payroll taxes		56.2			1.1
Other taxes		26.3			3.5

Total	$	1,067.4	*	$	19.0

*Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2001 were $1,414.4 million.

Other Income

Other income increased $0.9 million in 2001 compared with 2000, due principally to deferred federal income tax credits realized, offset by a write-off in 2001 of an investment of $10.2 million in the New York City Discovery Fund.

Net Interest Charges

Net interest charges increased $16.0 million in 2001, compared with 2000, reflecting principally $28.4 million of increased interest expense for Con Edison of New York related to long-term borrowings, offset in part by a decrease of $8.4 million related to short-term borrowings and $7.0 million of interest accrued on the net after tax gain from generation divestiture prior to regulatory disposition of the gain in 2000. See Note I to the financial statements.

Income Tax

Federal income tax increased $19.7 million in 2001, reflecting the change in income before tax, deductions related to removal costs and tax credits. State income taxes increased $117.5 million in 2001 compared with 2000 as the result of the change in New York State tax law, offset by a corresponding increase in other operating revenues for taxes no longer applicable but still being recovered through rates. See Notes A and J to the financial statements.

MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS—ORANGE AND ROCKLAND UTILITIES, INC.

Orange and Rockland Utilities, Inc. (O&R or the Company), a wholly-owned subsidiary of Consolidated Edison, Inc. (Con Edison), meets the conditions specified in General Instruction I of Form 10-K and is permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, like Con Edison, that are reporting companies under the Securities Exchange Act of 1934. Accordingly, this O&R Management's Narrative Analysis of Results of Operations is included in this report, and O&R has omitted from this report the information called for by Part II, Item 7 of Form 10-K (Management's Discussion and Analysis of Financial Condition and Results of Operations).

This narrative analysis should be read in conjunction with the accompanying consolidated financial statements of O&R and its subsidiaries and the notes thereto. Information in the notes referred to in this narrative analysis is hereby incorporated by reference herein. The use of terms such as "see" or "refer to" shall be deemed to incorporate by reference into this narrative analysis the information to which reference is made.

O&R'S BUSINESS

O&R is a regulated utility that, along with its regulated utility subsidiaries, provides electric service to over 285,000 customers in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania and gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

RESULTS OF OPERATIONS – SUMMARY

O&R's net income for common stock for the year ended December 31, 2002, was $44.9 million, $4.7 million higher than the corresponding 2001 period. The increase in the Company's net income was attributable primarily to higher electric sales volumes due to warmer than normal weather, customer growth and higher average usage, which produced an additional $7.3 million of net electric revenues (operating revenues less purchased power costs). While firm gas volumes were down slightly, gas net revenues increased by $0.8 million due primarily to incentives earned from interruptible and off-system gas sales. Income taxes and revenue taxes decreased by $3.2 million due to lowered tax rates in New York. The higher net revenues and lower taxes were partially offset by $4.9 million in higher interest charges that resulted from a change by the New Jersey Board of Public Utilities (NJBPU) to the carrying charges allowed on the Company's deferred purchased power balance in New Jersey. This expense was offset in part by lower net financing costs of $1.4 million. Operation and maintenance costs increased by $1.2 million and depreciation charges were $1.2 million higher.

See "Results of Operations—Business Segments" below for further analysis of earnings.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

O&R's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in the United States of America. The Company's critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits and contingencies.

Accounting for Regulated Public Utilities—SFAS No. 71

O&R is a regulated public utility subject to Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, is subject to the accounting requirements and rate making practices of the Federal Energy Regulatory Commission (FERC) and state public utility regulatory authorities having jurisdiction.

O&R's principal regulatory assets and liabilities are detailed on the Company's consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for which a cash outflow has been made. The Company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The Company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Accounting for Pensions and Other Postretirement Benefits

O&R and its subsidiaries provide pension and other postretirement benefits to substantially all employees and retirees. The Company accounts for these benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." In applying these accounting policies, the Company has made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future compensation and health care cost trends, and appropriate discount rates. See Notes D and E to the financial statements for information about these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2002, 2001 and 2000. Plan expense or credit in future periods will depend on the assumptions the Company makes and the actual performance of the pension fund.

In accordance with SFAS No. 71 and consistent with rate provisions approved by the applicable state public utility authorities, O&R defers as a regulatory asset or regulatory liability, any difference between expenses recognized under SFAS No. 87 and the amounts reflected in rates for such expenses.

An actuarial valuation of Con Edison's pension plan's funded status (which applies to both Con Edison of New York and O&R) was performed as of December 31, 2002. The valuation showed that the fair value

of the pension plan assets exceeded its Accumulated Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the plan's ABO in future years. In that event, O&R would be required, under SFAS No. 87 and SFAS No. 132, "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a liability equal in the amount to the difference between the fair value of the plan assets and the ABO, less its accrued pension liability through a charge to other comprehensive income (OCI). The charge to OCI, which would be net of taxes, would not affect O&R's net income.

Accounting for Contingencies

SFAS No. 5, "Accounting for Contingencies," applies to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. The Company's known material contingencies include workers' compensation claims, and its responsibility for hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, that have been used or generated in the course of its operations. See Note F to the financial statements. In accordance with SFAS No. 5, the Company has accrued estimates of its losses relating to the contingencies as to which loss is probable and can be reasonably estimated, and no liability has been accrued for contingencies as to which the loss is not probable or cannot be reasonably estimated.

RESULTS OF OPERATIONS

The Company's results of operations (which were discussed above under "Results of Operations—Summary") are discussed below for each of its business segments. The Company's principal business segments are its electric and gas utility businesses. For additional information about its business segments, see Note P to the financial statements.

Electric

Electric operating revenues decreased $62.9 million during 2002 compared to 2001. This decrease was primarily the result of lower purchased power costs and tax recoveries in 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Electric sales volumes in 2002 increased 5.8 percent compared to 2001 due to warmer than normal summer weather, customer growth and higher average usage. After adjusting for weather variations, total electricity sales volumes were 3.2 percent higher in 2002. Net electric revenues (operating revenues less purchased power) were $7.3 million higher in 2002 than in 2001.

Purchased power costs decreased $70.2 million during 2002 compared to 2001, reflecting decreases in the unit cost of purchased power and increased volumes of electricity purchased by customers from other suppliers, partially offset by higher energy usage by full-service customers.

Electric operating income increased $7.3 million in 2002 as compared to 2001. This increase reflects the impact of higher net electric revenues along with lower New York state and local income and revenue taxes, offset in part by higher operation and maintenance charges and depreciation costs.

Gas

Gas operating revenues decreased $39.0 million in 2002 as compared to 2001. This decrease was primarily the result of lower gas costs and sales to firm customers in 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Total firm gas sales volumes in 2002 decreased 1.1 percent compared to 2001. Revenues from gas sales in New York are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income. After adjusting for weather variations in each period, total firm sales and transportation volumes were 0.3 percent lower for 2002 compared to 2001. Net gas revenues (operating revenues less purchased gas) were $0.7 million higher in 2002 due primarily to incentives earned from interruptible and off-system gas sales.

The cost of gas purchased for resale was $39.8 million less in 2002 than in 2001, reflecting lower sales volumes and unit costs.

Decreased gas revenues also reflect the reduced requirement for the Company to buy gas for resale because of an increase in the purchase of gas by customers from other suppliers.

Gas operating income increased by $1.4 million in 2002, compared to 2001, due primarily to higher net revenues and lower operations and maintenance expenses, offset in part by lower late payment charge revenues and higher depreciation.

Other Operations and Maintenance

Other operations and maintenance expense increased $1.2 million in 2002 compared to 2001. The increase was attributable primarily to higher electric transmission and distribution expenditures, partially offset by lower customer bad debt and collections expense.

Taxes Other Than Income Taxes

Taxes other than income taxes decreased by $1.5 million in 2002 compared to 2001. The decrease was primarily the result of lower New York State revenue taxes of $2.7 million, which resulted from reduced tax rates and lower energy costs billed to customers. Partially offsetting this decrease were higher property taxes of $0.9 million.

The principal components of, and variations, in operating taxes were:

	Increase/(Decrease)
	2002 Amount			2002 compared to 2001

	(Millions of Dollars)
Property taxes	$	27.3		$	0.9
State and local taxes related to revenue receipts		21.2			(2.7	)
Payroll taxes		3.8			0.1
Other taxes		0.1			0.2

Total	$	52.4	*	$	(1.5	)

Including sales tax on customers' bills, total taxes other than income taxes, billed to customers in 2002 was $70.8 million.

Net Interest Charges

Interest charges increased by $4.1 million in 2002 compared to 2001, primarily as a result of a change by the NJBPU in the carrying charges allowed on the Company's deferred purchased power balance in New Jersey ($4.9 million) and lower allowance for borrowed funds used during construction ($0.6 million). These expenses were offset in part by lower net financing costs of $1.4 million that resulted from lower average debt balances and interest rates in 2002.

Income Taxes

Income taxes decreased by $1.6 million in 2002 compared to 2001, reflecting primarily lower state income taxes. State income taxes decreased primarily as a result of a 0.5 percent reduction in the New York State tax rate. Excluding certain taxes in New York that are reconciled to amounts included in rates, income taxes increased by $1.7 million due primarily to higher operating income in 2002.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Con Edison

For information about Con Edison's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial Market Risks" in Con Edison's MD&A in Item 7 (which information is incorporated herein by reference).

Con Edison of New York

For information about Con Edison of New York's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial Market Risks" in Con Edison of New York's MD&A in Item 7 (which information is incorporated herein by reference).

O&R

O&R's primary financial market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction expenditures and maturing debt securities. O&R and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. The Company estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of $45.0 million would result in a change in annual interest expense of $0.1 million.

In addition, O&R and its subsidiaries from time to time enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See Note P to the financial statements.

Commodity Price Risk

O&R's commodity price risk relates primarily to the purchase and sale of electricity and gas that the Company delivers to its customers. The Company has risk management strategies to mitigate its related exposure and uses derivative instruments to hedge this price risk. See Note P to the financial statements.

In general, the rates O&R and its subsidiaries charge customers for electric and gas service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation of electricity, including gains or losses on certain derivative instruments and related transaction costs. See "Recoverable Energy Costs" in Note A to the financial statements.

O&R estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $1.7 million for the derivative instruments used by it to hedge purchases of electricity and gas. The Company expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased.

Credit Risk

O&R is exposed to credit risk related to over-the-counter transactions entered into primarily for various energy supply and hedging activities. Credit risk is the loss that may result from a counterparty's

nonperformance. The Company uses credit policies to manage its credit risk, including an established credit approval process, monitoring of counterparty limits, master netting agreements, and credit mitigation measures such as margin, collateral, or prepayment arrangements.

Investment Risk

O&R's investment risk relates to the investment of the assets in the Company's pension and other postretirement benefit plans. See "Critical Accounting Policies—Accounting for Pensions and Other Postretirement Benefits," in Part II Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

A. Financial Statements		Page
Con Edison
Report of Independent Accountants		88
Consolidated Balance Sheet at December 31, 2002 and 2001		89
Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000		91
Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000		92
Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000		92
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000		93
Consolidated Statement of Capitalization at December 31, 2002 and 2001		94
Notes to the Consolidated Financial Statements		96
Con Edison of New York
Report of Independent Accountants		135
Consolidated Balance Sheet at December 31, 2002 and 2001		136
Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000		138
Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000		139
Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000		139
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000		140
Consolidated Statement of Capitalization at December 31, 2002 and 2001		141
Notes to the Consolidated Financial Statements		143
O&R
Report of Independent Accountants		170
Consolidated Balance Sheet at December 31, 2002 and 2001		171
Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000		173
Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000		174
Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000		174
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000		175
Consolidated Statement of Capitalization at December 31, 2002 and 2001		176
Notes to the Consolidated Financial Statements		177
Financial Statement Schedules
Con Edison
	Schedule I—Condensed financial information	199
	Schedule II—Valuation and qualifying accounts	202
Con Edison of New York
	Schedule II—Valuation and qualifying accounts	202
O&R
	Schedule II—Valuation and qualifying accounts	202

All other schedules are omitted because they are not applicable or the required information is shown in financial statements or notes thereto.

B. Supplementary Financial Information

Selected Quarterly Financial Data for the years ended December 31, 2002 and 2001 (Unaudited)

	2002
Con Edison	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

	(Millions of Dollars)
Operating revenues	$	2,036.4	$	1,849.0	$	2,539.5	$	2,057.0
Operating income		257.5		200.1		386.3		216.2
Income for common stock before cumulative effect of changes in accounting principles		166.6		97.6		283.7		120.2
Cumulative effect of changes in accounting principles		20.2		-		-		1.9
Net income for common stock		146.4		97.6		283.7		118.3
Basic earnings per common share before cumulative effect of changes in accounting principles	$	0.78	$	0.46	$	1.34	$	0.56
Cumulative effect of changes in accounting principles		0.10		-		-		0.01
Basic earnings per common share after cumulative effect of changes in accounting principles	$	0.68	$	0.46	$	1.34	$	0.55
Diluted earnings per common share before cumulative effect of changes in accounting principles	$	0.78	$	0.46	$	1.33	$	0.56
Cumulative effect of changes in accounting principles		0.10		-		-		0.01
Diluted earnings per common share after cumulative effect of changes in accounting principles	$	0.68	$	0.46	$	1.33	$	0.55
		2001

	(Millions of Dollars)
Operating revenues	$	2,761.9	$	2,112.2	$	2,627.6	$	1,887.1
Operating income		286.5		215.8		386.4		238.9
Net income for common stock		179.1		100.7		277.3		125.1
Basic earnings per common share	$	0.84	$	0.48	$	1.31	$	0.59
Diluted earnings per common share	$	0.84	$	0.48	$	1.30	$	0.59

In the opinion of Con Edison, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

	2002
Con Edison of New York	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

	(Millions of Dollars)
Operating revenues	$	1,759.1	$	1,568.2	$	2,180.2	$	1,716.5
Operating income		229.7		185.8		352.0		186.6
Net income for common stock		150.7		97.2		258.7		98.8
		2001

	(Millions of Dollars)
Operating revenues	$	2,438.9	$	1,755.4	$	2,297.0	$	1,630.9
Operating income		267.6		199.1		366.5		213.3
Net income for common stock		171.8		102.9		269.0		105.8

In the opinion of Con Edison of New York, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

	2002
O&R	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

	(Millions of Dollars)
Operating revenues	$	156.0	$	144.6	$	179.2	$	154.5
Operating income		18.6		12.4		24.3		16.4
Net income for common stock		12.4		7.1		18.9		6.5
		2001

	(Millions of Dollars)
Operating revenues	$	229.4	$	171.6	$	195.7	$	139.6
Operating income		19.2		9.4		21.5		12.9
Net income for common stock		13.2		3.8		16.8		6.4

In the opinion of O&R, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Consolidated Edison, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Consolidated Edison, Inc. and its subsidiaries (the company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, NY
February 20, 2003

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

			As at
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST (Note A)
	Electric		$	11,568,262	$	11,145,400
	Gas			2,530,230		2,405,730
	Steam			767,831		758,600
	General			1,434,407		1,354,099

	TOTAL			16,300,730		15,663,829
	Less: Accumulated depreciation			4,669,748		4,472,994

	NET			11,630,982		11,190,835
	Construction work in progress			988,662		654,107

NET UTILITY PLANT				12,619,644		11,844,942

NON-UTILITY PLANT (Note A)
	Unregulated generating assets, less accumulated depreciation of $30,166 and $21,289 in 2002 and 2001, respectively			221,894		131,652
	Non-utility property, less accumulated depreciation of $19,476 and $10,902 in 2002 and 2001, respectively			140,017		53,885
	Construction work in progress			347,620		264,784

NET PLANT				13,329,175		12,295,263

CURRENT ASSETS
	Cash and temporary cash investments (Note A)			117,858		271,348
	Restricted cash			14,579		87,985
	Funds held for the redemption of long-term debt			275,121		-
	Accounts receivable - customers, less allowance for uncollectible accounts of $34,692 and $34,775 in 2002 and 2001, respectively			682,989		586,573
	Accrued unbilled revenue (Note A)			54,109		47,654
	Other receivables			169,203		99,155
	Fuel, at average cost			22,745		18,216
	Gas in storage, at average cost			80,520		111,507
	Materials and supplies, at average cost			92,186		90,976
	Prepayments			72,674		78,363
	Other current assets			125,116		106,193

TOTAL CURRENT ASSETS				1,707,100		1,497,970

INVESTMENTS (Note A)				235,464		216,845
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
	Goodwill (Note K)			405,802		439,944
	Intangible asset, less accumulated amortization of $9,712 and $5,953 in 2002 and 2001, respectively			82,023		85,783
	Accrued pension credits (Note D)			1,024,244		697,807
	Regulatory assets
		Future federal income tax (Notes A and L)		667,259		659,890
		Recoverable energy costs (Note A)		322,250		209,262
		Sale of nuclear generating plant (Note I)		127,231		174,804
		Real estate sale costs - First Avenue properties		134,353		105,407
		Deferred retirement program costs		83,972		81,796
		Deferred unbilled gas revenue		43,594		43,594
		Deferred environmental remediation costs (Note F)		83,102		62,559
		Workers' compensation (Note F)		55,866		62,109
		Deferred asbestos - related costs (Note F)		37,700		4,000
		Divestiture - capacity replacement reconciliation (Note I)		28,850		58,850
		Deferred revenue taxes		78,141		41,256
		World Trade Center restoration costs (Note Q)		62,856		32,933
		Other		115,115		80,699

	TOTAL REGULATORY ASSETS			1,840,289		1,617,159

	Other deferred charges and noncurrent assets			196,213		183,684

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS				3,548,571		3,024,377

TOTAL ASSETS			$	18,820,310	$	17,034,455

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

			As at
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statement of Capitalization and Note B)
	Common shareholders' equity		$	5,921,079	$	5,666,268
	Preferred stock			212,563		212,563
	Long-term debt			6,168,430		5,501,217

TOTAL CAPITALIZATION				12,302,072		11,380,048

MINORITY INTERESTS				8,907		9,522
NONCURRENT LIABILITIES
	Obligations under capital leases (Note J)			38,487		41,088
	Accumulated provision for injuries and damages (Note F)			197,483		175,665
	Pension and benefits reserve			206,000		187,366
	Superfund and other environmental costs (Note F)			142,800		132,254
	Other noncurrent liabilities			48,688		53,335

TOTAL NONCURRENT LIABILITIES				633,458		589,708

CURRENT LIABILITIES
	Long-term debt due within one year			472,631		310,950
	Preferred stock to be redeemed in one year			-		37,050
	Notes payable			161,680		343,722
	Accounts payable			918,586		678,876
	Customer deposits			221,476		214,121
	Accrued taxes			100,436		145,742
	Accrued interest			93,765		80,238
	System benefit charge			26,980		30,024
	Independent power producer buyout			32,700		33,750
	Accrued wages			82,443		77,131
	Other current liabilities			196,306		192,618

TOTAL CURRENT LIABILITIES				2,307,003		2,144,222

DEFERRED CREDITS AND REGULATORY LIABILITIES
	Accumulated deferred income tax (Note L)			2,575,646		2,236,210
	Accumulated deferred investment tax credits (Note A)			111,760		118,350
	Regulatory liabilities
		NYISO reconciliation (Note A)		106,908		92,504
		World Trade Center casualty loss (Note Q)		78,787		81,483
		Gain on divestiture (Note I)		42,407		59,030
		Deposit from sale of First Avenue properties		50,000		50,000
		Refundable energy costs		43,651		45,008
		Accrued electric rate reduction (Note A)		38,018		38,018
		DC service incentive		35,293		28,455
		Transmission congestion contracts		124,809		4,896
		Gas rate plan - World Trade Center recovery		36,319		-
		Electric excess earnings		40,000		-
		Other		282,278		156,735

	TOTAL REGULATORY LIABILITIES			878,470		556,129

	Other deferred credits			2,994		266

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES				3,568,870		2,910,955

TOTAL CAPITALIZATION AND LIABILITIES			$	18,820,310	$	17,034,455

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

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
OPERATING REVENUES (Note A)
	Electric	$	6,250,896		$	6,887,863		$	6,938,128
	Gas		1,204,033			1,465,956			1,261,970
	Steam		404,044			503,736			452,135
	Non-utility		622,887			531,244			664,991

TOTAL OPERATING REVENUES			8,481,860			9,388,799			9,317,224

OPERATING EXPENSES
	Purchased power		3,180,394			3,380,274			3,536,274
	Fuel		288,741			393,831			350,816
	Gas purchased for resale		596,606			860,102			789,080
	Other operations		961,865			1,066,572			1,140,832
	Maintenance		387,287			430,291			458,046
	Depreciation and amortization (Note A)		494,553			526,121			586,407
	Taxes, other than income taxes (Note A)		1,114,205			1,139,518			1,121,843
	Income taxes (Notes A and L)		398,072			464,532			317,790

TOTAL OPERATING EXPENSES			7,421,723			8,261,241			8,301,088

OPERATING INCOME			1,060,137			1,127,558			1,016,136

OTHER INCOME (DEDUCTIONS)
	Investment income (Note A)		2,447			8,568			8,476
	Allowance for equity funds used during construction (Note A)		9,969			1,281			1,299
	Other income		48,010			(4,442	)		19,616
	Other income deductions		(20,106	)		(28,171	)		(52,276	)
	Income taxes (Notes A and L)		21,680			21,921			10,622

TOTAL OTHER INCOME (DEDUCTIONS)			62,000			(843	)		(12,263	)

INCOME BEFORE INTEREST CHARGES			1,122,137			1,126,715			1,003,873

	Interest on long-term debt		385,323			396,948			363,994
	Other interest		60,984			41,823			49,527
	Allowance for borrowed funds used during construction (Note A)		(4,725	)		(7,891	)		(6,076	)

NET INTEREST CHARGES			441,582			430,880			407,445

INCOME BEFORE PREFERRED STOCK DIVIDENDS			680,555			695,835			596,428

PREFERRED STOCK DIVIDEND REQUIREMENTS			12,458			13,593			13,593

INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES			668,097			682,242			582,835

CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (NET OF INCOME TAXES OF $15,259)			22,061			-			-

NET INCOME FOR COMMON STOCK		$	646,036		$	682,242		$	582,835

EARNINGS PER COMMON SHARE - BASIC
	Before cumulative effect of changes in accounting principles	$	3.14		$	3.22		$	2.75

	Cumulative effect of changes in accounting principles	$	0.11		$	-		$	-

	After cumulative effect of changes in accounting principles	$	3.03		$	3.22		$	2.75

EARNINGS PER COMMON SHARE - DILUTED
	Before cumulative effect of changes in accounting principles	$	3.13		$	3.21		$	2.74

	Cumulative effect of changes in accounting principles	$	0.11		$	-		$	-

	After cumulative effect of changes in accounting principles	$	3.02		$	3.21		$	2.74

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$	2.22		$	2.20		$	2.18

AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC			212,989,784			212,146,750			212,186,412

AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED			214,049,653			212,919,524			212,417,885

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

		For the Years Ended December 31,
		2002		2001		2000

		(Thousands of Dollars)
BALANCE, JANUARY 1		$	5,251,017	$	5,040,931	$	4,921,089
	Less: Stock options exercised		3,849		5,430		1,026
	Orange & Rockland purchase accounting adjustment		-		-		(46	)
	Income before preferred stock dividends		680,555		695,835		596,428
Less: Cumulative effect of changes in accounting principles			22,061		-		-

NET INCOME AFTER CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES			658,494		695,835		596,428

TOTAL			5,905,662		5,731,336		5,516,445

DIVIDENDS DECLARED ON CAPITAL STOCK
	Cumulative preferred, at required annual rates		12,458		13,593		13,593
	Common, $2.22, $2.20 and $2.18 per share, respectively		472,767		466,726		461,921

TOTAL DIVIDENDS DECLARED			485,225		480,319		475,514

BALANCE, DECEMBER 31		$	5,420,437	$	5,251,017	$	5,040,931

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
NET INCOME FOR COMMON STOCK		$	646,036		$	682,242		$	582,835
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
	Investment in marketable equity securities, net of ($854), ($703) and ($454) taxes in 2002, 2001 and 2000, respectively		(1,218	)		(808	)		(843	)
	Minimum pension liability adjustments, net of ($2,536), ($1,680) and ($703) taxes in 2002, 2001 and 2000, respectively		(3,668	)		(2,095	)		(1,304	)
	Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5,635) taxes in 2001		-			(8,002	)		-
	Unrealized gains/(losses) on derivatives qualified as hedges, net of $12,718 and ($21,901) taxes in 2002 and 2001, respectively		18,361			(31,191	)		-
	Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,662) and ($10,291) taxes in 2002 and 2001, respectively		(2,334	)		(14,807	)		-

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES			15,809			(27,289	)		(2,147	)

COMPREHENSIVE INCOME		$	661,845		$	654,953		$	580,688

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

					For the Years Ended December 31,
					2002			2001			2000

					(Thousands of Dollars)
OPERATING ACTIVITIES
	Income before preferred stock dividends				$	680,555		$	695,835		$	596,428
	PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
		Depreciation and amortization				494,553			526,121			586,407
		Deferred income tax (excluding taxes resulting from divestiture of plant)				301,183			5,629			177,736
		Common equity component of allowance for funds used during construction				(9,969	)		(1,281	)		(1,299	)
		Accrued pension costs (net of capitalized amounts)				(262,273	)		(259,107	)		(201,666	)
		Other non-cash charges				65,012			33,551			(11,316	)
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS OF DIVESTITURE OF UTILITY PLANTS AND PURCHASE OF THE LAKEWOOD PROJECT IN 2001 AND 2000, RESPECTIVELY
		Accounts receivable - customers, less allowance for uncollectibles				(96,416	)		296,611			(262,799	)
		Materials and supplies, including fuel and gas in storage				25,248			(20,086	)		(19,980	)
		Prepayments, other receivables and other current assets				(89,948	)		119,525			(131,203	)
		Recoverable energy costs				(112,989	)		130,231			(221,804	)
		Accounts payable				239,711			(353,601	)		402,861
		Retiree benefit reserve				18,634			6,393			26,284
		Accrued taxes				(45,306	)		81,399			45,956
		Accrued interest				13,527			(5,038	)		25,215
		Deferred charges and regulatory assets				(94,018	)		(46,379	)		11,566
		Deferred credits and regulatory liabilities				192,937			45,830			(56,563	)
		Transmission congestion contracts				119,913			4,896			-
		Other assets				29,324			176,261			240,624
		Other liabilities				35,643			151,179			135,986

NET CASH FLOWS FROM OPERATING ACTIVITIES						1,505,321			1,587,969			1,342,433

INVESTING ACTIVITIES
		Utility construction expenditures				(1,216,097	)		(1,103,823	)		(1,002,607	)
		Cost of removal less salvage				(123,966	)		(101,163	)		(130,895	)
		Non-utility construction expenditures				(276,661	)		(153,921	)		(182,602	)
		Common equity component of allowance for funds used during construction				9,969			1,281			1,299
		Nuclear fuel expenditures				-			(6,111	)		(27,357	)
		Contributions to nuclear decommissioning trust				-			(89,185	)		(21,301	)
		Payment for purchase of the Lakewood Project, net of cash and cash equivalents				-			-			(98,090	)
		Divestiture of utility plants (net of federal income tax)				-			671,473			-
		Investments by unregulated subsidiaries				(19,197	)		(157,500	)		(33,363	)
		Demolition and remediation costs for First Avenue properties				(2,161	)		(2,398	)		(101,935	)
		Deposit from sale of First Avenue properties				-			-			50,000

NET CASH FLOWS USED IN INVESTING ACTIVITIES						(1,628,113	)		(941,347	)		(1,546,851	)

FINANCING ACTIVITIES
		Repurchase of common stock				-			-			(68,531	)
		Net proceeds/(repayments) from/of short-term debt				(182,042	)		39,720			(265,031	)
		Issuance of long-term debt				1,125,000			722,600			1,030,000
		Retirement of long-term debt				(300,000	)		(309,590	)		(403,230	)
		Redemption of preferred stock				(37,050	)		-			-
		Issuance of common stock				25,098			-			-
		Advance refunding of long-term debt				(275,121	)		(328,150	)		-
		Issuance and refunding costs				(16,365	)		(23,218	)		(5,468	)
		Common stock dividends				(430,700	)		(469,755	)		(460,177	)
		Preferred stock dividends				(12,924	)		(13,724	)		(13,367	)

NET CASH FLOWS USED IN FINANCING ACTIVITIES						(104,104	)		(382,117	)		(185,804	)

CASH AND TEMPORARY CASH INVESTMENTS:

NET CHANGE FOR THE PERIOD						(226,896	)		264,505			(390,222	)

BALANCE AT BEGINNING OF PERIOD					$	359,333		$	94,828		$	485,050

BALANCE AT END OF PERIOD					$	132,437		$	359,333		$	94,828

LESS: RESTRICTED CASH						14,579			87,985			-
BALANCE: CASH AND TEMPORARY CASH INVESTMENTS					$	117,858		$	271,348		$	94,828

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
		Cash paid during the period for:
			Interest		$	389,293		$	398,861		$	351,165
			Income taxes			225,933			217,175			136,573
		Business Acquisitions
			Assets		$	-		$	-		$	225,462
			Purchase price in excess of net assets acquired			-			-			66,336

				Total assets		-			-			291,798

			Long-term debt, minority interest and liability assumed			-			-			193,708

				Net cash used in acquisitions	$	-		$	-		$	98,090

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CAPITALIZATION

			Shares outstanding
			December 31, 2002	December 31, 2001	Years Ended December 31,
			December 31, 2002	December 31, 2001	2002			2001

					(Thousands of Dollars)
COMMON SHAREHOLDERS' EQUITY (NOTE B)
	Common stock		213,932,934	212,257,244	$	1,550,861		$	1,482,341
	Retained earnings					5,420,437			5,251,017
	Treasury stock, at cost: 23,210,700, shares and 23,230,850 shares at December 31, 2002 and 2001, respectively					(1,001,242	)		(1,002,107	)
	Capital stock expense					(35,350	)		(35,547	)
	ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
		Investment in marketable equity securities, net of ($2,011) and ($1,157) taxes in 2002 and 2001, respectively				(2,869	)		(1,651	)
		Minimum pension liability adjustments, net of ($4,919) and ($2,383) taxes in 2002 and 2001, respectively				(7,067	)		(3,399	)
		Unrealized gains/(losses) on derivatives qualified as hedges arising during the period due to cumulative effect of a change in accounting principle, net of ($5,635) taxes in 2001				-			(8,002	)
		Unrealized gains/(losses) on derivatives qualified as hedges, net of ($14,818) and ($21,901) taxes in 2002 and 2001, respectively				(20,832	)		(31,191	)
		Less: Reclassification adjustment for gains/(losses) included in net income, net of ($11,953) and ($10,291) taxes in 2002 and 2001, respectively				(17,141	)		(14,807	)

TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES						(13,627	)		(29,436	)

TOTAL COMMON SHAREHOLDERS' EQUITY						5,921,079			5,666,268

PREFERRED STOCK (NOTE B)
	Subject to mandatory redemption Cumulative Preferred, $100 par value, 6¹/8% Series J		-	370,500		-			37,050

TOTAL SUBJECT TO MANDATORY REDEMPTION						-			37,050

OTHER PREFERRED STOCK
	$5 Cumulative Preferred, without par value, authorized 1,915,319 shares		1,915,319	1,915,319		175,000			175,000
	Cumulative Preferred, $100 par value, authorized 6,000,000 shares*
		4.65% Series C	153,296	153,296		15,330			15,330
		4.65% Series D	222,330	222,330		22,233			22,233

TOTAL OTHER PREFERRED STOCK						212,563			212,563

TOTAL						212,563			249,613
Less: Preferred stock due within one year						-			37,050

TOTAL PREFERRED STOCK					$	212,563		$	212,563

*: Represents total authorized shares of cumulative preferred stock, $100 par value, including preferred stock subject to mandatory redemption.

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CAPITALIZATION

Long-term debt (Note B)				At December 31,
Long-term debt (Note B)		Interest Rate
Maturity		Interest Rate	Series	2002			2001

				(Thousands of Dollars)
DEBENTURES:
	2002	6⁵/8	1993C	$	-		$	150,000
	2002	2.06*	1997A		-			150,000
	2003	6³/8	1993D		150,000			150,000
	2003	6.56	1993D		35,000			35,000
	2004	7⁵/8	1992B		150,000			150,000
	2005	6⁵/8	1995A		100,000			100,000
	2005	6⁵/8	2000C		350,000			350,000
	2007	6.45	1997B		330,000			330,000
	2007	7¹/8	1997J		20,000			20,000
	2008	6¹/4	1998A		180,000			180,000
	2008	6.15	1998C		100,000			100,000
	2009	7.15	1999B		200,000			200,000
	2010	8¹/8	2000A		325,000			325,000
	2010	7¹/2	2000A		55,000			55,000
	2010	7¹/2	2000B		300,000			300,000
	2012	5⁵/8	2002A		300,000			-
	2013	4⁷/8	2002B		500,000			-
	2023	7¹/2	1993G		380,000			380,000
	2026	7³/4	1996A		100,000			100,000
	2027	6¹/2	1997F		80,000			80,000
	2028	7.1	1998D		105,000			105,000
	2028	6.9	1998D		75,000			75,000
	2029	7¹/8	1994A		150,000			150,000
	2029	7.0	1999G		45,000			45,000
	2039	7.35	1999A		275,000			275,000
	2041	7¹/2	2001A		400,000			400,000
	2042	7¹/4	2002A		325,000			-

TOTAL DEBENTURES					5,030,000			4,205,000

TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR FACILITIES REVENUE BONDS:
	2014	6.09	1994**		55,000			55,000
	2015	1.45	1995**		44,000			44,000
	2020	5¹/4	1993B		127,715			127,715
	2020	6.10	1995A		128,285			128,285
	2022	5³/8	1993C		19,760			19,760
	2028	6.00	1993A		101,000			101,000
	2029	7¹/8	1994A		100,000			100,000
	2034	1.35***	1999A		292,700			292,700
	2036	4.70	2001A****		232,302			224,600
	2036	1.37***	2001B		98,000			98,000

TOTAL TAX-EXEMPT DEBT					1,198,762			1,191,060

SUBORDINATED DEFERRABLE INTEREST DEBENTURES:
	2031	7³/4	1996A		275,000			275,000

OTHER LONG-TERM DEBT					164,350			167,845
UNAMORTIZED DEBT DISCOUNT					(27,051	)		(26,738	)

TOTAL					6,641,061			5,812,167
LESS: LONG-TERM DEBT DUE WITHIN ONE YEAR					472,631			310,950

TOTAL LONG-TERM DEBT					6,168,430			5,501,217

TOTAL CAPITALIZATION				$	12,302,072		$	11,380,048

*: 2.06% rate shown for the period March 15, 2002 - June 14, 2002.
**: Issued for O&R pollution control financing.
***: Rates reset weekly, quarterly or by auction held every 35 days; December 31, 2002 rate shown.
****: See Note O
The accompanying notes are an integral part of these financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These notes form an integral part of the accompanying consolidated financial statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries.

Con Edison

Orange and Rockland Utilities, Inc. (O&R), a regulated utility that Con Edison acquired in July 1999, provides electric service to over 285,000 customers in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania. O&R also provides gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

Con Edison's consolidated financial statements include the accounts of Con Edison and its consolidated subsidiaries, including the regulated utilities, Con Edison of New York and O&R. All intercompany balances and transactions have been eliminated.

Accounting Policies

The accounting policies of Con Edison and its subsidiaries conform to accounting principles generally accepted in the United States of America. For regulated public utilities, like Con Edison of New York and O&R, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the state public utility regulatory commissions having jurisdiction.

Con Edison's principal regulatory assets and liabilities are detailed on the consolidated balance sheet. The company is receiving or being credited with a return on all of its regulatory assets for which a cash outflow has been made, and is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

The standards in SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of the FASB Statement No. 71," have been applied to Con Edison's regulated electric supply business, including electric generating assets (see Note I) and non-utility generator (NUG) contracts (see Note H) and related regulatory assets and liabilities, following the 1997 Restructuring Agreement (defined below). The application of SFAS No. 101 to the electric supply business had no material effect on the financial position, results of operations or liquidity of Con Edison.

Other significant accounting policies of the company are referenced in Note D (Pension Benefits), Note E (Other Postretirement Benefits), Note J (Leases), Note K (Goodwill and Intangible Assets) and Note O (Derivative Instruments and Hedging Activities) to the financial statements.

Rate and Restructuring Agreements

Electric

In September 1997, the New York State Public Service Commission (PSC) approved a restructuring agreement between Con Edison of New York, the PSC staff and certain other parties (the 1997 Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access plan, a rate plan for the period ended March 31, 2002, a reasonable opportunity for recovery of "strandable costs" and the divestiture of electric generation capacity by Con Edison of New York.

At December 31, 2002, approximately 163,000 Con Edison of New York customers representing approximately 25 percent of aggregate customer load were purchasing electricity from other suppliers under the electric retail access program (which is available to all of Con Edison of New York's electric customers). Con Edison of New York delivers electricity to customers in this program through its regulated transmission and distribution systems. In general, Con Edison of New York's delivery rates for retail access customers are equal to the full-service rates applicable to other comparable Con Edison of New York customers, less an amount reflecting costs otherwise associated with supplying customers with energy and capacity.

Pursuant to the 1997 Restructuring Agreement, Con Edison of New York reduced electric rates, on an annual basis, by $129 million in 1998, $80 million in April 1999, $103 million in April 2000 and $209 million in April 2001. The effect of the April 2001 decrease for the rate year ended March 31, 2002 was partially offset by recognition in income of $36 million relating to rates for distributing electricity to customers of the New York Power Authority (NYPA) and $50 million (after tax) of deferred generation divestiture gain. Rates were also reduced, on an annual basis, effective September 2001 by $313 million to reflect the divestiture of the nuclear generating facility and the Roseton generating plant, which resulted in a reduction in operating and other expenses. See Note I.

Pursuant to the 1997 Restructuring Agreement, as amended by a July 1998 PSC order, Con Edison of New York sold approximately 7,790 MW of the approximately 8,300 MW of generating capacity that it owned at the time the 1997 Restructuring Agreement was executed. See Note I.

In November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revises and extends the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000 Electric Rate Agreement, Con Edison of New York reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

In general, under the 2000 Electric Rate Agreement, Con Edison of New York's base electric transmission and distribution rates will not otherwise be changed during the five-year period ending March 2005 except (i) with respect to certain changes in costs above anticipated annual levels resulting from legal or regulatory requirements, inflation in excess of a 4 percent annual rate, property tax changes and environmental cost increases or (ii) if the PSC determines that circumstances have occurred that either threaten Con Edison of New York's economic viability or ability to provide, safe and adequate service, or render Con Edison of New York's rate of return unreasonable for the provision of safe and adequate service.

Under the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through 2005 above a specified rate of return on electric common equity will be retained for shareholders and the balance will be applied for customer benefit as determined by the PSC. As of December 31, 2002, Con Edison of New York established an electric shared earnings reserve of $40 million for the rate year ending March 2003. There was no sharing of earnings for the rate years ended March 2002 and 2001. The earnings threshold for rate years ending March 2003 through March 2005 of 11.75 percent can be increased up to 50 basis points. The threshold will increase by 25 basis points if certain demand reductions and supply increases exceed targeted projections and by an additional 25 basis points if certain customer service and reliability objectives are achieved. Con Edison of New York could be required to pay up to $40 million annually in penalties if certain threshold service and reliability objectives are not achieved.

Con Edison of New York's potential electric strandable costs are utility investments and commitments that may not be recoverable in a competitive electric supply market. Con Edison of New York is recovering these costs in the rates it charges all of its electric customers. The 2000 Electric Rate Agreement continues the stranded cost recovery provisions of the 1997 Restructuring Agreement, stating that Con Edison of New York "will be given a reasonable opportunity to recover stranded and

strandable costs remaining at March 31, 2005, including a reasonable return on investments, under the parameters and during the time periods set forth therein."

The 2000 Electric Rate Agreement also continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy Costs" below.

In 1997, the PSC approved a four-year O&R restructuring plan effective through December 31, 2002, pursuant to which O&R sold all of its generating assets, made retail access available to all of its electric customers effective May 1999 and reduced its electric rates by $32.4 million through rate reductions implemented in December 1997 and 1998. In 1998 and 1999, similar plans for O&R's utility subsidiaries in Pennsylvania and New Jersey were approved by state regulators. The Pennsylvania plan provided for retail access for all customers effective May 1999. The New Jersey plan provided for retail access for all customers effective August 1999 and rate reductions of $6.8 million effective August 1999, an additional reduction of $2.7 million effective January 2001 and a final reduction of $6.2 million effective August 2002.

In accordance with the April 1999 PSC order approving Con Edison's acquisition of O&R, Con Edison of New York has reduced its annual electric and gas rates by $12 million and $2 million, respectively, and O&R has reduced its annual electric rates and gas rates by $6.1 million and $1.1 million, respectively.

In October 2002, O&R's New Jersey utility subsidiary filed a request with the New Jersey Board of Public Utilities (NJBPU) seeking an increase in electric rates of $7.3 million (5.5 percent) annually, to take effect on August 1, 2003, principally to reflect the costs of electric system infrastructure improvements required for service reliability and security. A final ruling by the NJBPU is expected in the third quarter of 2003.

Gas

Under the 2000 agreement, the rate of return on gas common equity above which Con Edison of New York shared with customers 50 percent of earnings was increased from 13 percent to 14 percent. In addition, customer bills were reduced by $20 million during the January through March 2001 period.

At December 31, 2001, Con Edison of New York reserved $11.5 million for customers' share of gas earnings in excess of the 14 percent threshold for the rate year ended September 2001. No additional amounts were reserved for the rate year ended September 2002.

In April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The rate agreement reduces gas rates, on an annualized basis, by $25 million.

During the term of the 2002 agreement, Con Edison of New York retains 100 percent of the rate year return on equity up to 11.5 percent. If the return on equity is between 11.5 percent and 12.0 percent,

100 percent of the incremental return over 11.5 percent will be set aside for customer benefit. If the return on equity is above 12.0 percent, 50 percent of the incremental return over 12.0 percent will be retained by shareholders, and the remaining 50 percent will be shared with customers.

The 2002 agreement also continued the retail access credit for firm transportation customers and other programs designed to increase customer and marketer participation in the gas retail access program, the net costs of which are to be recovered from customers.

Under the 2002 agreement, in May 2002, Con Edison of New York established a $36.4 million reserve, funded by previously deferred customer credits, to recover unreimbursed costs directly related to the World Trade Center attack.

In December 2000, the PSC also authorized implementation of a gas rate settlement agreement between O&R, the PSC staff, and certain other parties covering the period November 2000 through April 2002. In October 2001, the PSC approved an extension of this agreement covering the period May 2002 through October 2003. With limited exceptions, the agreement provides for no changes to base rates. O&R was permitted to retain, and is amortizing to income, $18.1 million of deferred credits that otherwise would have been credited to customers.

In November 2002, O&R filed a request with the PSC for approval of a $27.2 million gas rate increase effective November 2003. O&R also submitted a multi-year plan that addresses rates for two additional years, with an increase of $2.5 million to cover infrastructure costs, inflation and property taxes. The Administrative Law Judge is expected to issue a recommended decision in the third quarter 2003.

Steam

In November 2000, the PSC authorized implementation of an agreement between Con Edison of New York, the PSC staff and certain other parties, that provided for a $16.6 million steam rate increase in October 2000 and, with limited exceptions, no further changes in steam rates prior to October 2004. Con Edison of New York is required to share with customers 50 percent of any earnings for any rate year covered by the agreement above of a specified rate of return on steam common equity (11.0 percent for the first rate year, the 12-month period ended September 2001; 10.5 percent thereafter if the repowering of its steam-electric generating plant is not completed). The net revenue effect associated with sales increases related to colder than normal winter weather (November through April) will be excluded from any earnings measurement. Earnings on steam common equity did not exceed the specific rates of return for the rate years ended September 30, 2001 and 2002.

Under the steam rate agreement, upon completion of the project to add incremental generating capacity at the East River steam-electric generating plant, the net benefits of the project (including the net after-tax gain from the sale of a nine-acre development site in mid-town Manhattan along the East River) allocable to steam operations will inure to the benefit of steam customers.

The agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased steam and fuel costs and requires Con Edison of New York to develop a strategy for hedging price variations for a portion of the steam produced each year.

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Plant and Depreciation

Utility Plant

Utility plant is stated at original cost. The capitalized cost of additions to utility plant includes indirect costs such as engineering, supervision, payroll taxes, pensions, other benefits and an allowance for funds used during construction (AFDC). The original cost of property, together with removal cost, less salvage, is charged to accumulated depreciation as property is retired. The cost of repairs and maintenance is charged to expense and the cost of betterments is capitalized.

Rates used for AFDC include the cost of borrowed funds and a reasonable rate on the regulated utilities own funds when so used, determined in accordance with PSC and FERC regulations. The rate is compounded semiannually, and the amounts applicable to borrowed funds are treated as a reduction of interest charges, while the amounts applicable to the regulated utilities' own funds were credited to other income (deductions).

Con Edison's utility subsidiaries generally compute annual charges for depreciation using the straight-line method for financial statement purposes, with rates based on average service lives and net salvage factors. Con Edison's utility depreciation rates averaged 3.0 percent in 2002, 3.1 percent in 2001 and 3.6 percent in 2000. The estimated lives for Con Edison's utility plant range from 5 to 80 years for electric, 7 to 75 years for gas, 30 to 75 years for steam and 5 to 50 years for general plant.

Non-utility Plant

Non-utility plant is stated at original cost. For the regulated utilities, non-utility plant consists primarily of land and telecommunication facilities that are currently not utilized within utility operations. For the unregulated subsidiaries, non-utility plant consists primarily of generating assets and telecommunication facilities that are in-service or under construction. Depreciation is computed using the straight-line method for financial statement purposes, over the estimated useful lives of the assets, which range from 5 to 40 years for generating assets and 3 to 50 years for other property.

In 2002, in accordance with SFAS No. 34, "Capitalization of Interest Costs," Con Edison capitalized interest on its borrowings associated with the unregulated subsidiaries' capital projects in progress. Capitalized interest is added to the asset cost, and is amortized over the useful lives of the assets. The amount of such capitalized interest cost for 2002 is $14.3 million. No amounts were capitalized in 2001 and 2000.

Revenues

Con Edison's utility subsidiaries and Con Edison Solutions recognize revenues for electric, gas or steam service on a monthly billing cycle basis. O&R and Con Edison Solutions accrue revenues at the end of each month for estimated energy usage not yet billed to customers, while Con Edison of New York does not accrue such revenues, in accordance with current regulatory agreements. The accrued unbilled revenue included in Con Edison's balance sheet at December 31, 2002 and 2001 was $54.1 million and $47.7 million, respectively.

Recoverable Energy Costs

Con Edison's utility subsidiaries generally recover all of their prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions approved by the

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applicable state public utility commissions. If the actual energy costs for a given month are more or less than the amounts billed to customers for that month, the difference is recoverable from or refundable to customers. Differences between actual and billed energy costs are generally deferred for charge or refund to customer during the next billing cycle (normally within one or two months). For Con Edison of New York, the rate provisions also include a possible incentive or penalty of up to $25 million annually relating to electric costs (see "Energy Price Hedging" in Note O). Con Edison of New York defers over a 12-month period all net interruptible gas revenues not authorized by the PSC to be retained by Con Edison of New York for refund to firm gas sales and transportation customers.

In August 2002, O&R's New Jersey utility subsidiary submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act of $110 million of electric purchased power costs in excess of amounts previously billed to customers, associated interest and other deferred charges. Recovery of these costs from customers is requested over a four-year period or pursuant to a plan to securitize the costs (under which O&R's subsidiary would be reimbursed these costs with the proceeds of a financing that would be repaid over time by its customers). In January 2003, the initial results of an independent audit, commissioned by the NJBPU to review the prudence of these deferred costs, were issued. The audit recommends that the utility be disallowed recovery of $26.8 million of such costs and associated interest of $2.6 million. O&R believes that its actions were prudent and has filed a response to the audit findings. A decision on the recovery of these purchased power costs by the NJBPU is expected in the third quarter of 2003.

The difference between amounts for purchased power initially billed to the utility subsidiaries by the New York Independent System Operator (NYISO) and amounts subsequently determined by the NYISO to have actually been supplied by the NYISO is refunded by the NYISO to the utility subsidiaries, or paid to the NYISO by the utility subsidiaries. The reconciliation payments or receipts are recoverable from or refundable to the utility subsidiaries' customers. At December 31, 2002, the utility subsidiaries had deferred $106.9 million of refunds received from the NYISO as a regulatory liability.

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at cost, which approximates market. Con Edison considers temporary cash investments to be cash equivalents.

Investments

Investments consist primarily of the investments of Con Edison's unregulated subsidiaries, which, depending on the subsidiaries' percentage ownership, are recorded at cost, accounted for under the equity method or accounted for as leveraged leases in accordance with SFAS No. 13, "Accounting for Leases." See Note J for a discussion of investments in Lease In/Lease Out transactions.

Federal Income Tax

In accordance with SFAS No. 109, "Accounting for Income Taxes," Con Edison has recorded an accumulated deferred federal income tax liability for temporary differences between the book and tax basis of assets and liabilities at current tax rates. In accordance with rate agreements, the utility subsidiaries have recovered amounts from customers for a portion of the tax liability they will pay in the

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future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining tax liability, in accordance with SFAS No. 71, the utility subsidiaries have established regulatory assets for the net revenue requirements to be recovered from customers for the related future tax expense (see Note L). In 1993, the PSC issued a Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates.

Accumulated deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction to future federal income tax expense.

Con Edison and its subsidiaries file a consolidated federal income tax return. The consolidated income tax liability is allocated to each member of the consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of the consolidated group.

State Income Tax

The New York State tax laws applicable to utility companies were changed effective January 1, 2000. Certain revenue-based taxes were repealed or reduced and replaced by a net income-based tax. In June 2001, the PSC issued its final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and the tax expense resulting from the tax law changes, until those changes are incorporated in base rates.

Con Edison and its subsidiaries file a combined New York State Corporation Business Franchise Tax Return. Similar to a federal consolidated income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of income among the states in which the company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

Taxes Other than Income Taxes

The PSC requires New York regulated utility companies to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expense). The recovery of these taxes is part of the PSC approved revenue requirement within each of the respective rate agreements.

Research and Development Costs

Research and development costs relating to specific utility construction projects are capitalized. All other such costs are charged to operating expenses as incurred. Research and development costs in 2002, 2001 and 2000 amounting to $11.2 million, $14.0 million and $14.1 million, respectively, were charged to operating expenses. No research and development costs were capitalized in these years.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Earnings Per Common Share

In accordance with SFAS No. 128, "Earnings per Share," Con Edison presents basic and diluted earnings per share on the face of the consolidated income statement. Basic earnings per share is calculated by

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dividing earnings available to common shareholders ("Net income for common stock" on the consolidated income statement) by the weighted average number of common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

Potentially dilutive securities for Con Edison consist of restricted stock and stock options whose exercise price is less than the average market price of the common shares during the reporting period. See Note M.

Basic and diluted EPS are calculated as follows:

	For the Years Ended December 31,
	2002		2001		2000

	(Millions of Dollars/Share Data in Thousands)
Net income	$	680.6	$	695.8	$	596.4
Less: Preferred stock dividend requirements		12.5		13.6		13.6

Income available to common shareholders	$	668.1	$	682.2	$	582.8
Less cumulative effect of changes in accounting principles, net of tax		22.1		-		-

Net income applicable to common stock	$	646.0	$	682.2	$	582.8

Number of shares on which basic EPS is calculated		212,990		212,147		212,186
Add: Incremental shares attributable to effect of dilutive securities:		1,060		773		232

Number of share on which diluted EPS is calculated		214,050		212,920		212,418

EARNINGS PER COMMON SHARE - BASIC
Before cumulative effect of changes in accounting principles	$	3.14	$	3.22	$	2.75
Cumulative effect of changes in accounting principles		0.11		-		-

After cumulative effect of changes in accounting principles	$	3.03	$	3.22	$	2.75

EARNINGS PER COMMON SHARE - DILUTED
Before cumulative effect of changes in accounting principles	$	3.13	$	3.21	$	2.74
Cumulative effect of changes in accounting principles		0.11		-		-

After cumulative effect of changes in accounting principles	$	3.02	$	3.21	$	2.74

Stock options to purchase 6.08 million, 5.33 million and 4.67 million common shares for the years ended December 31, 2002, 2001 and 2000, respectively, were not included in the respective period's computation of diluted earnings per share because the exercise price of the option was greater than the average market price of the common shares.

Stock-Based Compensation

Con Edison applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. See Note M. The following table illustrates the effect on net

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income and earnings per share if Con Edison had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

		For the Years Ended December 31,
		2002			2001			2000

		(Millions of Dollars/Share Data in Thousands)
Net income, as reported		$	646		$	682		$	583
Add: Stock-based compensation expense included in reported net income, net of related tax effects			6			3			1
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects			(13	)		(7	)		(6	)

Pro forma net income			639			678			578

Number of shares on which basic EPS is calculated			212,990			212,147			212,186
Add: Incremental shares attributable to effect of dilutive securities:			1,060			773			232

Number of share on which diluted EPS is calculated			214,050			212,920			212,418

Earnings per share:
	Basic - as reported	$	3.03		$	3.22		$	2.75
	Basic - pro forma	$	3.00		$	3.19		$	2.72

	Diluted - as reported	$	3.02		$	3.21		$	2.74
	Diluted - pro forma	$	2.99		$	3.18		$	2.71

These pro forma amounts may not be representative of future year pro forma amount disclosures due to changes in future market conditions and additional grants in future years.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note B - Capitalization

Capitalization of Con Edison

Con Edison's outstanding capitalization, on a consolidated basis, consists of its common shareholders' equity and long-term debt and the outstanding preferred stock and long-term debt of its subsidiaries. Con Edison's authorized capitalization also includes six million authorized, but unissued, Preferred Shares, $1.00 par value.

Preferred Stock of Utility Subsidiaries

As of December 31, 2002, 1,915,319 shares of Con Edison of New York's $5 Cumulative Preferred Stock (the "$5 Preferred") and 375,626 shares of its Cumulative Preferred Stock ($100 par value) were outstanding.

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must be declared by Con Edison of New York's Board of Trustees to become payable. See "Dividends" below.

With respect to any corporate action to be taken by a vote of shareholders of Con Edison of New York, Con Edison (which owns all of the 235,488,094 shares of Con Edison of New York's Common Shares ($2.50 par value) that are outstanding) and the holders of the $5 Preferred are each entitled to one vote for each share held. Except as otherwise required by law, holders of the Cumulative Preferred Stock have no right to vote; provided, however, that, if the $5 Preferred is no longer outstanding, the holders of the Cumulative Preferred Stock are entitled to one vote for each share with respect to any corporate action to be taken by a vote of the shareholders of Con Edison of New York. In addition, if dividends are in arrears for certain periods, the holders are entitled to certain rights with respect to the election of Con Edison of New York's Trustees. Without the consent of the holders of the Cumulative Preferred Stock, Con Edison of New York may not create or authorize any kind of stock ranking prior to the Cumulative Preferred Stock or, if such actions would affect the holders of the Cumulative Preferred Stock adversely, be a party to any consolidation or merger, create or amend the terms of the Cumulative Preferred Stock or reclassify the Cumulative Preferred Stock. Con Edison of New York may redeem the $5 Preferred at a redemption price of $105 per share and the Cumulative Preferred Stock at a redemption price of $101 per share (in each case, plus accrued and unpaid dividends). In the event of the dissolution, liquidation or winding up of the affairs of Con Edison of New York, before any distribution of capital assets could be made to the holders of the company's common stock, the holders of the $5 Preferred and the Cumulative Preferred Stock would each be entitled to receive $100 per share, in the case of an involuntary liquidation, or an amount equal to the redemption price per share, in the case of a voluntary liquidation, in each case together with all accrued and unpaid dividends.

Dividends

In accordance with PSC requirements, the dividends that the utility subsidiaries may pay are limited to not more than 100 percent of their respective income available for dividends calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison proceeds from major transactions, such as asset sales, or to dividends reducing each utility subsidiary's equity ratio to a level appropriate to its business risk.

In addition, no dividends may be paid, or funds set apart for payment, on Con Edison of New York common stock until all dividends accrued on the $5 Preferred Stock and Cumulative Preferred Stock have been paid, or declared and set apart for payment.

Long-term Debt

Long-term debt maturing in the period 2003-2007 is as follows:

	(Millions of Dollars)

2003	$473	*
2004	163
2005	464
2006	17
2007	368

*: Includes redemption in advance of maturity of $275 million of Con Edison of New York's Subordinated Deferrable Interest Debentures Series 1996A in January 2003.

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Long-term debt includes notes issued by O&R to the New York State Energy Research and Development Authority (NYSERDA) for the net proceeds of NYSERDA's $55 million aggregate principal amount of Series 1994A and $44 million aggregate principal amount of Series 1995A Pollution Control Refunding Revenue Bonds. The interest rate determination method for this debt is subject to change in accordance with the related indenture, and the debt currently bears interest at a weekly rate determined by its remarketing agent. The debt is subject to optional and, in certain circumstances, mandatory tender for purchase by O&R. See "Interest Rate Hedging" in Note O.

Long-term debt is stated at cost, which, as of December 31, 2002, approximates fair value (estimated based on current rates for debt of the same remaining maturities), except for $224.6 million of Con Edison of New York's tax-exempt financing. See "Interest Rate Hedging" in Note O.

At December 31, 2002, long-term debt includes $23.2 million of mortgage bonds collateralized by substantially all the utility plant and other physical property of O&R's New Jersey and Pennsylvania utility subsidiaries, and $148.8 million of debt of a Con Edison Development subsidiary collateralized by a pledge of a power plant, a related power purchase agreement and project assets. At December 31, 2002, restricted cash was $14.6 million relating to this project.

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the debentures of Con Edison, Con Edison of New York or O&R. The tax-exempt financing arrangements of Con Edison of New York and O&R are subject to these covenants and the covenants discussed below.

The tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of Con Edison of New York and O&R to NYSERDA in exchange for the net proceeds of a like amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA.

The tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to the use of the facilities financed. The failure to comply with these covenants would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. Certain series of Con Edison of New York's tax-exempt financing (Series 1993A, B and C, Series 1994A and Series 1995A), aggregating $476.8 million, each contain as events of default a default in the payment of the other series and events of default under the company's mortgage trust indenture (which has been satisfied and discharged). The arrangements for the other series of Con Edison of New York's tax-exempt financing (Series 1999A, 2001A and 2001B), aggregating $615.3 million, and O&R's tax-exempt financing (Series 1994A and Series 1995A), aggregating $99.0 million, include provisions for the maintenance of liquidity and credit facilities, the failure to comply with which would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. If an event of default occurred, the principal and accrued interest on the debt to which such event of default applied may and, in certain circumstances would, become due and payable immediately.

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The liquidity and credit facilities currently in effect for the tax-exempt financing include covenants that the ratio of debt to total capital of the company does not at any time exceed 0.65 to 1 and that, subject to certain exceptions, the company shall not mortgage, lien, pledge or otherwise encumber its assets. Certain of the facilities also include as events of default, defaults in payments of other debt obligations in excess of specified levels ($100 million for Con Edison of New York; $12.5 million for O&R).

Note C - Short Term Borrowing

At December 31, 2002, Con Edison and its utility subsidiaries had commercial paper programs under which short-term borrowings are made at prevailing market rates, totaling $950 million. These programs are supported by revolving credit agreements with banks. At December 31, 2002, $149.5 million, at a weighted average interest rate of 1.2 percent, was outstanding under Con Edison's $350 million program; no commercial paper was outstanding under Con Edison of New York's $500 million program; and $1 million, at a weighted average interest rate of 1.3 percent, was outstanding under O&R's $100 million program. Con Edison of New York changes the amount of its program from time to time, subject to a $1 billion FERC-authorized limit.

Bank commitments under the revolving credit agreements total $950 million, of which $775 million was renewed in November 2002. The commitments may terminate upon a change of control of Con Edison, and borrowings under the agreements are subject to certain conditions, including that the ratio (calculated in accordance with the agreements) of debt to total capital of the borrower not at any time exceed 0.65 to 1. At December 31, 2002, this ratio was 0.54 to 1 for Con Edison, 0.53 to 1 for Con Edison of New York and 0.49 to 1 for O&R. Borrowings under the agreements are not subject to maintenance of credit rating levels. The fees charged for the revolving credit facilities and borrowings under the agreements reflect the credit ratings of the respective companies.

During 2002, Con Edison borrowed funds on a short-term basis from an affiliate of the lessor of the Newington Project. See Note S. The average daily outstanding amount was $28.9 million at an average interest rate of 4.2 percent. At December 31, 2002, $11.1 million was outstanding at an interest rate of 4.2 percent.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees of Con Edison of New York and O&R and certain employees of other Con Edison subsidiaries. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period. This amortization is in accordance with the Statement of Policy issued by the New York State Public Service Commission (PSC) and is permitted under SFAS No. 87, "Employers' Accounting for Pensions," which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains and losses.

Consistent with the provisions of SFAS No. 71, O&R defers for future recovery any difference between expenses recognized under SFAS No. 87 and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

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The components of Con Edison of New York and O&R's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Millions of Dollars)
Service cost - including administrative expenses	$	93.9		$	95.3		$	90.0
Interest cost on projected benefit obligation		440.1			425.2			408.7
Expected return on plan assets		(685.5	)		(657.4	)		(565.7	)
Amortization of net actuarial (gain)		(173.2	)		(193.9	)		(186.1	)
Amortization of prior service cost		14.1			13.6			10.5
Amortization of transition (asset)/obligation		(0.6	)		3.0			3.0

NET PERIODIC BENEFIT COST		(311.2	)		(314.2	)		(239.6	)

Amortization of regulatory asset*		4.2			4.2			17.7

TOTAL PERIODIC BENEFIT COST	$	(307.0	)	$	(310.0	)	$	(221.9	)

Cost capitalized		(51.2	)		(61.4	)		(41.4	)
Cost charged to operating expenses	$	(255.8	)	$	(248.6	)	$	(180.5	)

*: Relates to increases in Con Edison of New York's pension obligations of $33.3 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

The funded status at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Millions of Dollars)
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	5,904.3		$	5,630.4		$	5,241.6
Service cost - excluding administrative expenses		92.2			93.6			88.7
Interest cost on projected benefit obligation		440.1			425.2			408.7
Plan amendments		-			9.8			37.7
Net actuarial loss		299.0			30.4			128.5
Benefits paid		(302.0	)		(285.1	)		(274.8	)

PROJECTED BENEFIT OBLIGATION AT END OF YEAR	$	6,433.6		$	5,904.3		$	5,630.4

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	6,633.7		$	7,347.5		$	7,720.1
Actual return on plan assets		(553.1	)		(406.6	)		(84.7	)
Employer contributions		3.9			3.7			4.7
Benefits paid		(302.0	)		(285.1	)		(274.8	)
Administrative expenses		(22.8	)		(25.8	)		(17.8	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	5,759.7		$	6,633.7		$	7,347.5

Funded status	$	(673.9	)**	$	729.4		$	1,717.1
Unrecognized net loss/(gain)		1,547.7			(184.2	)		(1,496.8	)
Unrecognized prior service costs		81.8			95.9			99.8
Unrecognized net transition (asset)/liability at January 1, 1987*		-			(0.6	)		2.4

NET PREPAID BENEFIT COST	$	955.6		$	640.5		$	322.5

*: Being amortized over approximately 15 years.
**: As of December 31, 2002, the fair value of plan assets exceeded the accumulated benefit obligation (ABO) by $104 million. The ABO excludes future compensation increases.

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The amounts recognized in the consolidated balance sheet at December 31, 2002 and 2001 were as follows:

	2002			2001

	(Millions of Dollars)
Accrued pension credits - Con Edison of New York	$	1,024.2		$	697.8
Accrued benefit cost - O&R		(57.5	)		(43.9	)
Additional minimum pension liability		(12.2	)		(6.3	)
Intangible asset		0.2			0.6
Accumulated other comprehensive income		12.0			5.7
1993 special retirement program		(11.1	)		(13.4	)

Net prepaid benefit cost	$	955.6		$	640.5

The actuarial assumptions for Con Edison of New York and O&R at December 31, 2002, 2001 and 2000 were as follows:

	2002	2001	2000

Discount Rate	6.75%	7.50%	7.75%
Expected Return on Plan Assets	9.20%	9.20%	8.50%
Rate of Compensation Increase - Con Edison	4.30%	4.30%	4.55%
Rate of Compensation Increase - O&R	4.15%	4.15%	4.40%

Con Edison also offers a defined contribution savings plan that covers substantially all employees and made contributions to the plan of $16.8 million, $16.7 million and $16.4 million for years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

Con Edison of New York and O&R have contributory comprehensive hospital, medical and prescription drug programs for all retirees, their dependents and surviving spouses.

Con Edison of New York also has a contributory life insurance program for bargaining unit employees and provides basic life insurance benefits up to a specified maximum at no cost to retired management employees. O&R has a non-contributory life insurance program for retirees.

Certain employees of other Con Edison subsidiaries are eligible to receive benefits under these programs. The company has reserved the right to amend or terminate these programs.

Investment plan gains and losses are fully recognized in expense over a 15-year period for Con Edison of New York and O&R. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

For O&R, plan assets are used to pay benefits and expenses for participants who retired on or after January 1, 1995. O&R pays benefits for other participants who retired prior to January 1, 1995. Plan assets include amounts owed by the trust to O&R of $0.8 million in 2002, $0.3 million in 2001, $2.2 million in 2000.

Consistent with the provisions of SFAS No. 71, O&R defers for future recovery any difference between expenses recognized under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other

110

Than Pensions," and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The components of Con Edison of New York and O&R's net periodic postretirement benefit costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Millions of Dollars)
Service cost	$	10.0		$	12.2		$	10.7
Interest cost on accumulated postretirement benefit obligation		87.7			88.4			78.8
Expected return on plan assets		(79.7	)		(73.8	)		(62.3	)
Amortization of net actuarial loss		24.2			10.2			1.2
Amortization of prior service cost		(0.1	)		1.4			1.4
Amortization of transition obligation		5.0			17.4			17.4

NET PERIODIC POSTRETIREMENT BENEFIT COST	$	47.1		$	55.8		$	47.2

Cost capitalized/deferred		13.8			13.2			10.3
Cost charged to operating expenses		33.3			42.6			36.9

The funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Millions of Dollars)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year	$	1,351.1		$	1,169.8		$	1,012.5
Service cost		10.0			12.2			10.7
Interest cost on accumulated postretirement benefit obligation		87.7			88.4			78.8
Plan amendments		(305.6	)		-			(0.4	)
Net actuarial loss		177.6			148.7			127.6
Benefits paid and administrative expenses		(89.1	)		(82.0	)		(71.4	)
Participant contributions		15.7			14.0			12.0

BENEFIT OBLIGATION AT END OF YEAR	$	1,247.4		$	1,351.1		$	1,169.8

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	804.2		$	844.1		$	872.3
Actual return on plan assets		(61.3	)		(29.3	)		4.4
Employer contributions		44.9			55.9			23.5
Participant contributions		15.6			13.9			11.9
Benefits paid		(81.9	)		(75.5	)		(62.9	)
Administrative expenses		(4.5	)		(4.9	)		(5.1	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	717.0		$	804.2		$	844.1

Funded status	$	(530.4	)	$	(546.9	)	$	(325.7	)
Unrecognized net (gain)/loss		505.5			210.9			(32.1	)
Unrecognized prior service costs		(147.9	)		8.0			9.4
Unrecognized transition obligation at January 1, 1993*		36.7			191.4			208.8

ACCRUED POSTRETIREMENT BENEFIT COST	$	(136.1	)	$	(136.6	)	$	(139.6	)

*: Being amortized over a period of 20 years and reduced by an additional amount in 2002 due to plan amendments.

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The actuarial assumptions for Con Edison of New York and O&R at December 31, 2002, 2001 and 2000 were as follows:

			2002	2001	2000

Discount rate			6.75%	7.50%	7.75%
EXPECTED RETURN ON PLAN ASSETS
	Tax-exempt assets		9.20%	9.20%	8.50%
	Taxable assets:
		Con Edison of New York	8.20%	8.20%	7.50%
		O&R	8.70%	8.70%	8.00%

The health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent for 2009 and remain at that level thereafter.

A one-percentage point change in the assumed health care cost trend rate would have the following effects:

	1-Percentage-Point Increase		1-Percentage-Point Decrease

	(Millions of Dollars)
Effect on accumulated postretirement benefit obligation	$	129.0	$	(114.7	)
Effect on service cost and interest cost components	$	11.8	$	(10.3	)

Note F - Environmental Matters

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of Con Edison's utility subsidiaries and are present in facilities and equipment currently or previously owned by the utility subsidiaries.

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liabilities, regardless of fault, upon generators of hazardous substances for resulting removal and remediation costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.

The environmental remediation costs for the sites at which Con Edison's utility subsidiaries have been asserted to have liability for remediation under Superfund or similar state statutes, including their manufactured gas sites, (Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs.

For sites where there are other potentially responsible parties and the utility subsidiaries are not managing the site investigation and remediation, the liability accrued represents the company's estimate of what it will need to pay to settle its obligations with respect to the site. For other sites, the liability accrued represents the company's estimate of its investigation and remediation costs for the site. In either case, the company makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it has available to it at the time

112

about the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used.

For the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $90 million to $1.2 billion. To develop these estimates, the assumption was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of cleanup required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

At December 31, 2002, Con Edison had accrued $142.8 million as its estimate of its undiscounted liability for Superfund Sites, including approximately $110 million relating to manufactured gas sites. Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating to the Superfund Sites and other sites, the amount of which is not presently determinable but may be material to Con Edison's financial position, results of operations or liquidity.

In 2002, Con Edison's utility subsidiaries incurred $23.1 million for environmental remediation costs, and received an insurance recovery of $7.2 million related to Superfund Sites.

Con Edison's utility subsidiaries are permitted under current rate agreements to defer certain site investigation and remediation costs for subsequent recovery through rates. At December 31, 2002, $83.1 million of such costs had been deferred as a regulatory asset.

Suits have been brought in New York State and federal courts against Con Edison's utility subsidiaries and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the utility subsidiaries. The suits that have been resolved, which are many, have been resolved without any payment by the utility subsidiaries, or for amounts that were not, in the aggregate, material to the company. The amounts specified in all the remaining thousands of suits total billions of dollars but Con Edison believes that these amounts are greatly exaggerated, as experienced through the disposition of previous claims. Based upon a combination of modeling, historical data analysis and risk factor assessment, Con Edison of New York's undiscounted potential liability over the next 50 years is estimated to range between $37.7 million and $162.1 million for these suits and additional such suits that may be brought (with no amount within the range considered more reasonable than any other). At December 31, 2002, Con Edison had accrued a $37.7 million provision for these suits, and a like amount had been deferred as a regulatory asset in accordance with PSC authorization.

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a material adverse effect on Con Edison's financial position, results of operations or liquidity. At December 31, 2002, the company had accrued a $130.5 million provision as its estimate of the utility subsidiaries' liability for workers' compensation claims, including those related to asbestos exposure. Of this amount $55.9 million was deferred as a regulatory asset in accordance with PSC authorization.

In May 2000, the New York State Department of Environmental Conservation issued notices of violation to O&R and four other companies that have operated coal-fired electric generating facilities in New York State. The notices allege violations of the Federal Clean Air Act and the New York State Environmental Conservation Law resulting from the alleged failure to install pollution control equipment that would have reduced emissions of certain chemicals deemed potentially hazardous. The notice of violations received by O&R relates to the Lovett Generating Station that it sold in June 1999. O&R is unable to predict whether or not alleged violations will have a material adverse effect on its financial position, results of operations or liquidity.

Note G - Nuclear Generation

In September 2001, Con Edison of New York completed the sale of its nuclear generating facilities. See Note I.

The PSC is investigating a February 2000 to January 2001 outage of the nuclear generating unit, its causes and the prudence of Con Edison of New York's actions regarding the operation and maintenance of the generating unit. The proceeding covers, among other things, Con Edison of New York's inspection practices, the circumstances surrounding prior outages, the basis for postponement of the unit's steam generator replacement and whether, and to what extent, increased replacement power costs and repair and replacement costs should be borne by Con Edison's shareholders.

Con Edison of New York has not billed to customers $90 million of replacement power costs incurred during the outage. In addition, in 2000, Con Edison of New York accrued a $40 million liability for the possible disallowance of replacement power costs that it had previously recovered from customers.

Con Edison of New York is unable to predict whether or not any proceedings, lawsuits, legislation or other actions relating to the nuclear generating unit will have a material adverse effect on its financial position, results of operations or liquidity.

Note H - Non-utility Generators

Con Edison's utility subsidiaries have long-term contracts with non-utility generators (NUGs) for approximately 3,100 MW of electric generating capacity. Assuming performance by the NUGs, the utility subsidiaries are obligated over the terms of the contracts (which extend for various periods, up to 2036) to make capacity and other fixed payments.

For the years 2003 through 2007, the capacity and other fixed payments under the contracts are estimated to be $543 million, $547 million, $529 million, $526 million and $535 million. Such payments gradually increase to approximately $600 million in 2013, and thereafter decline significantly. For energy delivered under most of these contracts, the utility subsidiaries are obligated to pay variable prices that are estimated to be lower overall than expected market levels.

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The NUG contracts include firm contracts for capacity (commitment ends 2005) and energy (commitment ends 2004) from the approximately 1,000 MW nuclear generating unit that Con Edison of New York sold in 2001. For energy from the unit, Con Edison of New York is obligated to pay an average annual price of 3.9 cents per kWh. From time to time, certain parties have petitioned governmental authorities to shut down the nuclear generating unit. In the event that government authorities did not permit the unit to operate, the unit's owner would not be obligated to provide Con Edison of New York with power to replace the power the unit would have provided.

Under the terms of its electric rate agreements, Con Edison of New York is recovering in rates the charges it incurs under mandated contracts with NUGs. The 2000 Electric Rate Agreement provides that, following March 31, 2005, Con Edison of New York will be given a reasonable opportunity to recover, through a non-bypassable charge to customers, the amount, if any, by which the actual costs of its purchases under the contracts exceed market value. The PSC specifically approved rate recovery of the nuclear energy purchase.

O&R recovers its costs under the contracts pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction.

Note I - Generation Divestiture

Pursuant to restructuring agreements approved by the PSC (See "Rate and Restructuring Agreements" in Note A), Con Edison of New York and O&R have divested all of their electric generating assets other than approximately 630 MW of Con Edison of New York's electric generating stations located in New York City. Con Edison of New York sold approximately 6,300 MW of electric generating assets in 1999 and approximately 1,480 MW in 2001. O&R completed the sale of all of its generating assets prior to the completion of Con Edison's purchase of O&R in 1999.

Pursuant to the 2000 Electric Rate Agreement, the net after-tax gain (including interest accrued thereon) from Con Edison of New York's 1999 generation divestiture was applied in 2000 as follows: $188.2 million was credited against electric distribution plant balances; $107.3 million was used to offset a like amount of regulatory assets (including deferred power contract termination costs); $50 million (after tax) was deferred for recognition in income during the 12 months ended March 31, 2002; and $12 million was deferred to be used for low-income customer programs. In addition, $30 million of employee retirement incentive expenses related to the generation divestiture was deferred for amortization over 15 years and $15 million of such expenses was charged to income in 2000.

The 2000 Electric Rate Agreement provides for Con Edison of New York to amortize to income a $74 million regulatory asset representing incremental electric capacity costs incurred prior to May 2000 to purchase capacity from the buyers of the generating assets the company sold in 1999. Amortization to income will take place in years in which the company would otherwise share excess earnings with customers, in amounts corresponding to the company's share of the excess earnings. By March 2005, any remaining unrecovered balance will be charged to expense. Of this amount, $30 million was charged to expense in 2002 and $15 million was expensed in 2001.

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In January 2001, Con Edison of New York completed the sale of its 480 MW interest in the jointly-owned Roseton generating station for $138 million. The net after-tax gain from the sale, which has been deferred as a regulatory liability, was $37.1 million. In September 2001, Con Edison of New York completed the sale of its approximately 1,000 MW nuclear generating plant and related assets for $504.5 million. The proceeds were net of a $73.8 million payment to increase the value of the nuclear decommissioning trust funds being transferred to $430 million (the amount provided for in the sales agreement). The net after-tax loss from the sale, which was deferred as a regulatory asset, was $174.8 million at December 31, 2001 and $127.2 million at December 31, 2002. Con Edison of New York was authorized, effective September 2001, to continue to recover the cost of the deferred nuclear assets, which is included in rates, and to amortize the regulatory asset, until the loss on divestiture has been recovered. The 2000 Electric Agreement provides that Con Edison of New York "will be given a reasonable opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments."

Note J - Leases

Con Edison's subsidiaries lease electric generating and gas distribution facilities, other electric transmission and distribution facilities, office buildings and equipment. In accordance with SFAS No. 13, these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair rental value for future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

Capital leases: For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with SFAS No. 71, the amortization of the leased asset is based on the rental payments recovered through rates. The following assets and obligations under capital leases are included in the accompanying consolidated balance sheet at December 31, 2002 and 2001:

			2002		2001

			(Millions of Dollars)
UTILITY PLANT
	Transmission		$	12.1	$	13.5
	Common			29.0		29.7

		TOTAL	$	41.1	$	43.2

CURRENT LIABILITIES			$	2.6	$	2.1

NON-CURRENT LIABILITIES				38.5		41.1

TOTAL LIABILITIES			$	41.1	$	43.2

The accumulated amortization of the capital leases was $28.8 million and $26.8 million as of December 31, 2002 and 2001, respectively.

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The future minimum lease commitments for the above assets are as follows:

		(Millions of Dollars)

2003		$	7.8
2004			7.5
2005			7.3
2006			7.2
2007			7.1
All years thereafter			35.1

	Total	$	72.0
Less: amount representing interest			30.9

Present value of net minimum lease payments		$	41.1

In November 2000, a Con Edison Development subsidiary entered into an operating lease arrangement with a limited partnership (Lessor) to finance construction of a 525 MW gas-fired electric generating facility in Newington, New Hampshire (Newington Project). See Note S.

Operating leases: The future minimum lease commitments under Con Edison's non-cancelable operating lease agreements, excluding the Newington Project, are as follows:

		(Millions of Dollars)

2003		$	45.6
2004			46.8
2005			15.5
2006			12.9
2007			8.6
All years thereafter			39.1

	Total	$	168.5

As part of a broad initiative, the Internal Revenue Service is reviewing certain categories of transactions. Among these are transactions in which a taxpayer leases property and then immediately subleases it back to the lessor (termed "Lease In/Lease Out," or LILO transactions). In 1997 and 1999, Con Edison's unregulated subsidiaries invested $93 million in two LILO transactions, involving gas distribution and electric generating facilities in the Netherlands, which represented approximately 36 percent of the purchase price; the remaining 64 percent or $166 million was furnished by third-party financing in the form of long-term debt that provides no recourse against the subsidiaries and is primarily secured by the assets, except for guarantees of up to $10 million of the debt. Approximately half of these guarantees expired prior to December 31, 2002 and the other half will expire at the end of May 2004. At December 31, 2002, the company's investment ($187 million) in these leveraged leases net of deferred tax liabilities ($117 million) amounted to $70 million, which was included at cost on Con Edison's consolidated balance sheet. On audit, the Internal Revenue Service has proposed that the tax losses recognized in connection with the 1997 LILO transaction be disallowed. Con Edison believes its position is correct and is currently appealing the auditors' proposal within the Internal Revenue Service. The estimated total tax savings from the two LILO transactions during the tax years 1997 through 2002, in the aggregate, was $82 million.

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Note K - Goodwill and Intangible Assets

On January 1, 2002, Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill (i.e., the excess of cost over fair value of the net assets of a business acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. Other intangible assets will continue to be amortized over their finite useful lives. The goodwill impairment test is a two-step process. The first step identifies potential impairment by comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill. If the fair value is less than the carrying amount, the second step of the impairment test is performed. The second step compares the implied fair value of goodwill, determined in the same manner as the amount of goodwill recognized in a business combination under SFAS No. 141, "Business Combinations," to its carrying amount to determine the amount of the impairment loss, if any.

Con Edison completed its initial goodwill impairment test and recorded a loss of $34.1 million ($20.2 million after-tax) as an offset to goodwill recorded in Con Edison's "Unregulated Subsidiaries and Other" business segment relating to certain generation assets owned by Con Edison Development. The fair values of the reporting units were estimated using the expected present value of future cash flows. The impairment loss reflects changes in forecast market prices of energy and capacity and in risk-adjusted discount rates. The impairment loss is recognized net of taxes as a cumulative effect of a change in accounting principle at January 1, 2002.

The change in the carrying amount of goodwill at December 31, 2002 is as follows:


	(Millions of Dollars)
Balance at the beginning of the period (January 1, 2002)	$	439.9
Impairment loss recognized		(34.1	)

Balance at the end of the period (December 31, 2002)	$	405.8

Had Con Edison been accounting for goodwill under SFAS No. 142 for all periods presented, its income and earnings per share would have been as follows:

	For the years ended December 31,
	2002		2001		2000

	(Millions of Dollars)
Net income for common stock
As reported	$	646.0	$	682.2	$	582.8
Add back: goodwill amortization (net of tax)		-		11.0		11.9

Adjusted	$	646.0	$	693.2	$	594.7

Basic earnings per share
As reported	$	3.03	$	3.22	$	2.75
Add back: goodwill amortization (net of tax)		-		.05		.06

Adjusted	$	3.03	$	3.27	$	2.81

Diluted earnings per share
As reported	$	3.02	$	3.21	$	2.74
Add back: goodwill amortization (net of tax)		-		.05		.06

Adjusted	$	3.02	$	3.26	$	2.80

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In July 1999, Con Edison acquired O&R and accounted for the acquisition under the purchase method of accounting in accordance with generally accepted accounting principles. Con Edison recorded in its consolidated financial statements goodwill in the amount of $437 million and began the amortization of goodwill to income over a 40-year period. Upon adoption of SFAS No. 142 in January 2002, Con Edison discontinued the amortization of goodwill. The unamortized goodwill of $405.8 million was tested for impairment and determined not to be impaired.

Con Edison's finite life intangible asset relates to a power purchase agreement of an unregulated subsidiary and is being amortized on a straight-line basis over an approximately 25-year contract period. At December 31, 2002, the gross carrying amount and accumulated amortization were $91.7 million and $9.7 million, respectively. Amortization expense was $3.8 million at December 31, 2002 and is estimated to remain at $3.8 million per year from 2003 to 2007.

Note L - Income Tax

The components of income tax are as follows:

			For the Years Ended December 31,
			2002			2001			2000

			(Thousands of Dollars)
Charge/(benefit) to operations:
State
	Current		$	(2,876	)	$	69,259		$	28,941
	Deferred - net			96,531			78,988			-
Federal
	Current			93,469			380,509			103,670
	Deferred - net			217,192			(57,089	)		193,257
	Amortization of investment tax credit			(6,244	)		(7,135	)		(8,078	)

		TOTAL CHARGE TO OPERATIONS		398,072			464,532			317,790

Charge/(benefit) to other income:
State
	Current			(2,819	)		(4,102	)		(5,304	)
	Deferred - net			(1,006	)		73			-
Federal
	Current			(12,566	)		(8,684	)		(1,095	)
	Deferred - net			(1,162	)		(7,045	)		(3,892	)
	Amortization of investment tax credit			(4,127	)		(2,163	)		(331	)

		TOTAL BENEFIT TO OTHER INCOME		(21,680	)		(21,921	)		(10,622	)

TOTAL			$	376,392		$	442,611		$	307,168

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The tax effect of temporary differences, which gave rise to deferred tax assets and liabilities, is as follows:

			For the Years Ended December 31,
			2002			2001

			(Millions of dollars)
Liabilities:
	Depreciation		$	1,556.2		$	1,348.5
	Regulatory Liability - Future Federal Income Tax			667.3			659.8
	Other			542.4			414.3

		TOTAL LIABILITIES		2,765.9			2,422.6

Assets:
	Other			(190.3	)		(186.4	)

		TOTAL ASSETS		(190.3	)		(186.4	)

NET LIABILITY			$	2,575.6		$	2,236.2

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

		For the Years Ended December 31,
		2002		2001		2000

		(% of Pre-tax income)
STATUTORY TAX RATE
	Federal	35	%	35	%	35	%
Changes in computed taxes resulting from:
	State income tax	6		9		2
	Depreciation related differences	5		3		4
	Cost of removal	(5	)	(4	)	(6	)
	Other	(6	)	(4	)	(1	)

Effective Tax Rate		35	%	39	%	34	%

Note M - Stock-based Compensation

Under Con Edison's Stock Option Plan (the Plan), options may be granted to officers and key employees of Con Edison and its subsidiaries for up to a total of 10 million shares of Con Edison's common stock. Generally options become exercisable three years after the grant date and remain exercisable until 10 years from the grant date.

As permitted by SFAS No. 123, Con Edison elected to follow APB No. 25 and related interpretations in accounting for its employee stock options. Under the intrinsic value method of APB No. 25, no compensation expense is recognized because the exercise price of Con Edison's employee stock options equals the market price of the underlying stock on the date of grant.

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committee determined that 1996 and 1997 stock options covering 295,500 shares of common stock held by those officers may be settled by the cash settlement method. A $3.8 million charge to expense was recognized for Con Edison in 2002 for these options. Additional changes to expense will be recognized with respect to these options to the extent the fair market value of the common shares changes in future periods.

Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and Disclosures." See "Stock-Based Compensation" in Note A for an illustration of the effect on net income and earnings per share if Con Edison had applied the fair value recognition provisions of SFAS No. 123 to its stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	2002	2001	2000

Risk-free interest rate	5.08%	5.22%	6.25%
Expected lives - in years	6	8	8
Expected stock volatility	21.43%	21.32%	20.51%
Dividend yield	5.22%	5.83%	6.60%

A summary of changes in the status of stock options awarded to officers and employees of Con Edison as of December 31, 2002, 2001 and 2000 is as follows:

		Shares		Weighted Average Price

Outstanding at 12/31/99		3,556,210		$	39.607
	Granted	1,349,500			32.499
	Exercised	(68,697	)		29.732
	Forfeited	(46,100	)		39.231

Outstanding at 12/31/00		4,790,913			37.749
	Granted	1,487,050			37.758
	Exercised	(363,013	)		29.740
	Forfeited	(160,300	)		41.333

Outstanding at 12/31/01		5,754,650			38.157
	Granted	1,584,350			42.510
	Exercised	(413,899	)		30.813
	Forfeited	(127,450	)		44.103

Outstanding at 12/31/02		6,797,651		$	39.506

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The following summarizes the Plan's stock options outstanding at December 31, 2002 for each plan year:

Plan Year	Weighted Average Exercise Price		Shares Outstanding At 12/31/02	Remaining Contractual Life

2002	$	42.510	1,581,850	9 years
2001		37.758	1,474,050	8 years
2000		32.499	1,283,750	7 years
1999		47.876	1,149,900	6 years
1998		42.609	747,450	5 years
1997		31.500	395,526	4 years
1996		27.875	165,125	3 years

As of December 31, 2002, 2001 and 2000 there were vested options outstanding to purchase 1,308,101, 939,850 and 1,304,863 shares of common stock, respectively, at an exercise price below the closing market price on that day. The weighted average exercise prices were $37.36, $30.11 and $31.50, respectively.

As of December 31, 2002, 2001 and 2000 the total number of vested options outstanding were 2,458,001, 1,765,200 and 1,304,863 with weighted average exercise prices of $42.28, $35.95 and $31.50, respectively.

Pursuant to employment agreements, effective September 2000, certain senior officers of Con Edison and its subsidiaries were granted an aggregate of 350,000 restricted stock units, subject to the officers meeting the terms and conditions of the agreements. In June 2002, an additional 150,000 restricted stock units were granted to certain senior officers of Con Edison and its subsidiaries under similar terms. The units, each of which represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or immediately upon the occurrence of certain events. Pursuant to APB No. 25, Con Edison is recognizing compensation expense and accruing a liability for the units over the vesting period. The expense recognized for restricted stock during 2002, 2001 and 2000 was $4.4 million, $3.1 million and $0.9 million, respectively.

In June 2002, Con Edison terminated its Directors' Retirement Plan applicable to non-officer directors (the termination is not applicable to directors who had previously retired from the board) and adopted a deferred stock compensation plan for these directors. Under the plan, directors were granted stock units for accrued service. Pursuant to APB No. 25, Con Edison recognizes compensation expense and accrues a liability for the units. An expense of $2.4 million was recorded in 2002.

Note N - Financial Information By Business Segment

Con Edison's business segments were determined based on similarities in economic characteristics, the regulatory environment, and management's reporting requirements. Con Edison's principal business segments are:

•: Regulated Electric - consists of regulated activities of Con Edison of New York and O&R relating to the generation, transmission, distribution and sale of electricity in New York, New Jersey and Pennsylvania.

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•: Regulated Gas - consists of regulated activities of Con Edison of New York and O&R relating to the transportation, storage, distribution and sale of natural gas in New York and Pennsylvania.
•: Regulated Steam - consists of regulated activities of Con Edison of New York relating to the generation, distribution and sale of steam in New York.
•: Unregulated Subsidiaries - represents the operations of the subsidiaries that participate in the competitive electric and gas supply, energy infrastructure, energy-related products and services and telecommunications businesses.
•: Other - - includes the operations of the parent company, Con Edison, and consolidation adjustments.

All revenues of Con Edison's business segments, excluding revenues earned by Con Edison Development on certain energy infrastructure projects, which are deemed to be immaterial, are from customers located in the United States of America. Also, all assets of its business segments, excluding certain investments in energy infrastructure projects by Con Edison Development, are located in the United States of America. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See Note A.

Common services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

The financial data for business segments are as follows:

	Regulated Electric
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	6,250,896	$	6,887,863	$	6,938,128
Intersegment revenues		9,612		12,589		53,514
Depreciation and amortization		377,462		407,992		477,352
Income tax expense		317,960		382,153		239,772
Operating income		816,733		902,176		808,960
Interest charge		326,790		316,449		309,753
Changes in accounting principles		-		-		-
Total assets		13,308,802		12,193,525		12,386,304
Construction expenditures		870,590		810,821		786,211

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	Regulated Gas
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	1,204,033	$	1,465,956	$	1,261,970
Intersegment revenues		2,874		3,181		6,113
Depreciation and amortization		76,106		72,050		66,780
Income tax expense		65,946		73,768		64,942
Operating income		173,317		179,823		176,171
Interest charge		71,262		72,068		66,498
Changes in accounting principles		-		-		-
Total assets		2,902,813		2,711,008		2,607,624
Construction expenditures		200,981		169,739		140,702

	Regulated Steam
	2002			2001		2000

	(Thousands of Dollars)
Operating revenues	$	404,044		$	503,736	$	452,135
Intersegment revenues		1,810			1,903		2,023
Depreciation and amortization		18,330			17,902		18,173
Income tax expense		(4,832	)		5,695		2,407
Operating income		36,046			27,893		25,557
Interest charge		21,950			20,768		18,191
Changes in accounting principles		-			-		-
Total assets		977,315			746,587		686,807
Construction expenditures		82,887			64,308		32,014

	Unregulated Subsidiaries
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	647,279	$	540,577	$	679,573
Intersegment revenues		-		-		-
Depreciation and amortization		22,615		17,356		13,547
Income tax expense		18,998		2,916		10,669
Operating income		33,051		29,675		18,024
Interest charge		15,556		16,863		9,652
Changes in accounting principles		22,061		-		-
Total assets		1,321,519		1,020,602		820,942
Construction expenditures		213,457		163,921		121,214

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	Other
	2002			2001			2000

	(Thousands of Dollars)
Operating revenues	$	(24,392	)	$	(9,333	)	$	(14,582	)
Intersegment revenues		24,392			9,333			14,582
Depreciation and amortization		40			10,821			10,555
Income tax expense		-			-			-
Operating income		990			(12,009	)		(12,576	)
Interest charge		6,024			4,732			3,351
Changes in accounting principles		-			-			-
Total assets		309,861			362,733			265,568
Construction expenditures		-			-			-

	Total
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	8,481,860	$	9,388,799	$	9,317,224
Intersegment revenues		38,688		27,006		76,232
Depreciation and amortization		494,553		526,121		586,407
Income tax expense		398,072		464,532		317,790
Operating income		1,060,137		1,127,558		1,016,136
Interest charge		441,582		430,880		407,445
Changes in accounting principles		22,061		-		-
Total assets		18,820,310		17,034,455		16,767,245
Construction expenditures		1,367,915		1,208,789		1,080,141

Note O - Derivative Instruments and Hedging Activities

Effective January 2001, Con Edison adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133). Upon adoption, Con Edison's subsidiaries recognized after-tax transition gains of $1.7 million in other comprehensive income (OCI) and $0.4 million in current income.

Energy Price Hedging

Con Edison's subsidiaries use derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity and gas (hedges). As of December 31, 2002, the fair value of the derivatives for such use was $38.8 million, comprised of $16.9 million at the regulated utility subsidiaries and $21.9 million at the unregulated subsidiaries.

Con Edison's regulated utility subsidiaries, pursuant to SFAS No. 71, defer recognition in income of gains and losses on hedges until the underlying transactions are completed. In accordance with rate provisions that permit the recovery of the cost of purchased power and gas for resale, Con Edison's regulated utility subsidiaries credit or charge to their customer's gains or losses on hedges and related transaction costs. See "Recoverable Energy Costs" in Note A.

For Con Edison of New York, the 2000 Electric Rate Agreement provides that 10 percent of gains or losses on hedges flow to net income as rewards or penalties. Con Edison of New York has elected cash flow hedge accounting under SFAS No. 133 for a qualifying portion of its electric hedges. Con Edison

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Solutions, which provides competitive gas and electric supply and energy-related products and services, has also elected cash flow hedge accounting.

Pursuant to cash flow hedge accounting, except as described below, the mark-to-market unrealized gain or loss on each hedge is recorded in OCI and reclassified to income at the time the underlying transaction is completed.

Unrealized gains and losses on cash flow hedges for energy transactions, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

	2002		2001

	(Millions of Dollars)
Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $0 and $1.2 taxes	$	-	$	1.7
Unrealized gains/(losses) on derivatives qualified as hedges, net of $19.1 and ($18.8) taxes		27.5		(26.8	)
Less: Reclassification adjustment for gains/(losses) included in net income, net of $1.1 and ($8.6) taxes		1.6		(12.4	)

Unrealized gains/(losses) on derivatives qualified as hedges for the period	$	25.9	($	12.7	)

As of December 31, 2002, the cash flow hedges had a remaining term of less than two years and $13.2 million of existing after-tax net gains relating to these hedges are expected to be reclassified from accumulated OCI to income within the next 12 months.

Under cash flow hedge accounting, any gain or loss relating to any portion of the hedge determined to be "ineffective" is recognized in income in the period in which such determination is made. As a result, changes in value of a hedge may be recognized in income in an earlier period than the period in which the underlying transaction is recognized in income. Con Edison recognized in income mark-to-market unrealized pre-tax net gains of $6.2 million in 2002 and $6.2 million of pre-tax net losses in 2001 relating to hedge ineffectiveness at Con Edison Solutions.

Interest Rate Hedging

Con Edison's subsidiaries use interest rate swaps to manage interest rate exposures associated with debt. In October 2002, Con Edison of New York entered into a swap agreement in connection with its $224.6 million tax-exempt Facilities Revenue Bonds, Series 2001A. Pursuant to the swap agreement provisions, Con Edison of New York pays interest at a variable rate equal to the three-month London Inter-Bank Offered Rate (LIBOR) and is paid interest at a fixed rate of 5.375 percent. The agreement has a term of 10 years and is callable at par after three years. The swap is designated as a fair value hedge and qualifies for "short-cut" hedge accounting under SFAS No. 133. Under this method, changes in the fair value of the swap instrument are recorded directly against the carrying value of the hedged bonds and have no impact on earnings. As of December 31, 2002, the fair value of the interest rate swap was $7.7 million and recorded as an asset and the fair value of the hedged bonds was $232.3 million.

O&R and Con Edison Development use interest rate swaps to convert a portion of their variable-rate debt into fixed-rate debt. The swap agreements, displayed in the table below, are designated as cash flow

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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. At December 31, 2002 and 2001, the fair value of the O&R interest rate swap was a loss of $19.1 million and $14.2 million, respectively, and the fair value of the Con Edison Development interest rate swap was a loss of $9.7 million and $5.7 million, respectively.

The contractual components of the interest rate swaps accounted for as cash flow hedges are as follows:

Debt	Maturity Date of Swaps	Notional Amount ($000)	Fixed Rate Paid		Variable Rate Received

Pollution Control Refunding Revenue Bond, 1994 Series A	2014	55,000	6.09	%	Current bond rate
Variable rate loans - Lakewood	2008	77,500	6.68	%	LIBOR

Unrealized gains and losses on cash flow hedges for interest rate swaps, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

	2002			2001

Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $0 and ($6.8) taxes	$	-		($	9.7	)
Unrealized gains/(losses) on derivatives qualified as hedges, net of ($6.4) and ($3.1) taxes		(9.1	)		(4.4	)
Less: Reclassification adjustment for gains/(losses) included in net income, net of ($2.8) and ($1.7) taxes		(3.9	)		(2.4	)

Unrealized gains/(losses) on derivatives qualified as hedges for the period	($	5.2	)	($	11.7	)

As of December 31, 2002, $3.5 million of existing after-tax losses relating to the interest rate swap agreements are expected to be reclassified from accumulated OCI to income within the next 12 months.

Energy Trading Activities

Unregulated subsidiaries of Con Edison engage in energy trading activities that are accounted for at fair value. Con Edison Energy utilizes commodity contracts such as two-party forward contracts for the purchase or sale of electricity and capacity, over-the-counter swap contracts, exchange-traded natural gas and crude oil futures and options, transmission congestion contracts, natural gas transportation contracts, and other physical and financial contracts.

Prior to October 1, 2002, these contracts were accounted for under FASB's Emerging Issues Task Force (EITF) No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." As of October 1, 2002, energy and energy-related trading contracts that meet the definition of derivatives are accounted for under SFAS No. 133. Such contracts are marked to market, with gains and losses recognized in earnings. For the years ended December 31, 2002 and 2001, Con Edison recognized in income net unrealized pre-tax losses of $1.4 million, excluding the effect of a cumulative adjustment due to a change in accounting principle, and net gains of $9.6 million, respectively. Contracts that did not fall within the scope of SFAS No. 133 were included in the cumulative effect of a change in accounting principle. See Note T for further discussion.

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The fair value of energy trading net assets as of December 31, 2002 and 2001 was $4.9 million and $11.2 million, respectively.

Note P - Northeast Utilities

In March 2001, Con Edison commenced an action in the United States District Court for the Southern District of New York, entitled Consolidated Edison, Inc. v. Northeast Utilities, seeking a declaratory judgment that Northeast Utilities has failed to meet certain conditions precedent to Con Edison's obligation to complete its acquisition of Northeast Utilities pursuant to their agreement and plan of merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000 (the merger agreement). In May 2001, Con Edison amended its complaint. As amended, Con Edison's complaint seeks, among other things, recovery of damages sustained by it as a result of the material breach of the merger agreement by Northeast Utilities, the court's declaration that under the merger agreement Con Edison has no further or continuing obligations to Northeast Utilities and that Northeast Utilities has no further or continuing rights against Con Edison.

In June 2001, Northeast Utilities withdrew the separate action it commenced in March 2001 in the same court and filed as a counter-claim to Con Edison's amended complaint its claim that Con Edison materially breached the merger agreement and that, as a result, Northeast Utilities and its shareholders have suffered substantial damages, including the difference between the consideration to be paid to Northeast Utilities shareholders pursuant to the merger agreement and the market value of Northeast Utilities common stock, expenditures in connection with regulatory approvals and lost business opportunities. Pursuant to the merger agreement, Con Edison agreed to acquire Northeast Utilities for $26.00 per share (an estimated aggregate of not more than $3.9 billion) plus $0.0034 per share for each day after August 5, 2000 through the day prior to the completion of the transaction, payable 50 percent in cash and 50 percent in stock.

Con Edison believes that Northeast Utilities has materially breached the merger agreement, and that Con Edison has not materially breached the merger agreement. Con Edison believes it is not obligated to acquire Northeast Utilities because Northeast Utilities does not meet the merger agreement's conditions that Northeast Utilities perform all of its obligations under the merger agreement. Those obligations include the obligation that it carry on its businesses in the ordinary course consistent with past practice; that the representations and warranties made by it in the merger agreement were true and correct when made and remain true and correct; and that there be no material adverse change with respect to Northeast Utilities.

Both parties have filed motions for summary judgment. Con Edison is unable to predict whether or not any Northeast Utilities related lawsuits or other actions will have a material adverse effect on Con Edison's financial position, results of operations or liquidity.

Note Q - World Trade Center Attack

Con Edison of New York estimates that it will incur $430 million of costs for emergency response, temporary restoration and permanent replacement of electric, gas and steam transmission and distribution facilities damaged as a result of the September 11, 2001 attack on the World Trade Center. Most of

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the costs are expected to be capital in nature. The company estimates that $96 million of the costs will be covered by insurance. In December 2001, Con Edison of New York filed a petition with the PSC for authorization to defer these costs, which the company expects the PSC to permit it to recover from customers, net of any federal reimbursement, insurance payment and tax savings. In August 2002, President Bush signed into law an appropriations bill that authorizes funds, for which the company is eligible to apply, to recover costs it incurred in connection with the attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. At December 31, 2002, the company had capitalized $134 million of such costs as utility plant and deferred $63 million of such costs as a regulatory asset. In addition, at December 31, 2001, the company accrued a regulatory liability to defer recognition in income of an $81.5 million tax refund claim resulting from a casualty loss deduction taken by the company relating to the attack.

Note R - Guarantees

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of certain types of guarantees, a guarantor recognize and account for the fair value of the guarantee as a liability. FIN 45 contains exclusions to this requirement, including the exclusion of a parent's guarantee of its subsidiaries' debt to a third party. FIN 45 is effective on a prospective basis to guarantees issued or modified after December 31, 2002.

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of their subsidiaries. In addition, a Con Edison Development subsidiary has issued guarantees on behalf of entities in which it has an equity interest. Con Edison's guarantees had maximum limits totaling $1.1 billion at December 31, 2002 and 2001, of which $588.2 million and $456.2 million, respectively, were outstanding. Management believes the likelihood that Con Edison would be required to perform with respect to these guarantees is remote. The adoption of FIN 45 is not expected to have a material impact on Con Edison's consolidated financial position, results of operations or liquidity.

The following table summarizes, by type and term, the total maximum amount of guarantees:

	Maximum Amount
Guarantee Type	0-3 years		4-10 years		10 years		Total

	(Thousands of Dollars)
Commodity Transactions	$	611,464	$	31,000	$	17,487	$	659,951
Newington Lease Agreement		-		-		353,333		353,333
Affordable Housing Program		-		56,682		-		56,682
Lease Obligations		1,412		1,375		24,358		27,145
Other Guarantees		5,170		10,392		2,698		18,260

TOTAL	$	618,046	$	99,449	$	397,876	$	1,115,371

Commodity Transactions—Con Edison guarantees payments on behalf of its subsidiaries in order to facilitate physical and financial transactions in gas, pipeline capacity, transportation, oil, electricity and related commodity services. In addition, a Con Edison Development subsidiary guaranteed payment for fuel oil purchases by a foreign generating project in which it has an equity interest. To the extent that

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liabilities exist under the contracts subject to these guarantees, such liabilities are included in the consolidated balance sheet.

Newington Lease Agreement—Con Edison guarantees the payment and performance obligations of a Con Edison Development subsidiary. See Note S.

Affordable Housing Program—Con Edison Development guarantees the repurchase and remarketing obligations of one of its subsidiaries with respect to the debt ($56.7 million, including interest) relating to moderate-income rental apartment properties eligible for tax credits under Section 42 of the Internal Revenue Code. In accordance with EITF Issue No. 94-01, "Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects," neither the rental apartment properties nor the related indebtedness is included on Con Edison's consolidated balance sheet.

Lease Obligations—Con Edison guarantees certain rent payment obligations of its subsidiaries under various property lease agreements for office buildings. Of the maximum guarantee amount, $15.0 million relates to a guarantee given to Con Edison of New York.

Other—Con Edison, Con Edison Development and its subsidiaries also guarantee the following:

•: $15.1 million of guarantees for standby financial letters of credit and comfort letters in connection with investments in energy infrastructure power and cogeneration projects
•: $2.7 million of guarantees for franchise agreements with the City of New York and other localities
•: $0.4 million of letters of credit from financial institutions primarily for security deposits

Note S - Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses the consolidation of variable interest entities (VIE's) by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risks or rewards associated with the VIE. The consolidation requirements apply immediately to VIE's created after January 31, 2003. For VIE's created earlier, the consolidation requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the VIE was established. Con Edison has identified the Newington Project, which is described in the following paragraphs, as a VIE that will require consolidation upon adoption of FIN 46. In addition, Con Edison is evaluating certain other investments to determine if they require consolidation or disclosure upon adoption of FIN 46. These include two LILO transactions that are accounted for as leveraged leases under SFAS No. 13 (see Note J), an investment in the Affordable Housing Program (see Note R), and three investments in power and cogeneration plants with assets of $82.9 million and debt of $42.5 million that are accounted for under the equity method. Con Edison is in the process of

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completing its evaluation but does not expect the results to have a material impact on its consolidated financial position, results of operation or liquidity.

In November 2000, a Con Edison Development subsidiary entered into an operating lease arrangement with Hawkeye L.P. (Lessor) to finance construction of a 525 MW gas-fired electric generating facility in Newington, New Hampshire. In accordance with SFAS No. 13, and related EITF issues (including EITF Issue No. 90-15, "Impact of Non-substantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions" and EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction"), the Newington Project and the related obligations are not included on Con Edison's consolidated balance sheet.

At the expiration of the initial lease term in June 2010, the subsidiary has the option to extend the lease or purchase the project for the then outstanding amounts expended by the Lessor for the project. In the event the subsidiary chooses not to extend the lease or acquire the project, Con Edison has guaranteed a residual value of the Newington Project for an amount not to exceed $239.7 million. The subsidiary also has contingent payment obligations to the Lessor if an event of default should occur during either the construction period or the lease period. If the subsidiary were to default, its obligation would equal up to 100% of the Lessor's investment in the Newington Project, which could exceed the aforementioned residual value guarantee. At December 31, 2002, projected project costs were $353 million. The subsidiary's payment and performance obligations relating to the Newington Project are fully and unconditionally guaranteed by Con Edison. See Note R.

Future minimum rental payments under the Newington Project operating lease are as follows:

	(Millions of Dollars)

2003	$	33.3
2004		33.3
2005		33.3
2006		33.3
2007		33.3
All years thereafter		83.2

Total	$	249.7

Upon adoption of FIN 46, Con Edison will be required to include the Newington Project assets and the related debt on its consolidated balance sheet. Con Edison estimates that this will result in a decrease in annual after tax net income of $3.8 million and increases of $353 million in non-utility plant and long-term debt and other liabilities. Con Edison expects that its maximum exposure to loss would equal the total assets of the project.

Substantial completion on the Newington project occurred in the fourth quarter of 2002. The subsidiary and the construction contractor for this plant have initiated legal proceedings with respect to whether the subsidiary is entitled to damages for a delay in completion of this plant and whether the contractor is entitled to additional project costs. Con Edison does not expect that this dispute will have a material adverse effect on its financial position, results of operations or liquidity.

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Note T - New Financial Accounting Standards

During 2002, the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial Institutions," and SFAS No. 148, "Accounting for Stock-Based Compensation." The FASB also issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002, and Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities," in January 2003. In addition, during 2002, the EITF reached a consensus on several issues within EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."

SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," effective January 1, 2003. This statement also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have an economic impact similar to sale-leaseback transactions and amends certain other authoritative pronouncements, effective May 15, 2002. SFAS No. 146, which was effective January 1, 2003, requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 147, which was effective October 1, 2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS No. 148, which amends SFAS No. 123, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the financial statements disclosure requirements of SFAS No. 123 regarding the method of accounting for stock-based employee compensation and the effects of the method used on reported results. Finally, this statement amends APB No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The amendment of SFAS No. 123 is effective for fiscal years ending after December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. For information about the company's stock-based compensation, see Note M.

The adoption of these statements had no impact on Con Edison's consolidated financial position, results of operations or liquidity.

See Note R for a discussion on FIN 45 and Note S for a discussion on FIN 46.

In June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," which provides that revenue resulting from energy trading contracts, whether realized or unrealized and whether financially or physically settled, should be shown net in the income statement. This ruling became effective for periods ending after July 2002, with reclassification of prior period amounts required. Beginning in the third quarter of 2002, Con Edison is

132

presenting all mark-to-market, realized and unrealized, gains and losses on a net basis. Upon the application of the consensus, comparative financial statements for prior periods were reclassified to conform to the consensus. As a result, Con Edison's non-utility revenues and energy costs were reduced by $245 million in 2001 and $114 million in 2000.

On October 25, 2002, the EITF reached a consensus to rescind EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." As a result, new energy trading and energy-related contracts entered into after October 25, 2002, that do not qualify as derivatives under SFAS No. 133 are not marked to market. All derivative contracts will be accounted for in accordance with SFAS No. 133. Therefore, previously recognized mark-to-market gains and losses on non-derivative contracts must be reversed upon adoption of this consensus. The effective date for the full rescission of EITF 98-10 was January 1, 2003, with early application permitted. Con Edison adopted this consensus effective on October 1, 2002 and reported the effect of the transition as a cumulative effect of a change in accounting principle in the after-tax loss amount of $1.9 million.

In October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus was effective January 1, 2003, with early adoption permitted. Con Edison chose to adopt this consensus effective October 1, 2002. The adoption of the consensus had no impact on Con Edison's consolidated financial position, results of operations or liquidity. Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission of EITF Issue No. 98-10.

The EITF did not reach consensus on whether or not recognition of unrealized gains and losses at inception of an energy-trading contract is appropriate. However, the FASB staff observed that unrealized gains or losses at inception should not be recognized unless the fair value of the derivative instrument is evidenced by a quoted market price, similar current market transactions or valuations based on observable market information. For the year ended December 31, 2002, Con Edison's unregulated subsidiaries recognized in income $10.9 million related to unrealized gains at inception of contracts. There were no such amounts in 2001.

Con Edison has also adopted the following accounting standards that were issued in 2001.

On January 1, 2002, Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets." See Note K.

On January 1, 2003 Con Edison adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires entities to record the fair value of a liability associated with an asset retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation for the amount recorded or incur a gain or loss.

133

The adoption of SFAS No. 143 did not have a material impact on Con Edison's consolidated financial position, results of operations or liquidity.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which Con Edison adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting other specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS No. 144 had no impact on Con Edison's consolidated financial position, results of operations or liquidity.

134

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Trustees of Consolidated Edison Company of New York, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Consolidated Edison Company of New York, Inc. and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, NY
February 20, 2003

135

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

			As at
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST (Note A)
	Electric		$	10,834,071	$	10,441,779
	Gas			2,229,894		2,113,664
	Steam			767,831		758,600
	General			1,316,898		1,241,746

	Total			15,148,694		14,555,789
	Less: Accumulated depreciation			4,264,144		4,083,760

	Net			10,884,550		10,472,029
	Construction work in progress			965,629		626,835

NET UTILITY PLANT				11,850,179		11,098,864

NON-UTILITY PLANT (Note A)
	Non-utility property			34,775		29,408

NET PLANT				11,884,954		11,128,272

CURRENT ASSETS
	Cash and temporary cash investments (Note A)			88,081		264,776
	Funds held for the redemption of long-term debt			275,121		-
	Accounts receivable - customers, less allowance for uncollectible
	accounts of $29,200 and $29,400 in 2002 and 2001, respectively			602,376		527,635
	Other receivables			83,795		63,885
	Accounts receivable - from affiliated companies			24,964		27,929
	Fuel, at average cost			18,076		16,719
	Gas in storage, at average cost			63,065		85,534
	Materials and supplies, at average cost			83,368		82,301
	Prepayments			55,673		58,628
	Other current assets			54,056		33,247

TOTAL CURRENT ASSETS				1,348,575		1,160,654

INVESTMENTS (Note A)				3,449		4,950
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
	Accrued pension credits (Note D)			1,024,244		697,807
	Regulatory assets
		Future federal income tax (Notes A and J)		627,891		624,625
		Sale of nuclear generating unit (Note I)		127,231		174,804
		Recoverable energy costs (Note A)		223,507		121,748
		Real estate sale costs - First Avenue properties		134,353		105,407
		Workers' compensation (Note F)		54,266		60,466
		Divestiture - capacity replacement reconciliation (Note I)		28,850		58,850
		Deferred unbilled gas revenue		43,594		43,594
		Deferred environmental remediation costs (Note F)		52,340		22,085
		Deferred retirement program costs		37,644		42,197
		Deferred revenue taxes		72,270		34,404
		World Trade Center restoration costs (Note P)		62,856		32,933
		Deferred asbestos-related costs (Note F)		37,700		4,000
		Other		89,915		52,532

	TOTAL REGULATORY ASSETS			1,592,417		1,377,645

	Other deferred charges and noncurrent assets			164,380		149,490

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS				2,781,041		2,224,942

TOTAL ASSETS			$	16,018,019	$	14,518,818

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

136

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

			As at
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statement of Capitalization and Note B)
	Common shareholders' equity			4,890,486		4,665,805
	Preferred stock (Note B)			212,563		212,563
	Long-term debt			5,394,021		5,011,752

TOTAL CAPITALIZATION				10,497,070		9,890,120

NONCURRENT LIABILITIES
	Obligations under capital leases (Note N)			38,487		41,088
	Accumulated provision for injuries and damages (Note F)			188,097		163,632
	Retiree benefit reserve			107,627		101,759
	Superfund and other environmental costs (Note F)			107,521		93,837
	Other noncurrent liabilities			9,305		12,187

TOTAL NONCURRENT LIABILITIES				451,037		412,503

CURRENT LIABILITIES
	Long-term debt due within one year			425,000		300,000
	Preferred stock to be redeemed in one year			-		37,050
	Accounts payable			743,175		591,135
	Accounts payable to affiliated companies			19,391		7,000
	Customer deposits			208,718		204,873
	Accrued taxes			92,664		141,260
	Accrued interest			79,946		73,311
	System benefit charge			26,980		30,024
	Independent power producer buyout			32,700		33,750
	Accrued wages			76,248		71,177
	Other current liabilities			129,824		112,498

TOTAL CURRENT LIABILITIES				1,834,646		1,602,078

DEFERRED CREDITS AND REGULATORY LIABILITIES
	Accumulated deferred federal income tax (Note J)			2,322,338		2,022,639
	Accumulated deferred investment tax credits (Note A)			105,809		111,925
	Regulatory liabilities
		NYISO reconciliation (Note A)		106,908		92,504
		World Trade Center casualty loss (Note P)		78,787		81,483
		Gain on divestiture (Note I)		37,877		52,784
		Deposit from sale of First Avenue properties		50,000		50,000
		Accrued electric rate reduction (Note A)		38,018		38,018
		DC service incentive		35,293		28,455
		Transmission congestion contracts		124,809		4,896
		Gas rate plan - World Trade Center recovery		36,319		-
		Electric excess earnings		40,000		-
		Other		259,108		131,413

	TOTAL REGULATORY LIABILITIES			807,119		479,553

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES				3,235,266		2,614,117

TOTAL CAPITALIZATION AND LIABILITIES			$	16,018,019	$	14,518,818

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

137

Consolidated Edison Company Of New York, Inc.

CONSOLIDATED INCOME STATEMENT

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
OPERATING REVENUES (Note A)
	Electric	$	5,775,200		$	6,350,360		$	6,467,074
	Gas		1,044,717			1,268,095			1,081,534
	Steam		404,044			503,736			452,135

TOTAL OPERATING REVENUES			7,223,961			8,122,191			8,000,743

OPERATING EXPENSES
	Purchased power		2,622,273			2,818,936			2,988,096
	Fuel		231,807			350,619			322,064
	Gas purchased for resale		471,807			665,964			490,565
	Other operations		751,664			868,092			947,545
	Maintenance		360,639			404,158			430,870
	Depreciation and amortization (Note A)		437,896			465,164			535,179
	Taxes, other than income taxes (Note A)		1,039,427			1,067,370			1,048,509
	Income taxes (Notes A and J)		354,365			435,364			285,847

TOTAL OPERATING EXPENSES			6,269,878			7,075,667			7,048,675

OPERATING INCOME			954,083			1,046,524			952,068

OTHER INCOME (DEDUCTIONS)
	Investment income (Note A)		165			4,230			2,294
	Allowance for equity funds used during construction (Note A)		9,531			1,294			1,086
	Other income		42,154			417			17,669
	Other income deductions		(8,918	)		(12,453	)		(16,223	)
	Income taxes (Notes A and J)		12,607			8,196			(4,079	)

TOTAL OTHER INCOME (DEDUCTIONS)			55,539			1,684			747

INCOME BEFORE INTEREST CHARGES			1,009,622			1,048,208			952,815

	Interest on long-term debt		344,849			359,787			331,426
	Other interest		51,358			32,323			43,224
	Allowance for borrowed funds used during construction (Note A)		(4,425	)		(6,963	)		(5,550	)

NET INTEREST CHARGES			391,782			385,147			369,100

INCOME BEFORE PREFERRED STOCK DIVIDEND			617,840			663,061			583,715

PREFERRED STOCK DIVIDEND REQUIREMENTS			12,458			13,593			13,593

NET INCOME FOR COMMON STOCK		$	605,382		$	649,468		$	570,122

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

138

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

		For the Years Ended December 31,
		2002		2001		2000

		(Thousands of Dollars)
BALANCE, JANUARY 1		$	4,185,575	$	3,995,825	$	3,887,993
INCOME BEFORE PREFERRED STOCK DIVIDEND			617,840		663,061		583,715

TOTAL			4,803,415		4,658,886		4,471,708

DIVIDENDS DECLARED ON CAPITAL STOCK
	Cumulative preferred, at required annual rates		12,458		13,593		13,593
	Common		379,856		459,718		462,290

TOTAL DIVIDENDS DECLARED			392,314		473,311		475,883

BALANCE, DECEMBER 31		$	4,411,101	$	4,185,575	$	3,995,825

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
NET INCOME FOR COMMON STOCK		$	605,382		$	649,468		$	570,122
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
	Minimum pension liability adjustments, net of ($2,550), ($1,402) and ($363) taxes in 2002, 2001 and 2000, respectively		(3,688	)		(1,844	)		(673	)
	Unrealized gains/(losses) on derivatives qualified as hedges, net of $2,348 and ($3,559) taxes in 2002 and 2001, respectively		3,364			(4,938	)		-
	Less: Reclassification adjustment for gains/(losses) included in net income, net of $501 and ($2,087) taxes in 2002 and 2001, respectively		718			(2,983	)		-

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES			(1,042	)		(3,799	)		(673	)

COMPREHENSIVE INCOME		$	604,340		$	645,669		$	569,449

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

139

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

				For the Years Ended December 31,
				2002			2001			2000

				(Thousands of Dollars)
OPERATING ACTIVITIES
	Income before preferred stock dividend			$	617,840		$	663,061		$	583,715
	PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
		Depreciation and amortization			437,896			465,164			535,179
		Deferred income tax (excluding taxes resulting from divestiture of plant)			259,570			(50,078	)		158,743
		Common equity component of allowance for funds used during construction			(9,531	)		(1,294	)		(1,086	)
		Accrued pension credits (net of capitalized amounts)			(262,273	)		(259,107	)		(201,666	)
		Other non-cash charges			51,305			122,217			195,109
	CHANGES IN ASSETS AND LIABILITIES
		Accounts receivable - customers, less allowance for uncollectibles			(74,530	)		216,248			(201,905	)
		Materials and supplies, including fuel and gas in storage			20,045			(15,929	)		(8,722	)
		Prepayments, other receivables and other current assets			(35,010	)		132,651			(147,628	)
		Recoverable energy costs			(101,759	)		152,540			(195,638	)
		Accounts payable			152,040			(280,007	)		374,245
		Retiree benefit reserve			5,868			(3,365	)		28,317
		Accrued taxes			(48,596	)		91,751			26,237
		Accrued interest			6,635			(4,919	)		26,649
		Deferred charges and regulatory assets			(100,985	)		754			(44,145	)
		Deferred credits and regulatory liabilities			195,433			37,909			(73,730	)
		Transmission congestion contracts			119,913			4,896			-
		Other assets			13,732			(16,723	)		4,514
		Other liabilities			68,070			49,842			10,896

NET CASH FLOWS FROM OPERATING ACTIVITIES					1,315,663			1,305,611			1,069,084

INVESTING ACTIVITIES
		Construction expenditures			(1,164,263	)		(1,044,660	)		(951,328	)
		Cost of removal less salvage			(122,130	)		(99,106	)		(130,590	)
		Common equity component of allowance for funds used during construction			9,531			1,294			1,086
		Nuclear fuel expenditures			-			(6,111	)		(27,357	)
		Contributions to nuclear decommissioning trust			-			(89,185	)		(21,301	)
		Divestiture of utility plant (net of federal income tax)			-			671,473			-
		Demolition and remediation costs for First Avenue properties			(2,161	)		(2,398	)		(101,935	)
		Deposit received from sale of First Avenue properties			-			-			50,000

NET CASH FLOWS USED IN INVESTING ACTIVITIES					(1,279,023	)		(568,693	)		(1,181,425	)

FINANCING ACTIVITIES
		Repurchase of common stock			-			-			(29,454	)
		Net repayments of short-term debt			-			(139,969	)		(355,402	)
		Issuance of long-term debt			800,000			722,600			975,000
		Retirement of long-term debt			(300,000	)		(300,000	)		(275,000	)
		Redemption of preferred stock			(37,050	)		-			-
		Advance refunding of long-term debt			(275,121	)		(328,150	)		-
		Issuance and refunding costs			(7,588	)		(23,218	)		(5,468	)
		Common stock dividends			(380,652	)		(459,954	)		(462,728	)
		Preferred stock dividends			(12,924	)		(13,724	)		(13,367	)

NET CASH FLOWS USED IN FINANCING ACTIVITIES					(213,335	)		(542,415	)		(166,419	)

CASH AND TEMPORARY CASH INVESTMENTS:

NET CHANGE FOR THE PERIOD					(176,695	)		194,503			(278,760	)

BALANCE AT BEGINNING OF PERIOD					264,776			70,273			349,033

BALANCE AT END OF PERIOD				$	88,081		$	264,776		$	70,273

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
		Cash paid during the period for:
			Interest	$	336,593		$	360,219		$	313,056
			Income taxes		219,420			220,752			141,823

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

140

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CAPITALIZATION

				Shares outstanding
				December 31, 2002	December 31, 2001	Years Ended December 31,
				December 31, 2002	December 31, 2001	2002			2001

						(Thousands of Dollars)
COMMON SHAREHOLDER'S EQUITY (NOTE B)
	Common stock, $2.50 par value, authorized 340,000,000 shares			235,488,094	235,488,094	$	1,482,341		$	1,482,341
	Retained earnings						4,411,101			4,185,575
	ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
			Minimum pension liability adjustments, net of ($4,315) and ($1,765) taxes in 2002 and 2001, respectively				(6,205	)		(2,517	)
			Unrealized gains/(losses) on derivatives qualified as hedges, net of ($1,211) and ($3,559) taxes in 2002 and 2001, respectively				(1,574	)		(4,938	)
			Less: Reclassification adjustments for gains/(losses) included in net income, net of ($1,586) and ($2,087) taxes in 2002 and 2001, respectively				(2,265	)		(2,983	)

TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES							(5,514	)		(4,472	)

REPURCHASED CONSOLIDATED EDISON, INC. COMMON STOCK							(962,092	)		(962,092	)
Capital stock expense							(35,350	)		(35,547	)

TOTAL COMMON SHAREHOLDER'S EQUITY							4,890,486			4,665,805

PREFERRED STOCK (NOTE B)
		Subject to mandatory redemption Cumulative Preferred, $100 par value, 6¹/8% Series J		-	370,500		-			37,050

TOTAL SUBJECT TO MANDATORY REDEMPTION							-			37,050

OTHER PREFERRED STOCK
	$5 Cumulative Preferred, without par value, authorized 1,915,319 shares			1,915,319	1,915,319		175,000			175,000
	Cumulative Preferred, $100 par value, authorized 6,000,000 shares*
			4.65% Series C	153,296	153,296		15,330			15,330
			4.65% Series D	222,330	222,330		22,233			22,233

TOTAL OTHER PREFERRED STOCK							212,563			212,563

TOTAL							212,563			249,613
Less: Preferred stock due within one year							-			37,050

TOTAL PREFERRED STOCK						$	212,563		$	212,563

*: Represents total authorized shares of cumulative preferred stock, $100 par value, including preferred stock subject to mandatory redemption.
The accompanying notes are an integral part of these financial statements.

141

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CAPITALIZATION

Long-term debt (Note B)				At December 31,
Long-term debt (Note B)		Interest Rate
Maturity		Interest Rate	Series	2002			2001

				(Thousands of Dollars)
DEBENTURES:
	2002	6⁵/8	1993C		-			150,000
	2002	2.06*	1997A		-			150,000
	2003	6³/8	1993D		150,000			150,000
	2004	7⁵/8	1992B		150,000			150,000
	2005	6⁵/8	1995A		100,000			100,000
	2005	6⁵/8	2000C		350,000			350,000
	2007	6.45	1997B		330,000			330,000
	2008	6¹/4	1998A		180,000			180,000
	2008	6.15	1998C		100,000			100,000
	2009	7.15	1999B		200,000			200,000
	2010	8¹/8	2000A		325,000			325,000
	2010	7¹/2	2000B		300,000			300,000
	2012	5⁵/8	2002A		300,000			-
	2013	4⁷/8	2002B		500,000			-
	2023	7¹/2	1993G		380,000			380,000
	2026	7³/4	1996A		100,000			100,000
	2028	7.1	1998B		105,000			105,000
	2028	6.9	1998D		75,000			75,000
	2029	7¹/8	1994A		150,000			150,000
	2039	7.35	1999A		275,000			275,000
	2041	7¹/2	2001A		400,000			400,000

TOTAL DEBENTURES					4,470,000			3,970,000

TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR FACILITIES REVENUE BONDS:
	2020	5¹/4	1993B		127,715			127,715
	2020	6.10	1995A		128,285			128,285
	2022	5³/8	1993C		19,760			19,760
	2028	6.00	1993A		101,000			101,000
	2029	7¹/8	1994A		100,000			100,000
	2034	1.35**	1999A		292,700			292,700
	2036	4.70	2001A***		232,302			224,600
	2036	1.37**	2001B		98,000			98,000

TOTAL TAX-EXEMPT DEBT					1,099,762			1,092,060

SUBORDINATED DEFERRABLE INTEREST DEBENTURES:
	2031	7³/4	1996A		275,000			275,000

UNAMORTIZED DEBT DISCOUNT					(25,741	)		(25,308	)

TOTAL					5,819,021			5,311,752
LESS: LONG-TERM DEBT DUE WITHIN ONE YEAR					425,000			300,000

TOTAL LONG-TERM DEBT					5,394,021			5,011,752

TOTAL CAPITALIZATION				$	10,497,070		$	9,890,120

*: 2.06% rate shown for the period March 15, 2002 - June 14, 2002.
**: Rates reset weekly or by auction held every 35 days; December 31, 2002 rate shown.
***: See Note O
The accompanying notes are an integral part of these financial statements.

142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

These notes form an integral part of the accompanying consolidated financial statements of Consolidated Edison Company of New York, Inc. (Con Edison of New York or the Company) and its subsidiaries.

Con Edison

Consolidated Edison, Inc. (Con Edison) is the parent holding company for Con Edison of New York. Con Edison owns all the issued and outstanding shares of common stock, $2.50 par value, of Con Edison of New York.

Con Edison of New York, a regulated utility, provides electric service to over 3.1 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

The Company's consolidated financial statements include the accounts of Con Edison of New York and its consolidated subsidiaries.

Accounting Policies

The accounting policies of the Company conform to accounting principles generally accepted in the United States of America. For regulated public utilities, like Con Edison of New York, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the New York State Public Service Commission (PSC).

The Company's principal regulatory assets and liabilities are detailed on the consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for which a cash outflow has been made, and is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. Regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the PSC.

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The standards in SFAS No. 101, "Regulated Enterprises—Accounting for the Discontinuation of Application of FASB Statement No. 71," have been applied to the Company's electric supply business, including electric generating assets (see Note I) and non-utility generator (NUG) contracts (see Note H) and related regulatory assets and liabilities, following the 1997 Restructuring Agreement (defined below). The application of SFAS No. 101 to the electric supply business had no material effect on the financial position, results of operations or liquidity of the Company.

Other significant accounting policies of the Company are referenced in Note D (Pension Benefits), Note E (Other Postretirement Benefits), Note N (Leases) and Note O (Derivative Instruments and Hedging Activities) to the financial statements.

Rate and Restructuring Agreements

Electric

In September 1997, the PSC approved a restructuring agreement between Con Edison of New York, the PSC staff and certain other parties (the 1997 Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access plan, a rate plan for the period ended March 31, 2002, a reasonable opportunity for recovery of "strandable costs" and the divestiture of electric generation capacity by the Company.

At December 31, 2002, approximately 163,000 Con Edison of New York customers representing approximately 25 percent of aggregate customer load were purchasing electricity from other suppliers under the electric retail access program (which is available to all of the Company's electric customers). The Company delivers electricity to customers in this program through its regulated transmission and distribution systems. In general, the Company's delivery rates for retail access customers are equal to the full-service rates applicable to other comparable Con Edison of New York customers, less an amount reflecting costs otherwise associated with supplying customers with energy and capacity.

Pursuant to the 1997 Restructuring Agreement, the Company reduced electric rates, on an annual basis, by $129 million in 1998, $80 million in April 1999, $103 million in April 2000 and $209 million in April 2001. The effect of the April 2001 decrease for the rate year ended March 31, 2002 was partially offset by recognition in income of $36 million relating to rates for distributing electricity to customers of the New York Power Authority (NYPA) and $50 million (after tax) of deferred generation divestiture gain. Rates were also reduced, on an annual basis, effective September 2001 by $313 million to reflect the divestiture of the nuclear generating facility and the Roseton generating plant, which resulted in a reduction in operating and other expenses. See Note I.

Pursuant to the 1997 Restructuring Agreement, as amended by a July 1998 PSC order, the Company sold approximately 7,790 MW of the approximately 8,300 MW of generating capacity that it owned at the time the 1997 Restructuring Agreement was executed. See Note I.

In November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revises and extends the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000 Electric Rate Agreement, the Company reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

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In general, under the 2000 Electric Rate Agreement, the Company's base electric transmission and distribution rates will not otherwise be changed during the five-year period ending March 2005 except (i) with respect to certain changes in costs above anticipated annual levels resulting from legal or regulatory requirements, inflation in excess of a 4 percent annual rate, property tax changes and environmental cost increases or (ii) if the PSC determines that circumstances have occurred that either threaten the Company's economic viability or ability to provide, safe and adequate service, or render the Company's rate of return unreasonable for the provision of safe and adequate service.

Under the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through 2005 above a specified rate of return on electric common equity will be retained for shareholders and the balance will be applied for customer benefit as determined by the PSC. As of December 31, 2002, the Company established an electric shared earnings reserve of $40 million for the rate year ending March 2003. There was no sharing of earnings for the rate years ended March 2002 and 2001. The earnings threshold for rate years ending March 2003 through March 2005 of 11.75 percent can be increased up to 50 basis points. The threshold will increase by 25 basis points if certain demand reductions and supply increases exceed targeted projections and by an additional 25 basis points if certain customer service and reliability objectives are achieved. The Company could be required to pay up to $40 million annually in penalties if certain threshold service and reliability objectives are not achieved.

Con Edison of New York's potential electric strandable costs are utility investments and commitments that may not be recoverable in a competitive electric supply market. The Company is recovering these costs in the rates it charges all of its electric customers. The 2000 Electric Rate Agreement continues the stranded cost recovery provisions of the 1997 Restructuring Agreement, stating that the Company "will be given a reasonable opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments, under the parameters and during the time periods set forth therein."

The 2000 Electric Rate Agreement also continues the rate provisions pursuant to which the Company recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy Costs" below.

Gas

Under the 2000 agreement, the rate of return on gas common equity above which the Company shared with customers, 50 percent of earnings was increased from 13 percent to 14 percent. In addition, customer bills were reduced by $20 million during the January through March 2001 period.

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At December 31, 2001, the Company reserved $11.5 million for customers' share of gas earnings in excess of the 14 percent threshold for the rate year ended September 2001. No additional amounts were reserved for the rate year ended September 2002.

During the term of the 2002 agreement, the Company retains 100 percent of the rate year return on equity up to 11.5 percent. If the return on equity is between 11.5 percent and 12.0 percent then 100 percent of the incremental return over 11.5 percent will be set aside for customer benefit. If the return on equity is above 12.0 percent, then 50 percent of the incremental return over 12.0 percent will be retained by shareholders, and the remaining 50 percent will be shared with customers.

Under the 2002 agreement, in May 2002, the Company established a $36.4 million reserve, funded by previously deferred customer credits, to recover unreimbursed costs directly related to the World Trade Center attack.

Steam

In December 2000, the PSC authorized implementation of an agreement between Con Edison of New York, the PSC staff and certain other parties, that provided for a $16.6 million steam rate increase in October 2000 and, with limited exceptions, no further changes in steam rates prior to October 2004. The Company is required to share with customers 50 percent of any earnings for any rate year covered by the agreement above of a specified rate of return on steam common equity (11.0 percent for the first rate year, the 12-month period ended September 2001; 10.5 percent thereafter if the repowering of the Company's East River steam-electric generating plant is not completed). The net revenue effect associated with sales increases related to colder than normal winter weather (November through April) will be excluded from any earnings measurement. Earnings on steam common equity did not exceed the specific rates of return for the rate years ended September 30, 2001 and 2002.

Under the steam rate agreement, upon completion of the project to add incremental generating capacity at the Company's East River steam-electric generating plant, the net benefits of the project (including the net after-tax gain from the sale of a nine-acre development site in mid-town Manhattan along the East River) allocable to steam operations will inure to the benefit of steam customers.

The agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased steam and fuel costs and requires the Company to develop a strategy for hedging price variations for a portion of the steam produced each year.

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Plant and Depreciation

Utility Plant

Rates used for AFDC include the cost of borrowed funds and a reasonable rate on the Company's own funds when so used, determined in accordance with PSC and FERC regulations. The AFDC rate was 6.8 percent in 2002, 6.8 percent in 2001 and 7.2 percent in 2000. The rate is compounded semiannually, and the amounts applicable to borrowed funds were treated as a reduction of interest charges, while the amounts applicable to the regulated utilities' own funds were credited to other income (deductions).

The Company generally computes annual charges for depreciation using the straight-line method for financial statement purposes, with rates based on appropriate average service lives and net salvage factors. The Company's depreciation rates averaged 3.0 percent in 2002, 3.1 percent in 2001 and 3.7 percent in 2000. The estimated lives for utility plant range from 30 to 80 years for electric, 15 to 75 years for gas, 30 to 75 years for steam and 8 to 50 years for general plant.

Non-utility Plant

Non-utility plant is stated at original cost and consists primarily of land and telecommunication facilities that are not currently utilized within utility operations.

Revenues

Con Edison of New York recognizes revenues for electric, gas and steam service on a monthly billing cycle basis. In accordance with regulatory agreements, the Company does not accrue unbilled revenues.

Recoverable Energy Costs

Con Edison of New York generally recovers all of its prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with PSC-approved rate provisions, which also include a $25 million annual incentive or penalty relating to electric costs (see "Energy Price Hedging" in Note O). If the actual energy costs for a given month are more or less than the amounts billed to customers for that month, the difference is recoverable from or refundable to customers. Differences between actual and billed energy costs are generally deferred for charge or refund to customers during the next billing cycle (normally within one or two months). The Company defers all net interruptible gas revenues, not authorized by the PSC to be retained by the Company, for refund to firm gas sales and transportation customers.

The difference between amounts for purchased power initially billed to the Company by the New York Independent System Operator (NYISO) and amounts subsequently determined by the NYISO to have actually been supplied by the NYISO is refunded by the NYISO to the Company, or paid to the NYISO by the Company. The reconciliation payments or receipts are recoverable from or refundable to the

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Company's customers. At December 31, 2002, $106.9 million of refunds received from the NYISO were deferred as a regulatory liability.

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at cost, which approximates market. The Company considers temporary cash investments to be cash equivalents.

Investments

Investments are recorded on the equity method.

Federal Income Tax

In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company has recorded an accumulated deferred federal income tax liability for temporary differences between the book and tax basis of assets and liabilities at current tax rates. In accordance with rate agreements, the Company has recovered amounts from customers for a portion of the tax liability it will pay in the future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining tax liability, in accordance with SFAS No. 71, regulatory assets have been established for the net revenue requirements to be recovered from customers for the related future tax expense (see Note J). In 1993, the PSC issued a Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates.

Accumulated deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction in future federal income tax expense.

Con Edison of New York files a federal income tax return on a consolidated basis with Con Edison and its other subsidiaries. The consolidated income tax liability is allocated to each member of the consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of the consolidated group.

State Income Tax

Con Edison of New York files a combined New York State Corporation Business Franchise Tax Return on a consolidated basis with Con Edison and its other subsidiaries. Similar to a federal consolidated income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of income among the states in which the company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

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Taxes Other Than Income Taxes

The PSC requires the Company to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expense). The recovery of these taxes is part of the PSC approved revenue requirement within each of the respective rate agreements.

Research and Development Costs

Research and development costs relating to specific construction projects are capitalized. All other such costs are charged to operating expenses as incurred. Research and development costs in 2002, 2001 and 2000 amounting to $11.0 million, $13.8 million and $14.0 million, respectively, were charged to operating expenses. No research and development costs were capitalized in these years.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Stock-Based Compensation

Con Edison of New York applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. See Note K. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

	For the Years Ended December 31,
	2002			2001			2000

	(Millions of Dollars)
Net income, as reported	$	605		$	649		$	570
Add: Stock-based compensation expense included in reported net income, net of related tax effects		6			3			1
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(12	)		(6	)		(5	)

Pro forma net income	$	599		$	646		$	566

These pro forma amounts may not be representative of future disclosures due to changes in future market conditions and additional grants in future years.

Estimates

Note B - Capitalization

Common Stock

At December 31, 2002 and 2001, Con Edison owned all of the issued and outstanding shares of common stock ($2.50 par value) of Con Edison of New York. Con Edison of New York owns $962.1 million of

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Con Edison stock, which it purchased in 1998 and 1999 in connection with Con Edison's stock repurchase plan.

Preferred Stock

Con Edison of New York has outstanding 1,915,319 shares of its $5 Cumulative Preferred Stock (the "$5 Preferred") and 375,626 shares of its Cumulative Preferred Stock ($100 par value) at December 31, 2002 and 2001.

Dividends on the $5 Preferred stock are $5 per share per annum, payable quarterly, and dividends on the Cumulative Preferred Stock are $4.65 per share per annum, payable quarterly. The preferred dividends must be declared by Con Edison of New York's Board of Trustees to become payable. See "Dividends" below.

With respect to any corporate action to be taken by a vote of the shareholders of Con Edison of New York, Con Edison of New York has outstanding, 235,488,094 shares of its common stock, and the holders of the $5 Preferred are each entitled to one vote for each share held. Except as otherwise required by law, holders of the Cumulative Preferred Stock have no right to vote; provided, however, that, if the $5 Preferred is no longer outstanding, the holders of the Cumulative Preferred Stock are entitled to one vote for each share with respect to any corporate action to be taken by a vote of the shareholders of Con Edison of New York. In addition, if dividends are in arrears for certain periods the holders are entitled to certain rights with respect to the election of Con Edison of New York's Trustees. Without the consent of the holders of the Cumulative Preferred Stock, the Company may not create or authorize any kind of stock ranking prior to the Cumulative Preferred Stock or, if such actions would affect the holders of the Cumulative Preferred Stock adversely, be a party to any consolidation or merger, create or amend the terms of the Cumulative Preferred Stock or reclassify the Cumulative Preferred Stock. The Company may redeem the $5 Preferred at a redemption price of $105 per share and the Cumulative Preferred Stock at a redemption price of $101 per share (in each case, plus accrued and unpaid dividends). In the event of the dissolution, liquidation or winding up of the affairs of Con Edison of New York, before any distribution of capital assets could be made to the holders of the Company's common stock, the holders of the $5 Preferred and the Cumulative Preferred Stock would each be entitled to receive $100 per share, in the case of an involuntary liquidation, or an amount equal to the redemption price per share, in the case of a voluntary liquidation, in each case together with all accrued and unpaid dividends.

Dividends

In accordance with PSC requirements, the dividends that Con Edison of New York may pay are limited to not more than 100 percent of its income available for dividends, calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison proceeds from major transactions, such as asset sales, or to dividends reducing Con Edison of New York's equity ratio to a level appropriate to its business risk.

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In addition, no dividends may be paid, or funds set apart for payment, on Con Edison of New York's common stock until all dividends accrued on the $5 Preferred Stock and Cumulative Preferred Stock have been paid, or declared and set apart for payment.

Long-Term Debt

Long-term debt maturing in the period 2003-2007 is as follows:

	(Millions of Dollars)

2003	$	425	*
2004		150
2005		450
2006		-
2007		330

*: Includes redemption in advance of maturity of $275 million of the Company's Subordinated Deferrable Interest Debentures Series 1996A in January 2003.

Long-term debt is principally stated at cost, which, as of December 31, 2002, approximates fair value (estimated based on current rates for debt of the same remaining maturities), except for $224.6 million of the Company's tax-exempt financing. See "Interest Rate Hedging" in Note O.

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the debentures of the Company. The tax-exempt financing arrangements of the Company are subject to these covenants and the covenants discussed below.

The tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of the Company to the New York State Energy Research and Development Authority (NYSERDA) in exchange for the net proceeds of a like amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA.

The tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to the use of the facilities financed. The failure to comply with these covenants would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. Certain series of Con Edison of New York's tax-exempt financing (Series 1993A, B and C, Series 1994A and Series 1995A), aggregating $476.8 million, each contain as events of default a default in the payment of the other series and events of default under the Company's mortgage trust indenture (which has been satisfied and discharged). The arrangements for the other series of Con Edison of New York's tax-exempt financing (Series 1999A, 2001A and 2001B), aggregating $615.3 million, include provisions for the maintenance of liquidity and credit facilities, the failure to comply with which would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. If an event of default occurred, the principal and accrued interest on the debt to which such event of default applied may, and in certain circumstances would, become due and payable immediately.

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The liquidity and credit facilities currently in effect for the tax-exempt financing include covenants that the ratio of debt to total capital of the Company does not at any time exceed 0.65 to 1 and that, subject to certain exceptions, the Company shall not mortgage, lien, pledge or otherwise encumber its assets. Certain of the facilities also include as events of default, defaults in payments of other debt obligations in excess of specified levels ($100 million for Con Edison of New York).

Note C - Short Term Borrowing

At December 31, 2002, the Company had a $500 million commercial paper program under which short-term borrowings are made at prevailing market rates. The program is supported by a revolving credit agreement with banks. At December 31, 2002, there was no commercial paper outstanding under the program. The Company changes the amount of its program from time to time, subject to a $1 billion FERC-authorized limit.

Bank commitments under the revolving credit agreement were renewed in November 2002. The commitments may terminate upon a change of control of Con Edison or Con Edison of New York, and borrowings under the agreements are subject to certain conditions, including that the ratio (calculated in accordance with the agreements) of debt to total capital of the borrower not at any time exceed 0.65 to 1. At December 31, 2002, this ratio was 0.53 to 1 for the Company. Borrowings under the agreements are not subject to maintenance of credit rating levels. The fees charged for the revolving credit agreement and borrowing under the agreement reflect the Company's credit rating.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees and retirees of Con Edison of New York. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period. This amortization is in accordance with the Statement of Policy issued by the PSC and is permitted under SFAS No. 87, "Employers' Accounting for Pensions," which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains and losses.

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The components of the Company's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Millions of Dollars)
Service cost - including administrative expenses	$	87.5		$	89.0		$	85.1
Interest cost on projected benefit obligation		412.5			398.2			383.3
Expected return on plan assets		(660.7	)		(632.6	)		(543.6	)
Amortization of net actuarial (gain)		(179.0	)		(198.4	)		(189.7	)
Amortization of prior service cost		13.7			13.2			10.5
Amortization of transition (asset)/obligation		(0.6	)		3.0			3.0

NET PERIODIC BENEFIT COST		(326.6	)		(327.6	)		(251.4	)

Amortization of regulatory asset*		4.2			4.2			17.7

TOTAL PERIODIC BENEFIT COST	$	(322.4	)	$	(323.4	)	$	(233.7	)

Cost capitalized		(64.2	)		(72.0	)		(49.1	)
Cost charged to operating expenses		(258.2	)		(251.4	)		(184.6	)

*: Relates to increases in pension obligations of $33.3 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

The funded status at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Millions of Dollars)
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	5,530.0		$	5,272.3		$	4,915.1
Service cost - excluding administrative expenses		86.2			87.7			83.8
Interest cost on projected benefit obligation		412.5			398.2			383.3
Plan amendments		-			9.5			32.6
Net actuarial loss		282.5			27.7			113.9
Benefits paid		(281.0	)		(265.4	)		(256.4	)

PROJECTED BENEFIT OBLIGATION AT END OF YEAR	$	6,030.2		$	5,530.0		$	5,272.3

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	6,397.5		$	7,077.4		$	7,430.8
Actual return on plan assets		(533.7	)		(391.6	)		(82.5	)
Employer contributions		2.0			1.9			1.5
Benefits paid		(281.0	)		(265.4	)		(256.4	)
Administrative expenses		(21.8	)		(24.8	)		(16.0	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	5,563.0		$	6,397.5		$	7,077.4

Funded status	$	(467.2	)**	$	867.5		$	1,805.1
Unrecognized net loss/(gain)		1,403.0			(273.5	)		(1,547.3	)
Unrecognized prior service costs		77.3			91.0			94.7
Unrecognized net transition (asset)/liability at January 1, 1987*		-			(0.6	)		2.4

NET PREPAID BENEFIT COST	$	1,013.1		$	684.4		$	354.9

*: Being amortized over approximately 15 years
**: As of December 31, 2002, the fair value of plan assets exceeded the accumulated benefit obligation (ABO) by $104 million. The ABO excludes future compensation increases.

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The amounts recognized in the consolidated balance sheet at December 31, 2002 and 2001 were as follows:

	2002			2001

	(Millions of Dollars)
Accrued pension credits	$	1,024.2		$	697.8
Additional minimum pension liability		(10.5	)		(4.7	)
Intangible asset		–			0.4
Accumulated other comprehensive income		10.5			4.3
1993 Special retirement program		(11.1	)		(13.4	)

Net prepaid benefit cost	$	1,013.1		$	684.4

The actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

	2002		2001		2000

Discount Rate	6.75	%	7.50	%	7.75	%
Expected Return on Plan Assets	9.20	%	9.20	%	8.50	%
Rate of Compensation Increase	4.30	%	4.30	%	4.55	%

Con Edison of New York also offers a defined contribution savings plan that covers substantially all of its employees. The Company made contributions to the plan of $15.8 million, $15.7 million and $15.6 million for years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

Con Edison of New York has a contributory comprehensive hospital, medical and prescription drug program for all retirees, their dependents and surviving spouses. The Company also has a contributory life insurance program for bargaining unit employees. In addition, the Company provides basic life insurance benefits up to a specified maximum at no cost to retired management employees.

Certain employees of other Con Edison subsidiaries are eligible to receive benefits under these programs. Con Edison of New York has reserved the right to amend or terminate these programs.

Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

The components of the Company's net periodic postretirement benefit costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Millions of Dollars)
Service cost	$	8.1		$	10.6		$	9.2
Interest cost on accumulated postretirement benefit obligation		79.7			81.3			72.0
Expected return on plan assets		(75.5	)		(70.1	)		(59.1	)
Amortization of net actuarial loss		21.4			9.0			0.3
Amortization of prior service cost		0.0			1.5			1.4
Amortization of transition obligation		5.0			17.4			17.4

NET PERIODIC POSTRETIREMENT BENEFIT COST	$	38.7		$	49.7		$	41.2

Cost capitalized/deferred		9.3			11.0			8.7
Cost charged to operating expenses		29.4			38.7			32.5

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The funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Millions of Dollars)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year	$	1,249.4		$	1,075.8		$	924.0
Service cost		8.1			10.6			9.2
Interest cost on accumulated postretirement benefit obligation		79.7			81.3			72.0
Plan amendments		(305.6	)		-			0.6
Net actuarial loss		150.7			143.6			124.6
Benefits paid and administrative expenses		(82.2	)		(75.7	)		(66.4	)
Participant contributions		15.4			13.8			11.8

BENEFIT OBLIGATION AT END OF YEAR	$	1,115.5		$	1,249.4		$	1,075.8

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	763.5		$	805.0		$	834.4
Actual return on plan assets		(61.3	)		(29.4	)		4.2
Employer contributions		38.6			49.8			21.0
Participant contributions		15.4			13.8			11.8
Benefits paid		(77.7	)		(70.8	)		(61.3	)
Administrative expenses		(4.5	)		(4.9	)		(5.1	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	674.0		$	763.5		$	805.0

Funded status	$	(441.5	)	$	(485.9	)	$	(270.8	)
Unrecognized net (gain)/loss		454.7			188.6			(45.4	)
Unrecognized prior service costs		(147.1	)		8.9			10.4
Unrecognized transition obligation at January 1, 1993*		36.7			191.4			208.8

ACCRUED POSTRETIREMENT BENEFIT COST	$	(97.2	)	$	(97.0	)	$	(97.0	)

*: Being amortized over a period of 20 years and reduced by an additional amount in 2002 due to plan amendments.

The actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

		2002		2001		2000

		(Millions of Dollars)
Discount Rate		6.75	%	7.50	%	7.75	%
EXPECTED RETURN ON PLAN ASSETS
	Tax-exempt assets	9.20	%	9.20	%	8.50	%
	Taxable assets	8.20	%	8.20	%	7.50	%

The health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent for 2009 and remain at that level thereafter.

A one-percentage point change in the assumed health care cost trend rate would have the following effects:

	1-Percentage-Point Increase		1-Percentage-Point Decrease

	(Millions of Dollars)
Effect on accumulated postretirement benefit obligation	$	116.3	$	(103.8	)
Effect on service cost and interest cost components	$	10.6	$	(9.3	)

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Note F - Environmental Matters

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar have been used or generated in the course of operations of the Company and are present in its facilities and equipment currently or previously owned.

The environmental remediation costs for the sites at which Con Edison of New York has been asserted to have liability for remediation under Superfund or similar state statutes, including its manufactured gas sites, (Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs. For sites where there are other potentially responsible parties and the Company is not managing the site investigation and remediation, the liability accrued represents the Company's estimate of what it will need to pay to settle its obligations with respect to the site. For other sites, the liability accrued represents the Company's estimate of its investigation and remediation costs for the site. In either case, the Company makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it has available to it at the time about the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used.

For the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $65 million to $1.1 billion. To develop these estimates, the assumption was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of cleanup required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

At December 31, 2002, the Company had accrued $107.5 million as its estimate of its undiscounted liability for Superfund Sites, including approximately $76 million relating to manufactured gas sites. Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating to the Superfund Sites and other sites, the amount of which is not presently determinable but may be material to Con Edison of New York's financial position, results of operations or liquidity.

In 2002, the Company incurred $21.6 million for environmental remediation costs, and received no insurance recoveries related to Superfund Sites.

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Under the Company's current electric, gas and steam rate agreements site investigation and remediation costs in excess of $5 million annually incurred with respect to hazardous waste for which it is responsible are to be deferred and subsequently reflected in rates. At December 31, 2002, $52.3 million of such costs had been deferred as a regulatory asset.

Suits have been brought in New York State and federal courts against Con Edison of New York 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 Company. The suits that have been resolved, which are many, have been resolved without any payment by Con Edison of New York, or for amounts that were not, in the aggregate, material to the Company. The amounts specified in all the remaining thousands of suits total billions of dollars. However, the Company believes that these amounts are greatly exaggerated, as experienced through the disposition of previous claims. Based upon a combination of modeling, historical data analysis and risk factor assessment, the Company's undiscounted potential liability over the next 50 years is estimated to range between $37.7 million and $162.1 million for these suits and additional such suits that may be brought (with no amount within the range considered more reasonable than any other). At December 31, 2002, the Company had accrued a $37.7 million provision for these suits, and a like amount had been deferred as a regulatory asset in accordance with PSC authorization.

Workers' compensation administrative proceedings have been commenced, wherein current and former employees claim benefits based upon alleged disability from exposure to asbestos. Based on the information and relevant circumstances known to Con Edison of New York, at December 31, 2002, a provision of $125.1 million was accrued as its estimate of its liability for workers' compensation claims, including those related to asbestos exposure. Of this amount, $54.3 million was deferred as a regulatory asset in accordance with PSC authorization.

Note G - Nuclear Generation

In September 2001, Con Edison of New York completed the sale of its nuclear generating facilities. See Note I.

The PSC is investigating the February 2000 to January 2001 outage of the nuclear generating unit, its causes and the prudence of the Company's actions regarding the operation and maintenance of the generating unit. The proceeding covers, among other things, Con Edison of New York's inspection practices, the circumstances surrounding prior outages, the basis for postponement of the unit's steam generator replacement and whether, and to what extent, increased replacement power costs and repair and replacement costs should be borne by Con Edison's shareholders.

Con Edison of New York has not billed to customers $90 million of replacement power costs incurred during the outage. In addition, in 2000, the Company accrued a $40 million liability for the possible disallowance of replacement power costs that it had previously recovered from customers.

The Company is unable to predict whether or not any proceedings, lawsuits, legislation or other actions relating to the nuclear generating unit will have a material adverse effect on its financial position, results of operations or liquidity.

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Note H - Non-Utility Generators

Con Edison of New York has long-term contracts with non-utility generators (NUGs) for approximately 3,100 MW of electric generating capacity. Assuming performance by the NUGs, the Company is obligated over the terms of the contracts (which extend for various periods, up to 2036) to make capacity and other fixed payments.

For the years 2003 through 2007, the capacity and other fixed payments under the contracts are estimated to be $526 million, $530 million, $513 million, $520 million and $531 million. Such payments gradually increase to approximately $600 million in 2013, and thereafter decline significantly. For energy delivered under most of these contracts, the Company is obligated to pay variable prices that are estimated to be lower than expected market levels.

The NUG contracts include firm contracts for capacity (ends 2005) and energy (ends 2004) from the approximately 1,000 MW nuclear generating unit that the Company sold in 2001. For energy from the unit, the Company is obligated to pay an average annual price of 3.9 cents per kWh. From time to time, certain parties have petitioned governmental authorities to shut down the nuclear generating unit. In the event that government authorities did not permit the unit to operate, the unit's owner would not be obligated to provide the Company with power to replace the power the unit would have provided.

Under the terms of its electric rate agreements, the Company is recovering in rates the charges it incurs under mandated contracts with NUGs. The 2000 Electric Rate Agreement provides that, following March 31, 2005, the Company will be given a reasonable opportunity to recover, through a non-bypassable charge to customers, the amount, if any, by which the actual costs of its purchases under the contracts exceed market value. The PSC specifically approved rate recovery of the nuclear energy purchase.

Note I - Generation Divestiture

Pursuant to restructuring agreements approved by the PSC (see "Rate and Restructuring Agreements" in Note A). The Company has divested all of its electric generating assets other than approximately 630 MW of electric generating stations located in New York City. The Company sold approximately 6,300 MW of electric generating assets in 1999 and approximately 1,480 MW in 2001.

Pursuant to the 2000 Electric Rate Agreement, the net after-tax gain (including interest accrued thereon) from Con Edison of New York's 1999 generation divestiture was applied in 2000 as follows: $188.2 million was credited against electric distribution plant balances; $107.3 million was used to offset a like amount of regulatory assets (including deferred power contract termination costs); $50 million (after tax) was deferred for recognition in income during the 12 months ended March 31, 2002; and $12 million was deferred to be used for low-income customer programs. In addition, $30 million of employee retirement incentive expense related to the generation divestiture was deferred for amortization over 15 years and $15 million of such expenses was charged to income in 2000.

The 2000 Electric Rate Agreement provides for the Company to amortize to income recovery of a $74 million regulatory asset representing incremental electric capacity costs incurred prior to May 2000 to purchase capacity from the buyers of the generating assets the Company sold in 1999. Amortization to

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income will take place in years in which the Company would otherwise share excess earnings with customers, in amounts corresponding to the Company's share of the excess earnings. By March 2005, any remaining unrecovered balance will be charged to expense. Of this amount, $30 million dollars was charged to expense in 2002 and $15 million was expensed in 2001.

In January 2001, Con Edison of New York completed the sale of its 480 MW interest in the jointly- owned Roseton generating station for $138 million. The net after-tax gain from the sale, which has been deferred as a regulatory liability, was $37.1 million. In September 2001, the Company completed the sale of its approximately 1,000 MW nuclear generating plant and related assets for $504.5 million. The proceeds were net of a $73.8 million payment to increase the value of the nuclear decommissioning trust funds being transferred to $430 million (the amount provided for in the sales agreement). The net after-tax loss from the sale, which was been deferred as a regulatory asset, was $174.8 million at December 31, 2001 and $127.2 million at December 31, 2002. The Company was authorized, effective September 2001, to continue to recover the cost of the deferred nuclear assets, which is included in rates, and to amortize the regulatory asset, until the loss on divestiture has been recovered. The 2000 Electric Rate Agreement provides that the Company "will be given a reasonable opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments."

Note J - Income Tax

The components of income tax are as follows:

			For the Year Ended December 31
			2002			2001			2000

			(Thousands of Dollars)
Charge/(benefit) to operations:
State
	Current		$	(2,267	)	$	72,547		$	22,233
	Deferred - net			87,187			64,887			-
Federal
	Current			92,090			404,859			111,081
	Deferred - net			183,471			(99,929	)		160,488
	Amortization of investment tax credit			(6,116	)		(7,000	)		(7,955	)

		TOTAL CHARGE TO OPERATIONS		354,365			435,364			285,847

Charge/(benefit) to other income:
State
	Current		$	(1,697	)	$	1,342		$	(864	)
	Deferred - net			(1,067	)		139			-
Federal
	Current			(5,938	)		(1,502	)		(1,267	)
	Deferred - net			(125	)		(6,348	)		6,210
	Amortization of investment tax credit			(3,780	)		(1,827	)		-

		TOTAL BENEFIT TO OTHER INCOME		(12,607	)		(8,196	)		4,079

TOTAL			$	341,758		$	427,168		$	289,926

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The tax effect of temporary differences, which gave rise to deferred tax assets and liabilities, is as follows:

			For the Year Ended December 31,
			2002			2001

			(Thousands of Dollars)
Liabilities:
	Depreciation		$	1,447.3		$	1,253.6
	Regulatory Liability - Future Federal income tax			627.9			624.6
	Other			388.5			264.3

		TOTAL LIABILITIES		2,463.7			2,142.5

Assets:
	Other			(141.4	)		(119.9	)

		TOTAL ASSETS		(141.4	)		(119.9	)

NET LIABILITY			$	2,322.3		$	2,022.6

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

		For the Year Ended December 31,
		2002		2001		2000

		(% of Pre-tax income)
Statutory tax rate		35	%	35	%	35	%
	Federal
Changes in computed taxes resulting from:
	State Income Tax	6		9		2
	Depreciation related differences	5		4		4
	Cost of removal	(5	)	(4	)	(7	)
	Other	(5	)	(4	)	(1	)

Effective Tax Rate		36	%	40	%	33	%

Note K - Stock-Based Compensation

Con Edison maintains a stock option plan (the Plan) that covers employees of Con Edison of New York. Options may be granted to officers and key employees of Con Edison and its subsidiaries, for up to a total 10 million shares of Con Edison's common stock. Generally, options become exercisable three years after the grant date and remain exercisable until 10 years from the grant date.

As permitted by SFAS No. 123, the Company elected to follow APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock options. Under the intrinsic value method of APB No. 25, "Accounting for Stock Issued to Employees," no compensation expense is recognized because the exercise price of Con Edison's employee stock options equals the market price of the underlying stock on the date of grant.

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by those officers may be settled by the cash settlement method. A $3.3 million charge to expense was recognized for Con Edison of New York in 2002 for these options. Additional changes to expense will be recognized with respect to these options to the extent the fair market value of the common shares change in future periods.

Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and Disclosures." See "Stock-Based Compensation" in Note A for an illustration of the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2002	2001	2000

Risk-free interest rate	5.08%	5.22%	6.25%
Expected lives—in years	6	8	8
Expected stock volatility	21.43%	21.32%	20.51%
Dividend yield	5.22%	5.83%	6.60%

A summary of changes in the status of stock options awarded to officers and employees of the Company as of December 31, 2002, 2001 and 2000 is as follows:

		Shares		Weighted Average Price

Outstanding at 12/31/99		3,433,410		$	39.313
	Granted	1,166,500			32.499
	Exercised	(68,697	)		29.732
	Forfeited	(46,100	)		39.231

Outstanding at 12/31/00		4,485,113			37.682
	Granted	1,287,550			37.760
	Exercised	(363,013	)		29.740
	Forfeited	(63,200	)		41.414

Outstanding at 12/31/01		5,346,450			38.215
	Granted	1,349,850			42.510
	Exercised	(413,199	)		30.793
	Forfeited	(116,950	)		44.491

Outstanding at 12/31/02		6,166,151		$	39.532

The following summarizes the Plan's stock options outstanding at December 31, 2002:

Plan Year	Weighted Average Exercise Price		Shares Outstanding At 12/31/02	Remaining Contractual Life

2002	$	42.510	1,347,350	9 years
2001		37.760	1,278,050	8 years
2000		32.499	1,143,250	7 years
1999		47.873	1,098,200	6 years
1998		42.610	738,650	5 years
1997		31.500	395,526	4 years
1996		27.875	165,125	3 years

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As of December 31, 2002, 2001 and 2000 there were vested options outstanding to purchase 1,299,301, 939,850 and 1,304,863 shares of common stock, respectively, at an exercise price below the closing market price on that day. The weighted average exercise prices were $37.33, $30.11 and $31.50, respectively.

As of December 31, 2002, 2001 and 2000 the total number of vested options outstanding were 2,397,501, 1,765,200 and 1,304,863 with weighted average exercise prices of $42.16, $35.90 and $31.50, respectively.

Pursuant to employment agreements, effective September 2000, certain senior officers of Con Edison of New York were granted an aggregate of 350,000 restricted stock units, subject to the officers meeting the terms and conditions of the agreements. In June 2002, an additional 130,000 restricted stock units were granted to certain senior officers of Con Edison of New York under similar terms. The units, each of which represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or immediately upon the occurrence of certain events. Pursuant to APB No. 25, Con Edison is recognizing compensation expense and accruing a liability for the units over the vesting period. The expense recognized for restricted stock during 2002, 2001 and 2000 was $4.2 million, $3.1 million and $0.9 million, respectively.

Note L - Financial Information by Business Segment

Con Edison of New York's business segments were determined based on similarities in economic characteristics, the regulatory environment and management's reporting requirements. The principal business segments are:

•: Regulated Electric - consists of regulated utility activities relating to the generation, transmission, distribution and sale of electricity in New York.
•: Regulated Gas - consists of regulated utility activities relating to the transportation, storage, distribution and sale of natural gas in New York.
•: Regulated Steam - consists of regulated utility activities relating to the generation, distribution and sale of steam in New York.

All revenues of the business segments are from customers located in the United States of America. Also, all assets of its business segments are located in the United States of America. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See Note A.

Common services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

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The financial data for business segments are as follows:

	Regulated Electric
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	5,775,200	$	6,350,360	$	6,467,074
Intersegment revenues		9,612		11,716		11,541
Depreciation and amortization		351,581		383,100		456,727
Income tax expense		297,657		359,437		219,598
Operating income		759,227		851,953		761,431
Interest charge		306,312		300,725		292,841
Total assets		12,446,032		11,355,992		11,557,815
Construction expenditures		826,439		766,250		752,460

	Regulated Gas
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	1,044,717	$	1,268,095	$	1,081,534
Intersegment revenues		2,874		3,181		3,113
Depreciation and amortization		67,985		64,162		60,279
Income tax expense		61,540		70,232		63,842
Operating income		158,810		166,678		165,080
Interest charge		63,520		63,654		58,068
Total assets		2,594,672		2,416,239		2,303,319
Construction expenditures		185,407		152,729		123,174

	Regulated Steam
	2002			2001		2000

	(Thousands of Dollars)
Operating revenues	$	404,044		$	503,736	$	452,135
Intersegment revenues		1,810			1,903		2,023
Depreciation and amortization		18,330			17,902		18,173
Income tax expense		(4,832	)		5,695		2,407
Operating income		36,046			27,893		25,557
Interest charge		21,950			20,768		18,191
Total assets		977,315			746,587		686,807
Construction expenditures		82,887			64,308		32,014

	Total
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	7,223,961	$	8,122,191	$	8,000,743
Intersegment revenues		14,296		16,800		16,677
Depreciation and amortization		437,896		465,164		535,179
Income tax expense		354,365		435,364		285,847
Operating income		954,083		1,046,524		952,068
Interest charge		391,782		385,147		369,100
Total assets		16,018,019		14,518,818		14,547,941
Construction expenditures		1,094,733		983,287		907,648

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Note M - Related Party Transactions

Con Edison of New York and Con Edison and its other subsidiaries provide administrative and other services to each other pursuant to cost allocation procedures approved by the PSC. The cost of the services provided by the Company to Con Edison and its other subsidiaries was $30.5 million in 2002, $40.3 million in 2001 and $21.1 million in 2000. Con Edison and its other subsidiaries, including Orange and Rockland Utilities, Inc. (O&R), also provide services to Con Edison of New York. The cost of the services provided to the Company by Con Edison and its other subsidiaries was $24.4 million in 2002, $23.8 million in 2001 and $18.7 million in 2000. In addition, Con Edison of New York and O&R jointly purchase gas, the cost of which is allocated between the companies based on throughput and other factors. For its share of the gas, O&R paid the Company $102.0 million in 2002, $140.9 million in 2001 and $103.9 million in 2000.

In February 2002 the FERC authorized Con Edison of New York to lend funds to O&R, for periods of not more than 12 months, in amounts not to exceed $150 million outstanding at any time, at prevailing market rates. Through December 31, 2002, O&R has not borrowed any funds from the Company.

Note N - Leases

The principal kinds of property leased by the Company include office buildings, transmission and distribution facilities, and equipment. In accordance with SFAS No. 13, "Accounting for Leases," these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair rental value for future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

			2002		2001

			(Millions of Dollars)
UTILITY PLANT
	Production		$	-	$	-
	Transmission			12.1		13.5
	Common			29.0		29.7

		TOTAL	$	41.1	$	43.2

CURRENT LIABILITIES			$	2.6	$	2.1
NON-CURRENT LIABILITIES				38.5		41.1

TOTAL LIABILITIES			$	41.1	$	43.2

The accumulated amortization of the capital leases was $28.8 million and $26.8 million as of December 31, 2002 and 2001, respectively.

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The future minimum lease commitments for the above assets are as follows:

	(Millions of Dollars)


2003	$	7.8
2004		7.5
2005		7.3
2006		7.2
2007		7.1
All years thereafter		35.1

Total	$	72.0
Less: amount representing interest		30.9

Present value of net minimum lease payments	$	41.1

Operating leases: In 2002, the Company made payments under non-cancelable operating lease agreements amounting to $36.9 million, of which $27.5 million related to transformer vault rentals. The payments applicable to transformer vault rentals are expected to escalate by 5 percent per year until the agreement expires in 2004, at which time a new long-term lease is expected to be signed. The future minimum lease commitments for operating lease agreements are as follows:

	(Millions of Dollars)


2003	$	37.8
2004		38.5
2005		8.2
2006		5.8
2007		4.8
All years thereafter		20.8

Total	$	115.9

Note O - Derivative Instruments and Hedging Activities

Effective January 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133).

Energy Price Hedging

The Company uses derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity and gas (hedges). As of December 31, 2002 and December 31, 2001, the fair value of the derivatives for such use was a gain of $15.8 million and a loss of $10.3 million, respectively.

Pursuant to SFAS No. 71, the Company defers recognition in income of gains and losses on a hedge until the underlying transaction is completed. In accordance with rate provisions that permit the recovery of the cost of purchased power and gas purchased for resale, the Company credits or charges to its customers gains or losses on hedges and related transaction costs. See "Recoverable Energy Costs" in Note A.

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The Company's 2000 Electric Agreement provides that 10 percent of gains or losses on hedges flow to net income as rewards or penalties. The Company has elected cash flow hedge accounting under SFAS No. 133 for a qualifying portion of its electric hedges.

Pursuant to cash flow hedge accounting, the mark-to-market unrealized gain or loss on each hedge is recorded in other comprehensive income (OCI) and reclassified to income at the time the underlying transaction is completed. However, any gain or loss relating to any portion of a hedge determined to be "ineffective" is recognized in income in the period in which such determination is made.

Unrealized gains and losses on cash flow hedges for energy transactions, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

	2002		2001

	(Millions of Dollars)
Unrealized gains/(losses) on derivatives qualifed as hedges, net of $2.3 and ($3.6) taxes	$	3.4	$	(4.9	)
Less: Reclassification adjustment for gains/(losses) included in net income, net of $0.5 and ($2.1) taxes		0.7		(3.0	)

Unrealized gains/(losses) on derivatives qualifed as hedges for the period	$	2.7	$	(1.9	)

As of December 31, 2002, $0.6 million of after-tax net gains relating to hedges are expected to be reclassified from accumulated OCI to income within the next 12 months.

Interest Rate Hedging

In October 2002, the Company entered into a swap agreement in connection with its $224.6 million tax-exempt Facilities Revenue Bonds, Series 2001A. Pursuant to the swap agreement provisions, the Company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate of 5.375 percent. The agreement has a term of 10 years and is callable at par after three years. The swap is designated as a fair value hedge and qualifies for "short-cut" hedge accounting under SFAS No. 133. Under this method, changes in the fair value of the swap instrument are recorded directly against the carrying value of the hedged bonds and have no impact on earnings. As of December 31, 2002, the fair value of the interest rate swap was $7.7 million and recorded as an asset and the fair value of the hedged bond was $232.3 million.

Note P - World Trade Center Attack

The Company estimates that it will incur $430 million of costs for emergency response, temporary restoration and permanent replacement of electric, gas and steam transmission and distribution facilities damaged as a result of the September 11, 2001 attack on the World Trade Center. Most of the costs are expected to be capital in nature. The Company estimates that $96 million of the costs will be covered by insurance. In December 2001, Con Edison of New York filed a petition with the PSC for authorization to defer these costs. The Company expects the PSC to permit recovery from customers of the costs, net of any Federal reimbursement, insurance payment and tax savings. In August 2002, President Bush signed into law an appropriations bill that authorizes funds for which the Company is eligible to apply to recover costs it incurred in connection with the attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. At December 31, 2002, $134.4 million of such costs

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as utility plant were capitalized and $62.9 million of such costs were deferred as a regulatory asset. In addition, at December 31, 2001, the Company accrued a regulatory liability to defer recognition in income of an $81.5 million tax refund claim resulting from a casualty loss deduction taken by the Company relating to the attack.

Note Q - New Financial Accounting Standards

During 2002 the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial Institutions," and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." The FASB also issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002, and Interpretation No. 46, "Consolidation of Variable Interest Entities," in January 2003. In addition, during 2002, the FASB's Emerging Issues Task Force (EITF) reached a consensus on several issues within EITF Issue No. 02-3 "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."

SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," effective January 1, 2003. This statement also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have an economic impact similar to sale-leaseback transactions and amends certain other authoritative pronouncements, effective May 15, 2002. SFAS No. 146, which was effective January 1, 2003, requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 147, which was effective October 1, 2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS No. 148, which amends SFAS No. 123, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the financial statements disclosure requirements of SFAS No. 123 regarding the method of accounting for stock-based employee compensation and the effects of the method used on reported results. Finally, this statement amends APB No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The amendment of SFAS No. 123 is effective for fiscal years ended after December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. For information about the Company's stock-based compensation, see Note K.

The adoption of these statements had no impact on the Company's consolidated financial position, results of operations or liquidity.

167

payments under the guarantee is remote. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective December 15, 2002. The adoption of FIN 45 had no impact on the Company's consolidated financial position, results of operation or liquidity.

Interpretation No. 46 (FIN 46) addresses the consolidation by business enterprises of variable interest entities of which the enterprise is the primary beneficiary. The consolidation requirements apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 is not expected to have any impact on the Company's consolidated financial position, results of operation or liquidity.

In June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3 that revenue resulting from energy trading contracts, whether realized or unrealized and whether financially or physically settled, should be shown net in the income statement. This ruling became effective for periods ending after July 2002, with reclassification of prior period amounts required.

On October 25, 2002, the EITF reached a consensus to rescind EITF Issue No. 98-10. As a result, new energy trading and energy-related contracts entered into after October 25, 2002 that do not qualify as derivatives under SFAS No. 133 are not marked to market. All derivative contracts will be accounted for in accordance with SFAS No. 133. Therefore, previously recognized mark-to-market gains and losses on non-derivative contracts must be reversed upon adoption of this consensus. The effective date for the full rescission of EITF Issue No. 98-10 is January 1, 2003, with early application permitted.

In October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus is effective January 1, 2003, with early adoption permitted. Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission of EITF Issue No. 98-10.

The above consensus had no impact on the Company's consolidated financial position, results of operation or liquidity.

The Company also adopted the following accounting standards that were issued in 2001.

168

acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. Other intangible assets will continue to be amortized over their finite useful lives. The adoption of SFAS No. 142 had no impact on the Company's consolidated financial position, results of operations or liquidity.

SFAS No. 143, "Accounting for Asset Retirement Obligations," which the Company adopted on January 1, 2003, requires entities to record the fair value of a liability associated with an asset retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation for the amount recorded or incur a gain or loss. The Company has not identified any significant asset retirement obligations. The adoption of SFAS No. 143 did not have a material impact on the Company's consolidated financial position, results of operations, or liquidity.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which the Company adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting other specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS No. 144 had no impact on the Company's consolidated financial position, results of operations or liquidity.

169

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors of Orange and Rockland Utilities, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Orange and Rockland Utilities, Inc. and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, NY
February 20, 2003

170

Orange and Rockland Utilities, Inc.

CONSOLIDATED BALANCE SHEET

			As At
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST (Note A)
	Electric		$	734,191	$	703,621
	Gas			300,336		292,066
	General			117,509		112,353

	Total			1,152,036		1,108,040
	Less: accumulated depreciation			405,604		389,234

	Net			746,432		718,806
	Construction work in progress			23,033		27,271

NET UTILITY PLANT				769,465		746,077

NON-UTILITY PLANT (Note A)
	Non-utility property, less accumulated depreciation of $2,055 and $2,339 in 2002 and 2001, respectively			2,541		2,621

NET PLANT				772,006		748,698

CURRENT ASSETS
	Cash and temporary cash investments (Note A)			2,542		1,785
	Accounts receivable – customers, less allowance for uncollectible accounts of $1,725 and $2,625, respectively			53,715		44,371
	Other accounts receivable, less allowance for uncollectible accounts of $1,070 and $860, respectively			3,928		5,166
	Accrued unbilled revenue (Note A)			20,428		20,655
	Gas in storage, at average cost			15,703		21,227
	Materials and supplies, at average cost			5,758		5,563
	Prepayments			11,889		17,776
	Other current assets			9,172		11,532

TOTAL CURRENT ASSETS				123,135		128,075

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
	Regulatory assets
		Recoverable energy costs (Note A)		98,743		87,514
		Deferred pension and other postretirement benefits		46,328		39,599
		Deferred environmental remediation costs (Note F)		30,762		40,474
		Future federal income tax (Note A)		39,368		35,266
		Deferred revenue taxes (Note A)		5,871		6,852
		Other		26,800		29,810

	TOTAL REGULATORY ASSETS			247,872		239,515
	Other deferred charges and noncurrent assets			18,248		19,052

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS				266,120		258,567

TOTAL ASSETS			$	1,161,261	$	1,135,340

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

171

Orange and Rockland Utilities, Inc.

CONSOLIDATED BALANCE SHEET

			As At
			December 31, 2002		December 31, 2001

			(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statement of Capitalization and Note B)
	Common shareholders' equity		$	348,227	$	335,391
	Long-term debt			300,890		335,771

TOTAL CAPITALIZATION				649,117		671,162

NONCURRENT LIABILITIES
	Pension and benefits reserve			98,373		85,607
	Hedges on variable rate long term-debt (Note N)			19,104		14,235
	Superfund and other environmental costs (Note F)			35,279		38,417
	Other noncurrent liabilities			15,944		18,619

TOTAL NONCURRENT LIABILITIES				168,700		156,878

CURRENT LIABILITIES
	Long-term debt due within one year			35,000		-
	Notes payable			1,000		16,600
	Accounts payable			60,501		52,818
	Accounts payable to affiliated companies			3,492		3,113
	Accrued taxes			1,047		3,302
	Customer deposits			12,758		9,248
	Accrued interest			7,994		6,968
	Other current liabilities			8,776		6,878

TOTAL CURRENT LIABILITIES				130,568		98,927

DEFERRED CREDITS AND REGULATORY LIABILITIES
	Accumulated deferred federal income tax (Note K)			133,779		125,108
	Accumulated deferred investment tax credits (Note A)			5,950		6,425
	Regulatory liabilities
		Pensions and other postretirement benefits (Note D)		2,437		6,173
		Refundable energy costs (Note A)		43,651		45,008
		Competition enhancement funds		10,084		10,149
		Gain on divesture		4,530		6,246
		Other		9,749		8,998

	TOTAL REGULATORY LIABILITIES			70,451		76,574
	Other deferred credits			2,696		266

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES				212,876		208,373

TOTAL CAPITALIZATION AND LIABILITIES			$	1,161,261	$	1,135,340

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

172

Orange and Rockland Utilities, Inc.

CONSOLIDATED INCOME STATEMENT

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
OPERATING REVENUES (NOTE A)
	Electric	$	475,462		$	538,375		$	513,016
	Gas		158,838			197,862			183,436
	Non-utility		-			104			4,521

TOTAL OPERATING REVENUES			634,300			736,341			700,973

OPERATING EXPENSES
	Purchased power		220,094			290,333			274,369
	Fuel		-			-			39
	Gas purchased for resale		88,797			128,548			115,325
	Other operations		115,896			115,164			118,099
	Maintenance		26,649			26,133			27,177
	Depreciation and amortization (Note A)		34,002			32,780			27,129
	Taxes, other than income taxes (Note A)		52,398			53,911			55,569
	Income taxes (Notes A and K)		24,804			26,470			22,825

TOTAL OPERATING EXPENSES			562,640			673,339			640,532

OPERATING INCOME			71,660			63,002			60,441

OTHER INCOME (DEDUCTIONS)
	Investment income (Note A)		1,168			1,598			4,846
	Allowance for equity funds used during construction (Note A)		438			(13	)		212
	Other income		144			83			1,822
	Other income deductions		(732	)		(880	)		(1,064	)
	Income taxes (Notes A and K)		438			533			(1,829	)

TOTAL OTHER INCOME (DEDUCTIONS)			1,456			1,321			3,987

INCOME BEFORE INTEREST CHARGES			73,116			64,323			64,428
	Interest on long-term debt		21,218			21,855			22,933
	Other interest		7,302			3,213			2,951
	Allowance for borrowed funds used during construction (Note A)		(300	)		(927	)		(525	)

NET INTEREST CHARGES			28,220			24,141			25,359

NET INCOME FOR COMMON STOCK		$	44,896		$	40,182		$	39,069

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

173

Orange and Rockland Utilities, Inc.

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
BALANCE, JANUARY 1		$	151,792		$	139,610		$	137,535
	Net income for common stock		44,896			40,182			39,069

TOTAL			196,688			179,792			176,604

	Dividends to parent		(28,000	)		(28,000	)		(37,000	)
	Capital stock expense		-			-			6

BALANCE, DECEMBER 31		$	168,688		$	151,792		$	139,610

Orange and Rockland Utilities, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		For the Years Ended December 31,
		2002			2001			2000

		(Thousands of Dollars)
NET INCOME FOR COMMON STOCK		$	44,896		$	40,182		$	39,069
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
	Investment in marketable securities, net of ($854), ($703) and ($454) taxes in 2002, 2001 and 2000, respectively		(1,218	)		(808	)		(843	)
	Minimum pension liability adjustments, net of $14, ($278) and ($340) taxes in 2002, 2001 and 2000, respectively		20			(251	)		(631	)
	Unrealized gains/(losses) on derivatives qualified as hedges due to the cumulative effect of a change in accounting principle, net of ($5,709) taxes in 2001		-			(8,150	)		-
	Unrealized gains/(losses) on derivatives qualified as hedges net of ($3,101) and ($999) taxes in 2002 and 2001, respectively		(4,428	)		(1,427	)		-
	Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,096) and ($844) taxes in 2002 and 2001, respectively		(1,566	)		(1,205	)		-

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES			(4,060	)		(9,431	)		(1,474	)

COMPREHENSIVE INCOME		$	40,836		$	30,751		$	37,595

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

174

Orange and Rockland Utilities, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

				For the Years Ended December 31,
				2002			2001			2000

				(Thousands of Dollars)
OPERATING ACTIVITIES
	Net income for common stock			$	44,896		$	40,182		$	39,069
	PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
		Depreciation and amortization			33,639			32,465			26,862
		Deferred income tax			4,094			2,532			27
		Common equity component of allowance for funds used during construction			(438	)		13			(212	)
		Other comprehensive income			(4,061	)		(9,431	)		(1,474	)
		Unrealized hedges on variable rate long term debt and energy trading			5,941			14,235			-
		Gain on sale of land (net of tax)			-			-			(2,404	)
	CHANGES IN ASSETS AND LIABILITIES
		Accounts receivable – customers, less allowance for uncollectibles			(9,343	)		37,811			(23,597	)
		Materials and supplies, including fuel and gas in storage			5,329			(5,407	)		(2,194	)
		Prepayments, other receivables and other current assets			9,712			20,141			(6,828	)
		Recoverable energy costs			(12,587	)		(12,521	)		(29,859	)
		Retiree benefit reserve			12,766			9,386			9,272
		Accounts payable			8,062			(11,901	)		11,251
		Accrued taxes			(2,255	)		(1,561	)		11,528
		Accrued interest			1,026			(119	)		(1,434	)
		Deferred debits and regulatory assets			6,966			(8,929	)		(24,967	)
		Deferred credits and regulatory liabilities			(3,409	)		(14,864	)		(6,211	)
		Other assets			2,823			4,042			4,396
		Other liabilities			(284	)		10,050			36,684

NET CASH FLOWS FROM OPERATING ACTIVITIES					102,877			106,124			39,909

INVESTING ACTIVITIES
		Construction expenditures			(57,122	)		(58,532	)		(51,112	)
		Cost of removal less salvage			(1,836	)		(2,057	)		(305	)
		Common equity component of allowance for funds used during construction			438			(13	)		212
		Proceeds from sale of land (net of tax)			-			-			2,548

NET CASH FLOWS USED IN INVESTING ACTIVITIES					(58,520	)		(60,602	)		(48,657	)

FINANCING ACTIVITIES
		Short-term debt			(15,600	)		(24,220	)		40,820
		Issuance of long-term debt			-			-			55,000
		Retirement of long-term debt			-			-			(120,030	)
		Dividend to parent			(28,000	)		(28,000	)		(37,000	)

NET CASH FLOWS USED IN FINANCING ACTIVITIES					(43,600	)		(52,220	)		(61,210	)

CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD					757			(6,698	)		(69,958	)
BALANCE AT BEGINNING OF PERIOD					1,785			8,483			78,441

BALANCE AT END OF PERIOD				$	2,542		$	1,785		$	8,483

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
		Cash paid during the period for:
			Interest	$	27,152		$	25,209		$	27,285
			Income Taxes		16,766			21,916			30,588

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

175

Orange and Rockland Utilities, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CAPITALIZATION

			Shares outstanding		Years Ended December 31,
			December 31, 2002	December 31, 2001	Years Ended December 31,
			December 31, 2002	December 31, 2001	2002			2001

					(Thousands of Dollars)

COMMON SHAREHOLDER'S EQUITY (NOTE B)
	Common stock		1,000	1,000	$	5		$	5
	Retained earnings					168,688			151,792
	Additional Paid in Capital					194,499			194,499
	ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
		Investment in marketable securities, net of ($2,011) and ($1,157) taxes in 2002 and 2001, respectively				(2,869	)		(1,651	)
		Minimum pension liability adjustments, net of ($604) and ($618) taxes in 2002 and 2001, respectively				(862	)		(882	)
		Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5,709) taxes in 2001				-			(8,150	)
		Unrealized gains/(losses) on derivatives qualified as hedges, net of ($9,809) and ($999) taxes in 2002 and 2001, respectively				(14,005	)		(1,427	)
		Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,940) and ($844) taxes in 2002 and 2001, respectively				(2,771	)		(1,205	)

	TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) INCLUDED IN NET INCOME, NET OF TAXES					(14,965	)		(10,905	)

TOTAL COMMON SHAREHOLDER'S EQUITY					$	348,227		$	335,391

Long-term debt (Note B)

		Interest Rate				At December 31,
Maturity		Interest Rate		Series		2002			2001

						(Thousands of Dollars)
Debentures:
	2003	6.560	%	1993	D		35,000			35,000
	2007	7.125	%	1997	J		20,000			20,000
	2010	7.50	%	2000	A		55,000			55,000
	2018	7.07	%	1998	C		3,200			3,200
	2027	6.50	%	1997	F		80,000			80,000
	2029	7.0	%	1999	G		45,000			45,000

TOTAL DEBENTURES							238,200			238,200

TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR POLLUTION CONTROL REVENUE BONDS:
	2014	6.09	%	1994			55,000			55,000
	2015	1.45		1995	*		44,000			44,000

TOTAL TAX-EXEMPT DEBT							99,000			99,000

UNAMORTIZED DEBT DISCOUNT							(1,310	)		(1,429	)

Total							335,890			335,771
Less: Long-term debt due within one year							35,000			-

TOTAL LONG-TERM DEBT							300,890			335,771

TOTAL CAPITALIZATION						$	649,117		$	671,162

*: Rate reset weekly or by auction held every 35 days; December 31, 2002 rate shown

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

176

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—
ORANGE AND ROCKLAND UTILITIES, INC.

These notes form an integral part of the accompanying consolidated financial statements of Orange and Rockland Utilities, Inc. (O&R or the Company) and its subsidiaries.

Con Edison

Consolidated Edison, Inc. (Con Edison) acquired O&R in July 1999. Con Edison owns all the issued and outstanding shares of O&R's common stock, $5.00 par value per share.

O&R, a regulated utility, along with its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike), provide electric service to over 285,000 customers in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania. O&R and Pike provide gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of O&R and all of its subsidiaries. All intercompany balances and transactions have been eliminated.

Accounting Policies

The accounting policies of O&R and its subsidiaries conform to accounting principles generally accepted in the United States of America. For regulated public utilities, like O&R, RECO and Pike, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." In accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the state public utility regulatory authority having jurisdiction are followed. The Company is subject to regulation by the New York State Public Service Commission (PSC); RECO by the New Jersey Board of Public Utilities (NJBPU) and Pike by the Pennsylvania Public Utility Commission (PPUC).

177

or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Rate and Restructuring Agreements

Electric

In 1997 the PSC, in its Competitive Opportunities proceeding, approved a four-year Restructuring Plan pursuant to which the Company reduced its electric rates in 1997 and 1998, and in 1999 sold all of its generating assets and made retail access available to all of its electric customers.

The RECO plan approved by the NJBPU in 1999 provided rate reductions of $6.8 million effective August 1999 and an additional rate reduction of $2.7 million implemented in January 2001. A final rate reduction of $6.2 million was implemented in August 2002.

The Pike plan approved by the PPUC in 1998 provided retail access to all customers effective May 1999.

In 1999, the PSC ratified a settlement agreement approving the acquisition of O&R by Con Edison. As part of this settlement, gas rates were reduced by $1.1 million in August 1999 and electric rates were reduced by $6.1 million in December 1999. This settlement allowed for a five-year amortization of transaction costs. The NJBPU and the PPUC also issued orders approving the transaction. The NJBPU's order provided for a ⁷⁵/25 percent customer/shareholder sharing of net synergy savings and a ten-year amortization of transaction costs. The customers' 75 percent share of net synergy savings is being returned to them as part of the rate reduction effective August 1999. The PPUC agreement allows Pike to retain all net synergy savings until its next general rate case and provides for a five-year amortization of transaction costs.

In October 2002, RECO filed a request with the NJBPU seeking an increase in electric rates of $7.3 million (5.5 percent) annually, to take effect on August 1, 2003, principally to reflect the costs of electric system infrastructure improvements required for service reliability and security. A final ruling by the NJBPU is expected in the third quarter of 2003.

In August 2002, the PPUC approved a settlement agreement covering the rates Pike charges for energy cost recoveries. As part of this settlement, Pike agreed to terminate its Competitive Transition Charge (CTC) and not to file for an increase in delivery rates that would be effective prior to December 31, 2004. The settlement provides for an increase in Pike's Provider of Last Resort (POLR) energy rates of .577 cents per kWh, inclusive of gross receipts tax, retroactive to July 1, 2002. This represents approximately a 6.0 percent increase in Pike's overall rates. A potential further increase of 5.0 percent of the POLR energy rate or an addition of .28 cents per kWh effective January 2005 is contingent on the actual and projected cost of energy at that time. The settlement is estimated to increase revenues by a net $1.4 million between September 2002 and December 2005.

Gas

In November 2000, the PSC authorized implementation of an agreement among O&R, the PSC Staff, and the Consumer Protection Board covering the period from November 2000 through April 2002. In October 2001, the PSC approved an extension of this agreement covering the period May 2002 through October 2003. With limited exceptions, the agreement, as extended, provides for no changes to base rates. The Company was permitted to retain, and is amortizing to income, $18.1 million of deferred

178

credits that otherwise would have been returned to customers. Earnings for gas operations above a threshold of 11.1 percent are subject to a ⁵⁰/50 sharing mechanism between customer and shareholder. The 11.1 percent sharing threshold is subject to a positive adjustment of up to 85 basis points for the attainment of competitive awareness and customer migration goals. The Company is subject to a potential earnings penalty of $450,000 per year for failure to meet minimum levels of performance regarding main replacement, gas leak backlog, customer safety complaints and protection of underground facilities.

In November 2002, O&R filed a request with the PSC for approval of a $27.2 million rate gas increase effective November 2003. The Company also submitted a multi-year plan that addresses rates for two additional years, with an increase of $2.5 million to cover infrastructure costs, inflation and property taxes. The Administrative Law Judge is expected to issue a recommended decision in the third quarter 2003.

Utility Revenues

Utility revenues are recorded on the basis of monthly customer cycle billings. Unbilled revenues are accrued at the end of each month for estimated energy usage since the last meter reading. Accrued unbilled revenue included in the Company's balance sheet at December 31, 2002 and 2001 was $20.4 million and $20.7 million, respectively.

The level of revenues from gas sales in New York is subject to a weather normalization clause that requires recovery from or refund to firm customers of the shortfalls or excesses of firm net revenues that result from variations of more than plus or minus four percent in actual degree days from the number of degree days used to project heating season sales.

Recoverable Energy Costs

O&R generally recovers all of its prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions approved by the applicable state public utility commissions. If the actual energy costs for a given month are more or less than amounts billed to customers for that month, the difference is recoverable from or refundable to customers. Differences between actual and billed energy costs are generally deferred for charge or refund to customers during the next billing cycle (normally within one or two months). For gas costs, differences between actual and billed gas costs during the 12-month period ending each August are charged or refunded to customers during a subsequent 12-month period.

RECO recovers all of its prudently incurred purchased power costs pursuant to rate provisions approved by the NJBPU. Differences between actual and billed electricity costs (which, for the period August 1, 1999 through December 31, 2002 amounted to $79.7 million) are deferred for charge or refund to customers in the manner and at such time as is to be determined by the NJBPU. In August 2002, RECO submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act of $110 million of electric purchased power costs in excess of amounts previously billed to customers, associated interest and other deferred charges. Recovery of these costs from customers is requested over a four-year period or pursuant to a plan to "securitize" the costs (under which RECO would be reimbursed these costs with the proceeds of a financing that would be repaid over

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time by its customers). In January 2003, the initial results of an independent audit, commissioned by the NJBPU to review the prudence of these deferred costs, were issued. The audit recommends that RECO be disallowed recovery of $26.8 million of such costs and associated interest of $2.6 million. The Company believes that its actions were prudent and has filed a response to the audit findings. A decision on the recovery of these purchased power costs by the NJBPU is expected in the third quarter of 2003.

Pike's recoveries of its energy costs are limited to a fixed price reflected in its current rates. In August 2002, the PPUC approved a settlement agreement covering the rates Pike charges for energy cost recoveries. See "Rate and Restructuring Agreements" above.

Plant and Depreciation

Utility Plant

Rates used for AFDC include the cost of borrowed funds and a reasonable rate on the utility's own funds when so used, determined in accordance with regulations of FERC and the state public utility regulatory authority having jurisdiction. The AFDC rate for O&R was 8.4 percent in 2002, 4.6 percent in 2001 and 7.4 percent in 2000. The AFDC rate for RECO was 9.2 percent in 2002, 9.1 percent in 2001 and 9.1 percent in 2000. The rate was compounded semiannually, and the amounts applicable to borrowed funds were treated as a reduction of interest charges while the amounts applicable to the regulated utilities' own funds is credited to other income (deductions).

For financial reporting purposes, depreciation rates are computed on the straight-line method based on the estimated average service lives and net salvage factors of the various classes of property. The Company's depreciation rates averaged 3.3 percent in 2002 and 2001 and 3.4 percent in 2000. The estimated lives for utility plant range from 5 to 60 years for electric, 7 to 75 years for gas and 5 to 50 years for general plant.

Non-utility Plant

Non-utility plant is stated at original cost and consists primarily of land and assets that are currently not utilized within utility operations. Depreciation is computed for financial statement purposes using the straight-line method over the estimated useful lives of the assets (7 - 50 years).

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at cost, which approximates market. O&R considers temporary cash investments to be cash equivalents.

Federal Income Tax

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recovered amounts from customers for a portion of the tax liability it will pay in the future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining tax liability, in accordance with SFAS No. 71, regulatory assets have been established for the net revenue requirements to be recovered from customers for the related future tax expense (see Note K). In 1993, the PSC issued a Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates.

Accumulated deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction in future federal income tax expense.

O&R and its subsidiaries file a consolidated federal income tax return as part of the consolidated return for Con Edison. The consolidated income tax liability is allocated to each member of the consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of the consolidated group.

State Income Tax

The New York State tax laws applicable to utility companies were changed, effective January 1, 2000. Certain revenue-based taxes were repealed or reduced and replaced by a net income-based tax. In June 2001, the PSC issued its final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and the tax expense resulting from the tax law changes, until those changes are incorporated in base rates.

O&R and its subsidiaries file a combined New York State Corporation Business Franchise Tax Return on a consolidated basis with Con Edison and its other subsidiaries. Similar to a federal consolidated income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of income among the states in which the Company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

Taxes Other Than Income Taxes

Deferred Revenue Taxes

Deferred revenue taxes represent the unamortized balance of an accelerated payment of New Jersey Gross Receipts and Franchise Tax (NJGRFT) required by legislation effective June 1, 1991, as well as New York State Metropolitan Transportation Authority taxes that are deferred and amortized over a 12-month period following payment, in accordance with the requirements of the PSC. The deferred NJGRFT is being recovered in rates, with a carrying charge of 7.5 percent on the unamoritized balance, over a five-year period.

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Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Stock-Based Compensation

The Company applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. See Note L. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

	2002		2001		2000

	(in millions)
Net income, as reported	$	45	$	40	$	39
Pro forma net income	$	45	$	40	$	39

These pro forma amounts may not be representative of future disclosures due to changes in future market conditions and additional grants in future years.

Estimates

Note B - Capitalization

Common Stock

At December 31, 2002 and 2001, O&R had 1,000 shares of common stock, $5.00 par value per share, issued and outstanding, all of which was owned by Con Edison. Con Edison acquired O&R in July 1999.

Dividends

In accordance with PSC requirements, the dividends that O&R may pay are limited to not more than 100 percent of its income available for dividends, calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison proceeds from major transactions, such as asset sales, or to dividends reducing O&R's equity ratio to a level appropriate to its business risk.

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Long-Term Debt

Long-term debt maturing in the period 2003-2007 is as follows:


(Millions of Dollars)
2003	$	35
2004		-
2005		-
2006		-
2007		20

Long-term debt includes the notes issued by O&R to the New York State Energy Research and Development Authority (NYSERDA) for the net proceeds of NYSERDA's $55 million aggregate principal amount of Series 1994A and $44 million aggregate principal amount of Series 1995A Pollution Control Refunding Revenue Bonds. The interest rate determination method for this debt is subject to change in accordance with the related indenture, and the debt currently bears interest at a weekly rate determined by its remarketing agent. The debt is subject to optional and, in certain circumstances, mandatory tender for purchase by the Company. See Note N.

At December 31, 2002, long term-debt also includes $23.2 million of mortgage bonds collateralized by substantially all the utility plant and other physical property of O&R's utility subsidiaries, RECO and Pike.

Long-term debt is stated at cost, which, as of December 31, 2002 approximates fair value (estimate based on current rates for debt of the same remaining maturities).

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the debentures of O&R. The tax-exempt financing arrangements of O&R are subject to these covenants and the covenants discussed below.

The tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of O&R to NYSERDA in exchange for the net proceeds of a like-amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA. The tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to a disqualifying change in use of the facilities financed. The arrangements also include provisions for the maintenance of liquidity and credit facilities.

The failure to comply with these debt covenants, if continued, would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied, in which case the principal and accrued interest on the debt may and, in certain circumstances would, become due and payable immediately.

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Note C - Short-term Borrowing

At December 31, 2002, the Company had a $100 million commercial paper program under which short-term borrowings are made at prevailing market rates. The program is supported by a revolving credit agreement with banks. At December 31, 2002, $1.0 million, at a weighted average interest rate of 1.3 percent per annum, was outstanding under the program. The Company may change the amount of its program from time to time, subject to a $150 million FERC-authorized limit.

Bank commitments under the revolving credit agreement were renewed in November 2002. The commitments may terminate upon a change in control of Con Edison or O&R and borrowings under the agreement are subject to certain conditions, including that the ratio (calculated in accordance with the agreement) of debt to total capital of the borrower does not at any time exceed 0.65 to 1. At December 31, 2002, the ratio was 0.49 to 1 for O&R. Borrowings under the agreement are not subject to maintenance of credit rating levels. The fees charged for the revolving credit agreement and borrowings under the agreement reflect the credit ratings of the Company.

See Note I for information about short-term borrowing from a related party, which the FERC has authorized.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees and retirees of O&R, pursuant to the Consolidated Edison Retirement Plan (which resulted from the merger, effective January 1, 2001, of the separate pension plans previously applicable to the employees and retirees of Con Edison of New York and O&R). The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

Consistent with the provisions of SFAS No. 71, the Company defers for future recovery any difference between expenses recognized under SFAS No. 87, "Employers' Accounting for Pensions" and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The components of the Company's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Thousands of Dollars)
Service cost - including administrative expenses	$	6,355		$	6,251		$	4,887
Interest cost on projected benefit obligation		27,589			27,016			25,397
Expected return on plan assets		(24,797	)		(24,831	)		(22,118	)
Amortization of net actuarial loss		5,825			4,547			3,557
Amortization of prior service cost		431			416			-

NET PERIODIC BENEFIT COST		15,403			13,399			11,723

Deferred and capitalized		12,965			10,582			7,677

Net expense	$	2,438		$	2,817		$	4,046

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The funded status at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Thousands of Dollars)
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	374,424		$	358,173		$	326,472
Service cost - excluding administrative expenses		5,955			5,852			4,887
Interest cost on projected benefit obligation		27,589			27,016			25,397
Plan amendments		-			273			5,114
Net actuarial loss		16,482			2,763			14,669
Benefits paid		(21,001	)		(19,653	)		(18,366	)

PROJECTED BENEFIT OBLIGATION AT END OF YEAR	$	403,449		$	374,424		$	358,173

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	236,213		$	270,127		$	289,311
Actual return on plan assets		(19,374	)		(14,955	)		(2,192	)
Employer contributions		1,855			1,797			3,207
Benefits paid		(21,001	)		(19,653	)		(18,366	)
Administrative expenses		(952	)		(1,103	)		(1,833	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	196,741		$	236,213		$	270,127

Funded status	$	(206,708	)	$	(138,211	)	$	(88,046	)
Unrecognized net loss		144,639			89,258			50,552
Unrecognized prior service costs		4,540			4,972			5,114

ACCRUED BENEFIT COST	$	(57,529	)	$	(43,981	)	$	(32,380	)

The amounts recognized in the balance sheet at December 31, 2002 and 2001 were as follows:

	2002			2001

	(Thousands of Dollars)
Accrued benefit cost	$	(57,529	)	$	(43,981	)
Additional minimum pension liability		(1,625	)		(1,538	)
Intangible asset		160			169
Accumulated other comprehensive income		1,465			1,369

Net prepaid benefit cost	$	(57,529	)	$	(43,981	)

The actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

	2002		2001		2000

Discount Rate	6.75	%	7.50	%	7.75	%
Expected Return on Plan Assets	9.20	%	9.20	%	8.50	%
Rate of Compensation Increase	4.15	%	4.15	%	4.40	%

O&R also offers a defined contribution savings plan that covers substantially all of its employees and made contributions to the plan of $1.0 million, $1.0 million and $0.8 million for the years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

O&R has a contributory medical and prescription drug program for all retirees, their dependents and surviving spouses. The Company also has a non-contributory life insurance program for retirees.

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Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

Plan assets are used to pay benefits and expenses for participants who retired on or after January 1, 1995. O&R pays benefits for other participants who retired prior to January 1, 1995. Plan assets include amounts owed by the trust to the Company of $0.8 million in 2002, $0.3 million in 2001 and $2.2 million in 2000.

Consistent with the provisions of SFAS No. 71, the Company defers for future recovery any difference between expenses recognized under SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions" and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The components of the net periodic postretirement benefit (health and life insurance) costs for 2002, 2001 and 2000 were as follows:

	2002			2001			2000

	(Thousands of Dollars)
Service cost	$	1,884		$	1,577		$	1,478
Interest cost on accumulated postretirement benefit obligation		7,996			7,069			6,856
Expected return on plan assets		(4,245	)		(3,721	)		(3,188	)
Amortization of net actuarial loss		2,797			1,260			901
Amortization of prior service cost		(97	)		(97	)		-

NET PERIODIC POSTRETIREMENT BENEFIT COST	$	8,335		$	6,088		$	6,047

Amortized/(deferred and capitalized)		(4,447	)		(2,193	)		(1,602	)

Net expense	$	3,888		$	3,895		$	4,445

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The funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

	2002			2001			2000

	(Thousands of Dollars)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year	$	101,726		$	94,048		$	88,536
Service cost		1,884			1,577			1,478
Interest cost on accumulated postretirement benefit obligation		7,996			7,069			6,856
Plan amendments		-			-			(979	)
Net actuarial loss		26,926			5,096			2,992
Benefits paid and administrative expenses		(6,876	)		(6,310	)		(5,041	)
Participant contributions		260			246			206

BENEFIT OBLIGATION AT END OF YEAR	$	131,916		$	101,726		$	94,048

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	40,646		$	39,069		$	37,890
Actual return on plan assets		54			106			162
Employer contributions		6,267			6,088			2,500
Participant contributions		155			126			113
Benefits paid and administrative expenses		(4,170	)		(4,743	)		(1,596	)

FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	42,952		$	40,646		$	39,069

Funded status	$	(88,964	)	$	(61,080	)	$	(54,979	)
Unrecognized net loss		50,817			22,393			13,312
Unrecognized prior service costs		(785	)		(882	)		(979	)

ACCRUED POSTRETIREMENT BENEFIT COST	$	(38,932	)	$	(39,569	)	$	(42,646	)

The actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

		2002		2001		2000

Discount rate		6.75	%	7.50	%	7.75	%
EXPECTED RETURN ON PLAN ASSETS
	Tax-exempt assets	9.20	%	9.20	%	8.50	%
	Taxable assets	8.70	%	8.70	%	8.00	%

The health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent by 2009 and remain at that level thereafter.

A one-percentage point change in the assumed health care cost trend rate would have the following effects:

	1-Percentage-Point Increase		1-Percentage-Point Decrease

	(Thousands of Dollars)
Effect on accumulated postretirement benefit obligation	$	12,698	$	(10,918	)
Effect on service cost and interest cost components	$	1,192	$	(998	)

Note F - Environmental Matters

Hazardous substances such as asbestos, polychlorinated biphenyls (PCBs) and coal tar have been used or generated in the course of operations of O&R and are present in its facilities and equipment currently or previously owned.

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The environmental remediation costs for the sites at which O&R has been asserted to have liability for remediation under Superfund or similar state statutes, including its manufactured gas sites, (Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs.

For the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $25 million to $95 million. To develop these estimates, the assumption was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of cleanup required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

For sites where there are other potentially responsible parties and the Company is not managing the site investigation and remediation, the liability accrued represents the Company's estimate of what it will need to pay to settle its obligations with respect to the site. For other sites, the liability accrued represents the Company's estimate of its investigation and remediation costs for the site. In either case, the Company makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it has available to it at the time about the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used. The liability accrued for Superfund Sites is reviewed at least quarterly and adjusted as determined to be necessary.

At December 31, 2002, O&R had accrued $35.3 million as its estimate of its liability for Superfund Sites, including approximately $34 million relating to manufactured gas sites. Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating to the Superfund Sites and other sites. The amount of the additional liability is not presently determinable but may be material to O&R's financial position, results of operations or liquidity. O&R is permitted under current rate agreements to defer for subsequent recovery through rates certain site investigation and remediation costs with respect to hazardous waste. At December 31, 2002, $30.8 million of such costs had been deferred as a regulatory asset.

In 2002, O&R incurred $1.5 million for environmental remediation costs and received an insurance recovery of $7.2 million related to Superfund Sites.

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Suits have been brought in New York State and federal courts against O&R 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 O&R. The suits that have been resolved, which are many, have been resolved without any payment by O&R, or for amounts that were not, in the aggregate, material to the Company. The amounts specified in all the remaining suits total billions of dollars. However, O&R believes that these amounts are greatly exaggerated, as experienced through the disposition of previous claims. Based on the information and relevant circumstances known to O&R at this time, these suits are not expected to have a material adverse effect on O&R's financial position, results of operations or liquidity.

Workers' compensation administrative proceedings have been commenced, wherein current and former employees claim benefits upon alleged disability from exposure to asbestos. Based on the information and relevant circumstances known to O&R at this time, these claims are not expected to have a material adverse effect on O&R's financial position, results of operations or liquidity. At December 31, 2002, a $5.4 million provision was accrued as the Company's estimate of its liability for these workers' compensation claims, including those related to asbestos, and $1.6 million of this provision was deferred as a regulatory asset related to claims of the former employees of the divested plants.

In May 2000, the New York State Department of Environmental Conservation issued notices of violation to O&R and four other companies that have operated coal-fired electric generating facilities in New York State. The notices allege violations of the Federal Clean Air Act and the New York State Environmental Conservation Law resulting from the alleged failure to install pollution control equipment that would have reduced emissions of certain chemicals deemed potentially hazardous. The notice of violations received by O&R relates to the Lovett Generating Station, which it sold in June 1999. The Company is unable to predict whether or not alleged violations will have a material adverse effect on its financial position, results of operations or liquidity.

Note G - Non-Utility Generators

O&R has contracts with Non-Utility Generators (NUGs) for 27 MW of electric generating capacity. The contracts extend for various periods, up to 2008. Assuming performance by the NUGs, O&R is obligated to purchase capacity and energy under the contracts. For the years 2003 through 2007, fixed payments under the contracts are estimated to be $17.2 million, $16.7 million, $16.4 million, $5.6 million and $3.6 million. In addition, for energy delivered under one of the contracts (for 19 MW), O&R is obligated to pay variable prices that are currently estimated to be above market levels. O&R recovers its costs under the contracts pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction.

Note H - Regulatory Assets and Liabilities

O&R has established various regulatory assets and liabilities to defer specific costs and gains that the applicable regulatory agencies have permitted or are expected to permit to be recovered in rates or refunded to customers over time. For RECO, current recovery of purchased power costs is subject to certain limitations imposed by the NJBPU and costs that are not currently recovered are deferred for

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future recovery. At December 31, 2002 and December 31, 2001, net recoverable purchased power costs of $79.7 million and $76.7 million, respectively, were deferred by RECO for future recovery.

Note I - Related Party Transactions

Each month O&R is invoiced by Con Edison and its affiliates for the cost of any services rendered to O&R by Con Edison and its affiliates. These services, provided primarily by Con Edison's other regulated subsidiary, Consolidated Edison Company of New York, Inc., include substantially all administrative support operations, such as corporate directorship and associated ministerial duties, accounting, treasury, investor relations, information resources, legal, human resources, fuel supply and energy management services. The cost of these services was $15.2 million for 2002, $14.4 million for 2001 and $10.7 million for 2000. In addition, O&R purchased from Con Edison of New York $102.0 million, $140.9 million and $103.9 million of natural gas for 2002, 2001 and 2000, respectively, and $24.6 million of electricity in 2002.

O&R provides certain recurring services to Con Edison of New York on a monthly basis, including cash receipts processing and certain administrative services. The cost of these services, which are invoiced to Con Edison of New York, totaled $11.6 million, $10.9 million and $8.3 million in 2002, 2001 and 2000, respectively.

In February 2002, the FERC authorized Con Edison of New York to lend funds to O&R, for periods of not more than 12 months, in amounts not to exceed $150 million outstanding at any time at prevailing market rates. Through December 31, 2002, O&R has not borrowed any funds from Con Edison of New York.

Note J - Leases

The future minimum rental commitments under O&R's non-cancelable operating leases are as follows:

		(Millions of Dollars)

2003		$	2.6
2004			2.5
2005			2.3
2006			2.0
2007			1.9
All years thereafter			18.2

	Total	$	29.5

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Note K - Income Tax

The components of income tax are as follows:

			For the Years Ended December 31,
			2002			2001			2000

			(Thousands of Dollars)
Charge/(benefit) to operations:
State
	Current		$	845		$	2,157		$	6,040
	Deferred - net			3,048			4,625			-
Federal
	Current			16,280			6,798			15,563
	Deferred - net			4,759			13,026			1,345
	Amortization of investment tax credit			(128	)		(136	)		(123	)

		TOTAL CHARGE TO OPERATIONS		24,804			26,470			22,825

Charge/(benefit) to other income:
State
	Current		$	(245	)	$	28			-
	Deferred - net			62			135			-
Federal
	Current			99			(297	)		2,151
	Deferred - net			(7	)		(63	)		9
	Amortization of investment tax credit			(347	)		(336	)		(331	)

		TOTAL BENEFIT TO OTHER INCOME		(438	)		(533	)		1,829

TOTAL			$	24,366		$	25,937		$	24,654

The tax effect of temporary differences which gave rise to deferred tax assets and liabilities is as follows:

			As of December 31,
			2002			2001

			(Millions of Dollars)
Liabilities:
	Depreciation		$	97		$	92
	Regulatory Liability - Future Federal Income Tax			39			35
	Other			42			52

		TOTAL LIABILITIES		178			179

Assets:
	Other			(44	)		(54	)

		TOTAL ASSETS		(44	)		(54	)

NET LIABILITY			$	134		$	125

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Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

		For the Years Ended December 31,
		2002		2001		2000

		(% of Pre-tax income)
Statutory tax rate
	Federal	35	%	35	%	35	%
Changes in computed taxes resulting from:
	State Income Tax	4		8		6
	Depreciation related differences	1		0		1
	Cost of removal	(2	)	(1	)	(1	)
	Amortization of taxes associated with divested assets	(1	)	(1	)	(1	)
	Other	(2	)	(1	)	(1	)

Effective Tax Rate		35	%	40	%	39	%

Note L - Stock-Based Compensation

Con Edison maintains a stock option plan (the Plan) that covers employees of O&R. Options may be granted to officers and key employees of Con Edison and its subsidiaries for up to a total of 10 million shares of Con Edison's common stock. Generally, options become exercisable three years after the grant date and remain exercisable until 10 years from the grant date.

As permitted by SFAS No. 123, O&R elected to follow APB No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options. Under the intrinsic value method of APB No. 25, no compensation expense is recognized because the exercise price of Con Edison's employee stock options equals the market price of the underlying stock on the date of grant.

Under the plan, exercise of Con Edison's employee stock options requires payment in full of the exercise price, unless the committee of Con Edison's Board of Directors that administers the Plan determines that options may be settled by paying to the option holder the difference between the fair market value of the common stock subject to the option and the exercise price (cash settlement). In 2002, to ensure that the exercise of currently exercisable options would comply with certain technical requirements of the Sarbanes-Oxley Act of 2002 applicable to certain officers of Con Edison and its subsidiaries, the committee determined that 1996 and 1997 stock options covering 295,500 shares of common stock held by those officers may be settled by the cash settlement method. A $0.4 million charge to expense was recognized for O&R in 2002 for these options. Additional changes to expense will be recognized with respect to these options to the extent the fair market value of the common shares changes in future periods.

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Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and Disclosures." See "Stock-based Compensation" in Note A for an illustration of the effect on net income if O&R had applied the fair value recognition provisions of SFAS No. 123 to its stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date of grant using the Black- Scholes option pricing model with the following weighted-average assumptions:

	2002		2001		2000

Risk-free interest rate	5.08	%	5.22	%	6.25	%
Expected lives - in years	6		8		8
Expected stock volatility	21.43	%	21.32	%	20.51	%
Dividend yield	5.22	%	5.83	%	6.60	%

A summary of the changes in the status of stock options awarded to officers and employees of O&R under the Plan as of December 31, 2002, 2001 and 2000 is as follows:

		Shares		Weighted Average Price

Outstanding at 12/31/99		-
	Granted	73,000		$	32.500
	Exercised	-			-
	Forfeited	-			-

Outstanding at 12/31/00		73,000			32.500
	Granted	101,000			37.750
	Exercised	-			-
	Forfeited	-			-

Outstanding at 12/31/01		174,000			35.547
	Granted	113,000			42.510
	Exercised	-			-
	Forfeited	(2,000	)		35.125

Outstanding at 12/31/02		285,000		$	38.311

The following summarizes the Plan's stock options outstanding at December 31, 2002:

Plan Year	Weighted Average Exercise Price		Shares Outstanding At 12/31/02	Remaining Contractual Life

2002	$	42.510	113,000	9 years
2001		37.750	100,000	8 years
2000		32.500	72,000	7 years

As of December 31, 2002, 2001 and 2000, no options were exercisable.

In June 2002, 20,000 restricted stock units were granted to a senior officer of O&R, subject to the officer meeting the terms and conditions of the agreements. The units, each of which represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or immediately upon the occurrence of certain events. Pursuant to APB No. 25, O&R recognizes

193

compensation expense and accrues a liability for the units over the vesting period. The expense recognized for restricted stock during 2002 was $0.2 million.

In June 2002, Con Edison terminated its Directors' Retirement Plan applicable to non-officer directors (the termination is not applicable to directors who had previously retired from the board) and adopted a deferred stock compensation plan for these directors. Under the plan, directors were granted stock units for accrued service. Pursuant to APB No. 25, O&R recognizes compensation expense as incurred. An expense of $0.1 million was recorded in 2002.

Note M - Financial Information by Business Segment

O&R's business segments were determined based on similarities in economic characteristics, the regulatory environment and management's reporting requirements. O&R's business segments are:

•: Regulated Electric - consists of regulated utility activities relating to the transmission and distribution and sale of electricity in New York, New Jersey and Pennsylvania.
•: Regulated Gas - consists of regulated utility activities relating to the transportation, distribution and sale of natural gas in New York and Pennsylvania.
•: Unregulated Subsidiary - represents the operations of O&R's unregulated subsidiary in a land development business. The Company is pursuing the closure of its real estate operations and is in the process of selling off remaining land holdings.

All revenues of O&R's business segments are from customers located in the United States of America. Also, all assets are located in the United States of America. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See Note A.

Common services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

The financial data for business segments are as follows:

	Regulated Electric
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	475,462	$	538,375	$	513,016
Intersegment revenues		-		-		11
Depreciation and amortization		25,881		24,892		20,625
Income tax expense		20,303		22,716		20,174
Operating income		57,506		50,223		47,529
Interest charge		20,478		15,724		16,912
Total assets		862,770		837,535		828,489
Construction expenditures		44,151		44,571		33,751

194

	Regulated Gas
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	158,838	$	197,862	$	183,436
Intersegment revenues		-		-		-
Depreciation and amortization		8,121		7,888		6,501
Income tax expense		4,406		3,536		1,100
Operating income		14,507		13,145		11,091
Interest charge		7,742		8,414		8,430
Total assets		308,141		294,769		304,305
Construction expenditures		15,574		17,010		17,528

	Unregulated Subsidiaries
	2002		2001			2000

	(Thousands of Dollars)
Operating revenues	-		$	104		$	4,521
Intersegment revenues	-			-			-
Depreciation and amortization	-			-			3
Income tax expense	95			218			1,551
Operating income	(353	)		(366	)		1,821
Interest charge	—			3			17
Total assets	2,774			3,036			5,863
Construction expenditures	-			-			-

	Total
	2002		2001		2000

	(Thousands of Dollars)
Operating revenues	$	634,300	$	736,341	$	700,973
Intersegment revenues		-		-		11
Depreciation and amortization		34,002		32,780		27,129
Income tax expense		24,804		26,470		22,825
Operating income		71,660		63,002		60,441
Interest charge		28,220		24,141		25,359
Total assets		1,161,261		1,135,340		1,138,657
Construction expenditures		59,725		61,581		51,279

Note N - Derivative Instruments and Hedging Activities

Effective January 2001, O&R adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133).

Energy Price Hedging

O&R uses derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity (hedges). As of December 31, 2002 and December 31, 2001, the fair value of the derivatives for such use was a gain of $1.1 million and a loss of $1.0 million, respectively.

Pursuant to SFAS No. 71, the Company defers recognition in income of gains and losses on a hedge until the underlying transaction is completed. In accordance with rate provisions that permit the recovery of the cost of purchased power, O&R credits or charges to its customers gains and losses on hedges and related transaction costs. See "Recoverable Energy Costs" in Note A.

195

Interest Rate Hedging

O&R uses interest rate swap agreements to convert portions of its variable-rate debt into fixed-rate debt. In connection with its $55 million promissory note issued to NYSERDA for the net proceeds of NYSERDA's variable rate Pollution Control Refunding Revenue Bonds, Series 1994A (the 1994 Bonds), O&R has a swap agreement pursuant to which it pays interest at a fixed rate of 6.09 percent and is paid interest at the same variable rate as is paid on the 1994 Bonds. The swap is designated as a cash flow hedge under SFAS No. 133. Any gain or loss on the hedge is recorded in other comprehensive income (OCI) and reclassified to interest expense and included in earnings during the periods in which the hedged interest payments occur. As of December 31, 2002 and December 31, 2001, the fair value of the O&R interest rate swap was a loss of $19.1 million and $14.2 million, respectively.

Unrealized gains and losses on cash flow hedges for interest rate hedging, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

	2002			2001

	(Millions of Dollars)
Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5.7) taxes	$	-		$	(8.1	)
Unrealized gains/(losses) on derivatives qualified as hedges, net of ($3.1) and ($1.0) taxes		(4.4	)		(1.4	)
Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1.1) and ($0.8) taxes		(1.5	)		(1.2	)

Unrealized gains/(losses) on derivatives qualified as hedges for the period	$	(2.9	)	$	(8.3	)

As of December 31, 2002, $1.2 million of the existing after-tax losses relating to the swap agreement are expected to be reclassified from accumulated OCI to income within the next 12 months.

Note O - New Financial Accounting Standards

During 2002 the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial Institutions," and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." The FASB also issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002 and Interpretation No. 46, "Consolidation of Variable Interest Entities," in January 2003. In addition, during 2002, the FASB's Emerging Issues Task Force (EITF) reached a consensus on several issues within EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."

SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," effective January 1, 2003. This statement also amends SFAS No. 13, "Accounting for Leases," to require sale-leaseback accounting for certain lease modifications that have an economic impact similar to sale-leaseback transactions and amends certain other authoritative accounting pronouncement, effective May 15, 2002. SFAS No. 146, which was effective January 1, 2003, requires companies to recognize costs

196

associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 147, which was effective October 1, 2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS No. 148, which amends SFAS No. 123, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the financial statement disclosure requirements of SFAS No. 123 regarding the method of accounting for stock-based employee compensation and the effects of the method used on reported results. Finally, this statement amends APB Opinion No. 28, "Interim Financial Reporting" to require disclosure about those effects in interim financial information. The amendment of SFAS No. 123 is effective for fiscal years ending after December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. For information about the Company's stock-based compensation, see Note L.

The adoption of these statements had no impact on O&R's consolidated financial position, results of operations or liquidity.

Interpretation No. 45 (FIN 45) requires a guarantor to recognize a liability at the inception of a guarantee for the fair value of the obligations it assumes under that guarantee. It also requires a guarantor to make significant new disclosures for guarantees even if the likelihood of the guarantor's having to make payments under the guarantee is remote. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective December 15, 2002. The adoption of FIN 45 had no impact on O&R's consolidated financial position, results of operation or liquidity.

Interpretation No. 46 (FIN 46) addresses the consolidation by business enterprises of variable interest entities of which the enterprise is the primary beneficiary. The consolidation requirements apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 is not expected to have any impact on O&R's consolidated financial position, results of operation or liquidity.

In June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," that revenue resulting from energy trading contracts, whether realized or unrealized and whether financially or physically settled, should be shown net in the income statement. The new ruling became effective for periods ending after July 2002 with reclassification of prior period amounts required.

197

non-derivative contracts must be reversed upon adoption of this consensus. The effective date for the full rescission of EITF Issue No. 98-10 was January 1, 2003, with early application permitted.

In October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus was effective January 1, 2003, with early adoption permitted. Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission of EITF Issue No. 98-10.

The above EITF consensus had no impact on O&R's consolidated financial position, results of operation or liquidity.

O&R also adopted the following accounting standards that were issued in 2001.

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill (i.e., the excess of cost over fair value of the net assets of a business acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. Other intangible assets will continue to be amortized over their finite useful lives. The adoption of SFAS No. 142 had no impact on O&R's consolidated financial position, results of operations or liquidity.

SFAS No. 143, "Accounting for Asset Retirement Obligations," which O&R adopted on January 1, 2003, requires entities to record the fair value of a liability associated with an asset retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation for the amount recorded or incur a gain or loss. O&R has not identified any asset retirement obligations. The adoption of SFAS No. 143 had no impact on O&R's consolidated financial position, results of operations or liquidity.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which O&R adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting other specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS No. 144 had no impact on O&R's consolidated financial position, results of operations or liquidity.

198

SCHEDULE I

Condensed Financial Information of Consolidated Edison, Inc.

CONDENSED BALANCE SHEET

		At December 31,
		2002			2001
		(Thousands of Dollars)
ASSETS
CURRENT ASSETS
	Cash and temporary cash investments	$	244		$	414
	Restricted cash		-			69,823
	Other current assets		(1,601	)		3,074

	TOTAL CURRENT ASSETS		(1,357	)		73,311
INVESTMENTS IN SUBSIDIARIES			7,000,878			6,434,480
GOODWILL			409,404			409,404
OTHER ASSETS			10,237			- -

TOTAL ASSETS		$	7,419,162		$	6,917,195

CAPITALIZATION AND LIABILITIES
COMMON SHAREHOLDERS' EQUITY
	Common stock	$	1,505,162		$	1,436,643
	Retained earnings		5,370,625			5,187,048

	TOTAL COMMON SHAREHOLDERS' EQUITY		6,875,787			6,623,691
	Long-term debt		325,000			- -

	TOTAL CAPITALIZATION		7,200,787			6,623,691
CURRENT LIABILITIES
	Notes payable		160,580			207,860
	Accounts payable		49,195			86,160
	Other current liabilities		12,211			2,065

	TOTAL CURRENT LIABILITIES		221,986			296,085

NONCURRENT LIABILITIES			(3,611	)		(2,581	)

	TOTAL LIABILITIES		218,375			293,504

TOTAL CAPITALIZATION AND LIABILITIES		$	7,419,162		$	6,917,195

199

Condensed Financial Information of Consolidated Edison, Inc.

CONDENSED INCOME STATEMENT

		2002			2001			2000
		(Thousands of Dollars, except per share amounts)
Equity in earnings of subsidiaries		$	670,823		$	701,139		$	616,930
Other income (deductions), net of taxes			4,629			212			(16,305	)
Operating expenses
	Amortization of O&R goodwill		-			(10,917	)		(10,917	)
	Other		-			-			-
Interest expense			(7,355	)		(8,192	)		(6,873	)

Income before cumulative effect of changes in accounting principles			668,097			682,242			582,835

	Cumulative effect of changes in accounting principles		(22,061	)		-			-

NET INCOME		$	646,036		$	682,242		$	582,835

Average number of shares outstanding (in thousands)			212,990			212,146			212,186
Basic earnings per common share		$	3.03		$	3.22		$	2.75
Diluted earnings per share		$	3.02		$	3.21		$	2.74

200

Condensed Financial Information of Consolidated Edison, Inc.

CONDENSED STATEMENT OF CASH FLOWS

		2002			2001			2000
		(Thousands of Dollars)
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES		$	668,097		$	682,242		$	582,835
	Cumulative effect of changes in accounting principles		(22,061	)		-			-

NET INCOME			646,036			682,242			582,835
Dividends received from:
	Consolidated Edison Company of New York, Inc.		379,855			459,719			462,503
	Orange and Rockland Utilities, Inc.		28,000			28,000			37,000
Other—net			(638,259	)		(570,100	)		(471,504	)

NET CASH FLOWS FROM OPERATING ACTIVITIES			415,632			599,861			610,834
INVESTING ACTIVITIES
	Contributions to subsidiaries		(335,200	)		(65,400	)		(113,821	)
FINANCING ACTIVITIES
	Issuance of Long-term debt		325,000			-			-
	Repurchase of common stock		-			-			(39,078	)
	Common shares issued		25,098			-			-
	Common stock dividends		(430,700	)		(469,755	)		(460,177	)

NET CASH FLOWS FROM FINANCING ACTIVITIES			(80,602	)		(469,755	)		(499,255	)

NET CHANGE FOR THE PERIOD			(170	)		64,706			(2,242	)
BALANCE AT BEGINNING OF THE PERIOD		$	414		$	5,531		$	7,773

BALANCE AT END OF PERIOD		$	244		$	70,237		$	5,531

LESS: RESTRICTED CASH			-			69,823			-

BALANCE: UNRESTRICTED CASH AND TEMPORARY CASH INVESTMENTS		$	244		$	414		$	5,531

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2002, 2001 and 2000

				COLUMN C Additions
				(1) Charged to Costs and Expenses
	COLUMN A	COLUMN B				(2) Charged To Other Accounts	COLUMN D		COLUMN E
Company	Description	Balance at Beginning of Period				(2) Charged To Other Accounts	Deductions**		Balance At End Of Period
	(Thousands of Dollars)
Con Edison	Allowance for uncollectible accounts*:
	2002	$	34,775	$	38,982	-	$	39,065	$	34,692
	2001	$	33,714	$	43,299	-	$	42,238	$	34,775
	2000	$	34,821	$	38,292	-	$	39,399	$	33,714
Con Edison of New York	Allowance for uncollectible accounts*:
	2002	$	29,400	$	35,215	-	$	35,415	$	29,200
	2001	$	25,800	$	40,097	-	$	36,497	$	29,400
	2000	$	22,600	$	31,808	-	$	28,608	$	25,800
O&R	Allowance for uncollectible accounts*:
	2002	$	2,625	$	1,643	-	$	2,543	$	1,725
	2001	$	3,845	$	3,870	-	$	5,090	$	2,625
	2000	$	5,395	$	3,029	-	$	4,579	$	3,845

*: This is a valuation account deducted in the balance sheet from the assets (Accounts receivable-customer) to which they apply.
**: Accounts written off less cash collections, miscellaneous adjustments and amounts reinstated as receivables previously written off.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CON EDISON

None.

CON EDISON OF NEW YORK

None.

O&R

None.

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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," "plans," "will" and similar expressions identify forward-looking statements.

Actual results or developments might differ materially from those included in the forward-looking statements because of various factors such as:

•: continued restructuring of the regulated public utility, and unregulated energy and telecommunications industries;
•: competition, including competition in the energy supply, trading and services businesses;
•: operating performance and condition of the company's energy delivery systems, generating assets and fiber optic communications network;
•: success of completion of ongoing construction projects;
•: legal proceedings relating to hazardous substances, the nuclear generating plant that the company sold in 2001 and Northeast Utilities (see Notes F, G and P to the Con Edison financial statements in Item 8 of this report);
•: wholesale energy markets, including availability, sufficiency and cost of energy and capacity and the effectiveness of the company's efforts to manage its risks in these markets;
•: capital markets, including availability, sufficiency and cost of liquidity and credit facilities and the effectiveness of the company's efforts to manage its risks in these markets;
•: availability, sufficiency and cost of other services and goods used in Con Edison's business, including insurance coverage;
•: investment returns on the assets of the company's pension and other post-employment benefit plans and actual experience regarding the plans' other actuarial assumptions (see Notes D and E to the Con Edison financial statements in Item 8 of this report);
•: employee matters, including changes in key executives and collective bargaining with union employees;
•: economic conditions, including recession, inflation or deflation;
•: technological developments;
•: weather, including its effects on the company's sales and facilities;
•: laws, regulations or regulatory policies, including those relating to taxes or fees, the environment and any that would adversely effect the ability of the company's regulated utility subsidiaries to operate or recover costs from their customers;
•: public policy doctrines;
•: accounting matters, including changes in policies, principles and interpretations generally accepted in the United States of America;
•: acts of war or terrorism; and
•: other presently unknown or unforeseen factors.

203

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CON EDISON

Information required by Part III, other than the information required by Item 201(d) of Regulation S-K in Item 12, is incorporated by reference from Con Edison's definitive proxy statement for its Annual Meeting of Stockholders to be held on May 19, 2003. The proxy statement is to be filed pursuant to Regulation 14A not later than 120 days after December 31, 2002, the close of the fiscal year covered by this report. The information required pursuant to Item 201(d) of Regulation S-K is as follows:

Equity Compensation Plan Information (as of December 31, 2002)

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Equity compensation plans approved by security holders		6,797,651	$39.506	2,243,300

Equity compensation plans not approved by security holders		* 556,921	N/A	N/A

	TOTAL	7,354,572	$39.506	2,243,300

*: These securities are stock units, each of which represents the right to receive one share of Con Edison common stock and related dividends. There is no exercise price for these stock units.

For additional information, see Note M to the Con Edison financial statements in Item 8.

In accordance with General Instruction G(3) to Form 10-K, other information regarding Con Edison's Executive Officers may be found in Part I of this report under caption "Executive Officers of the Registrant."

CON EDISON OF NEW YORK

Information required by Part III as to Con Edison of New York is incorporated by reference from Con Edison of New York's definitive information statement for its Annual Meeting of Stockholders to be held on May 19, 2003. The proxy statement is to be filed pursuant to Regulation 14C not later than 120 days after December 31, 2002, the close of the fiscal year covered by this report.

In accordance with General Instruction G(3) to Form 10-K, other information regarding Con Edison of New York's Executive Officers may be found in Part I of this report under the caption "Executive Officers of the Registrant."

204

ITEM 14. CONTROLS AND PROCEDURES

Con Edison

Based upon their evaluation of Con Edison's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) within 90 days prior to the filing date of this report, Con Edison's principal executive officer and principal financial officer have concluded that these controls and other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no significant changes in Con Edison's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Con Edison of New York

Based upon their evaluation of Con Edison of New York's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) within 90 days prior to the filing date of this report, Con Edison of New York's principal executive officer and principal financial officer have concluded that these controls and other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no significant changes in Con Edison of New York's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

O&R

Based upon their evaluation of O&R's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) within 90 days prior to the filing date of this report, O&R's principal executive officer and principal financial officer have concluded that these controls and other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no significant changes in O&R's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

205

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1. List of Financial Statements—See financial statements listed in Item 8.

2. List of Financial Statement Schedules—See schedules listed in Item 8.

3. List of Exhibits

Exhibits listed below which have been filed previously with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, and which were designated as noted below, are hereby incorporated by reference and made a part of this report with the same effect as if filed with the report. Exhibits listed below that were not previously filed are filed herewith.

CON EDISON

2.1		Amended and Restated Agreement and Plan of Merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000, among Con Edison, Northeast Utilities, Consolidated Edison, Inc. (a Delaware corporation, originally incorporated as CWB Holdings, Inc.) and N Acquisition LLC. (Designated in Con Edison's Current Report on Form 8-K, dated January 11, 2000 (File No. 1-14514) as Exhibit 2.)
3.1.1		Restated Certificate of Incorporation of Consolidated Edison, Inc. ("Con Edison") (Designated in the Registration Statement on Form S-4 of Con Edison (No. 333-39164) as Exhibit 3.1.)
3.1.2		By-laws of Con Edison, effective as of June 23, 1998. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (File No. 1-14514) as Exhibit 3.2.1)
4.2.1		Indenture, dated as of April 1, 2002, between Con Edison and JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee. (Designated in the Registration Statement on Form S-3 of Con Edison (No. 333-102005) as Exhibit 4.1.)
4.2.1		The form of Con Edison's 7.25% Debentures, Series 2002 A. (Designated in Con Edison's Current Report on Form 8-K, dated April 3, 2002, (File No. 1-14514) as Exhibit 4.)
10.1.1		Con Edison 1996 Stock Option Plan, as amended and restated effective February 24, 1998. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-1217) as Exhibit 10.20.)
10.1.2		The following employment agreements, and amendments thereto, between Con Edison and the executive officer listed below, dated as of the effective dates listed below, which are designated as follows:

		Securities Exchange Act File No. 1-14514
Executive Officer	Effective Date	Securities Exchange Act File No. 1-14514
Executive Officer	Effective Date	Form	Date	Exhibit
Eugene R. McGrath	Agreement: 9/1/00	10-Q	9/30/00	10.1.1
	Amendment: 5/31/02	10-Q	6/30/02	10.1.1
Joan S. Freilich	Agreement: 9/1/00	10-Q	9/30/00	10.1.2
	Amendment: 5/31/02	10-Q	6/30/02	10.1.1
Kevin Burke	Agreement: 9/1/00	10-K	12/31/00	10.1.6
	Amendment: 5/31/02	10-Q	6/30/02	10.1.3
John D. McMahon	Agreement: 9/1/00	10-K	12/31/00	10.1.5
	Amendment: 5/31/02	10-Q	6/30/02	10.1.4

206

10.1.3		Restricted Stock Unit Award Agreement, dated as of May 31, 2002, between Con Edison and Stephen B. Bram. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No. 1-14514) as Exhibit 10.1.5.)
10.1.4		Severance Program for Officers of Consolidated Edison, Inc. and its Subsidiaries, effective as of September 1, 2000. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 (File No. 1-14514) as Exhibit 10.1.3)
10.1.5.1		The Consolidated Edison, Inc. Stock Purchase Plan. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-14514) as Exhibit 10)
10.1.5.2		Amendment, dated April 8, 2002, to Consolidated Edison, Inc. Stock Purchase Plan. (Designated in Con Edison's Registration Statement on Form S-8 (No. 333-86820) as Exhibit 10.2.)
10.1.6		Consolidated Edison, Inc. Deferred Stock Compensation Plan for Non-Officer Directors, effective July 1, 2002. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514) as Exhibit 10.1.1.)
10.1.7.1		The Con Edison Retirement Plan, effective January 1, 2001. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.2.1.)
10.1.7.2		Amendment No. 1 to the Consolidated Edison Retirement Plan. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.2.2.)
10.1.8		The Consolidated Edison Thrift Plan, as amended effective May 8, 2002. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.3.)
10.1.9.1		Guaranty, dated as of November 14, 2000, from Consolidated Edison, Inc. in favor of Hawkeye Funding, Limited Partnership.
10.1.9.2		Lease Agreement, dated as of November 14, 2000, between Hawkeye Funding, Limited Partnership, as Lessor, and Newington Energy, L.L.C., as Lessee (the Newington Project Lease).
10.1.9.3		Amendment No. 1, dated as of April 1, 2002, to the Newington Project Lease.
12.1.1		Statement of computation of ratio of earnings to fixed charges for the years 1998-2002.
12.1.2		Statement of computation of ratio of earnings to fixed charges and preferred stock dividend requirements for the years 1998-2002.
21.1		Subsidiaries of Con Edison.
23.1		Consent of PricewaterhouseCoopers LLP
24.1		Powers of Attorney of each of the persons signing this report by attorney-in-fact.
99.1.1		Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.
99.1.2		Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.

CON EDISON OF NEW YORK

3.2.1.1

Restated Certificate of Incorporation of Con Edison filed with the Department of State of the State of New York on December 31, 1984. (Designated in the Annual Report on Form 10-K of Con Edison of New York for the year ended December 31, 1989 (File No. 1-1217) as Exhibit 3(a).)

207

3.2.1.2

The following certificates of amendment of Restated Certificate of Incorporation of Con Edison of New York filed with the Department of State of the State of New York, which are designated as follows:

	Securities Exchange Act File No. 1-1217
Date Filed With Department of State	Securities Exchange Act File No. 1-1217
Date Filed With Department of State	Form	Date	Exhibit
5/16/88	10-K	12/31/89	3(b)
6/2/89	10-K	12/31/89	3(c)
4/28/92	8-K	4/24/92	4(d)
8/21/92	8-K	8/20/92	4(e)
2/18/98	10-K	12/31/97	3.1.2.3

3.2.2		By-laws of Con Edison of New York, effective June 20, 2002. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File 1-1217 as Exhibit 3.2.)
4.2.1		Participation Agreement, dated as of December 1, 1992, between New York State Energy Research and Development Authority ("NYSERDA") and Con Edison of New York (designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 4(f)), and the following amendments thereto, which are designated as follows:

Supplemental Participation Agreement		Securities Exchange Act File No. 1-1217
Number	Date	Form	Date	Exhibit
First	3/15/93	10-Q	6/30/93	4.1
Second	10/1/93	10-Q	9/30/93	4.3
Third	12/1/94	10-K	12/31/94	4.7.3
Fourth	7/1/95	10-Q	6/30/95	4.2

4.2.2		Participation Agreement, dated as of July 1, 1999, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (File No. 1-1217) as Exhibit 4.1.)
4.2.3		Participation Agreement, dated as of June 1, 2001, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-1217) as Exhibit 10.2.1)
4.2.4		Supplemental Participation Agreement, dated as of October 1, 2002, to Participation Agreement, dated as of June 1, 2001 between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File 1-1217) as Exhibit 4.2.2.)
4.2.5		Participation Agreement, dated as of November 1, 2001, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 (File No. 1-1217) as Exhibit 10.2.1)
4.2.6		Indenture of Trust, dated as of December 1, 1992, between NYSERDA and Morgan Guaranty Trust Company of New York, as Trustee (Morgan Guaranty) (designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 4(i)), and the following amendments thereto, which are designated as follows:

Supplemental Indenture of Trust		Securities Exchange Act File No. 1-1217
Number	Date	Form	Date	Exhibit
First	3/15/93	10-Q	6/30/93	4.2
Second	10/1/93	10-Q	9/30/93	4.4
Third	12/1/94	10-K	12/31/94	4.11.3
Fourth	7/1/95	10-Q	6/30/95	4.3

208

4.2.7.1		Indenture of Trust, dated as of July 1, 1999 between NYSERDA and HSBC Bank USA, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (File No. 1-1217) as Exhibit 4.2.)
4.2.7.2		Supplemental Indenture of Trust, dated as of July 1, 2001, to Indenture of Trust, dated July 1, 1999 between NYSERDA and HSBC Bank USA, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-1217) as Exhibit 10.2.2.)
4.2.8.1		Indenture of Trust, dated as of June 1, 2001 between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-1217) as Exhibit 10.2.3.)
4.2.8.2		Supplemental Indenture of Trust, dated as of October 1, 2002, to Indenture of Trust, dated as of June 1, 2002, between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File 1-1217) as Exhibit 4.2.1.)
4.2.9		Indenture of Trust, dated as of November 1, 2001 between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 (File No. 1-1217) as Exhibit 10.2.2.)
4.2.10.1		Indenture, dated as of December 1, 1990, between Con Edison of New York and The Chase Manhattan Bank (National Association), as Trustee (the "Debenture Indenture"). (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 1-1217) as Exhibit 4(h).)
4.2.10.2		First Supplemental Indenture (to the Debenture Indenture), dated as of March 6, 1996, between Con Edison of New York and The Chase Manhattan Bank (National Association), as Trustee. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-1217) as Exhibit 4.13.)
4.2.10.3		The following forms of Con Edison of New York's Debentures:

	Securities Exchange Act File No. 1-1217					Securities Exchange Act File No. 1-1217
Debenture	Form	Date	Exhibit		Debenture	Form	Date	Exhibit
7⁵/8%, Series 1992 B	8-K	2/5/92	4(b	)	6.15%, Series 1998 C	8-K	6/22/98	4
6³/8%, Series 1993 D	8-K	4/7/93	4		6.90%, Series 1998 D	8-K	9/24/98	4
7¹/2%, Series 1993 G	8-K	6/7/93	4		7.35%, Series 1999 A	8-K	6/25/99	4
7¹/8%, Series 1994 A	8-K	2/8/94	4		7.15%, Series 1999 B	8-K	12/1/99	4
6⁵/8%, Series 1995 A	8-K	6/21/95	4		8¹/8%, Series 2000 A	8-K	5/3/00	4
7³/4%, Series 1996 A	8-K	4/24/96	4		7¹/2%, Series 2000 B	8-K	8/23/00	4
6.45%, Series 1997 B	8-K	11/24/97	4		6⁵/8%, Series 2000 C	8-K	12/12/00	4
6¹/4%, Series 1998 A	8-K	1/29/98	4.1		7¹/2%, Series 2001 A	8-K	6/14/01	4
7.10%, Series 1998 B	8-K	1/29/98	4.2		5.625%, Series 2002 A	8-K	6/19/02	4
					4.875%, Series 2002 B	8-K	12/19/02	4

10.2.1		Amended and Restated Agreement and Settlement, dated September 19, 1997, between Con Edison of New York and the Staff of the New York State Public Service Commission (without Appendices). (Designated in Con Edison of New York's Current Report on Form 8-K, dated September 23, 1997, (File No. 1-1217) as Exhibit 10.)
10.2.2		Settlement Agreement, dated October 2, 2000, by and among Con Edison of New York, the Staff of the New York State Public Service Commission and certain other parties. (Designated in Con Edison of New York's Current Report on Form 8-K, dated September 22, 2000, (File No. 1-1217) as Exhibit 10.)

209

10.2.3.1		Planning and Supply Agreement, dated March 10, 1989, between Con Edison of New York and the Power Authority of the State of New York. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 10(gg).)
10.2.3.2		Delivery Service Agreement, dated March 10, 1989, between Con Edison of New York and the Power Authority of the State of New York. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 10(hh).)
10.2.4.		Employment Contract, dated May 22, 1990, between Con Edison of New York and Eugene R. McGrath (designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1990 (File No. 1-1217) as Exhibit 10) and the following amendments thereto, which are designated as follows:

	Securities Exchange Act File No. 1-1217
Amendment Date	Form	Date	Exhibit
8/27/91	10-Q	9/30/91	19
8/25/92	10-Q	9/30/92	19
2/18/93	10-K	12/31/92	10(o	)
8/24/93	10-Q	9/30/93	10.1
8/24/94	10-Q	9/30/94	10.1
8/22/95	10-Q	9/30/95	10.3
7/23/96	10-Q	6/30/96	10.2
7/22/97	10-Q	6/30/97	10
7/28/98	8-K	9/24/98	10
7/27/99	10-Q	9/30/99	10.2
7/20/00	10-Q	9/30/00	10.2.1

10.2.5		Agreement and Plan of Exchange, entered into on October 28, 1997, between Con Edison and Con Edison of New York. (Designated in the Registration Statement on Form S-4 of Con Edison (No. 333-39164) as Exhibit 2.)
10.2.6		The Consolidated Edison Company of New York, Inc. Executive Incentive Plan, as amended and restated as of August 1, 2000. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001 (File No. 1-1217) as Exhibit 10.2.1.)
10.2.7		Consolidated Edison Company of New York, Inc Supplemental Retirement Income Plan, as amended and restated as of April 1, 1999. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-1217) as Exhibit 10.10.)
10.2.8		Deferred Compensation Plan for the Benefit of Trustees of Con Edison of New York, dated February 27, 1979, and amendments thereto, dated September 19, 1979 (effective February 27, 1979), February 26, 1980, and November 24, 1992 (effective January 1, 1993). (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1217) as Exhibit 10(i).)
10.2.9		Supplemental Medical Plan for the Benefit of Con Edison of New York's officers. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1217) as Exhibit 10(aa).)

210

10.2.10

The Consolidated Edison Retiree Health Program for Management Employees, effective as of January 1, 1993 (designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 10(ll)) and the following amendments thereto, which are designated as follows:

	Securities Exchange Act File No. 1-1217
Amendment Date	Form	Date	Exhibit
10/31/94	10-Q	9/30/94	10.3
12/28/94	10-K	12/31/95	10.44
12/29/95	10-K	12/31/95	10.45
7/1/96	10-K	12/31/96	10.39
11/14/97	10-K	12/31/97	10.18.3
12/30/98	10-K	12/31/98	10.16.3

10.2.11		The Con Edison of New York Severance Pay Plan for Management Employees. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (File No. 1-1217) as Exhibit 10.)
10.2.12.1		The Consolidated Edison Company of New York, Inc. Deferred Income Plan, as amended and restated as of April 1, 1999. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-1217) as Exhibit 10.19.)
10.2.12.2		Amendment No. 1 to The Consolidated Edison Company of New York, Inc. Deferred Income Plan, effective as of September 1, 2000. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001 (File No. 1-1217) as Exhibit 10.2.2.)
12.2		Statement of computation of ratio of earnings to fixed charges for the years 1998 - 2002.
23.2		Consent of PricewaterhouseCoopers LLP.
24.2		Powers of Attorney of each of the persons signing this report by attorney-in-fact. (Included as part of Exhibit 24.1.)
99.2.1		Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.
99.2.2		Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.

O&R

3.3.1.1		Restated Certificate of Incorporation of O&R, dated May 7, 1996. (Designated in O&R's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-4315) as Exhibit 3.4.)
3.3.1.2		Certificate of Amendment of the Restated Certificate of Incorporation of O&R, dated July 14, 1999. (Designated in O&R's Form 10-Q for the period ended June 30, 1999 (File No. 1-4315) as Exhibit 3.1.)
3.3.2		By-laws of O&R, as Adopted on July 8, 1999. (Designated in O&R's Form 10-Q for the period ended June 30, 1999 (File No. 1-4315) as Exhibit 3.2.)
4.3.1.1		Indenture, dated as of June 15, 2000, between O&R and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee.
4.3.1.2		The form of O&R's 7.50% Debentures, Series 2000 A. (Designated in O&R's Current Report on Form 8-K, dated June 13, 2000 (File No. 1-4315 as Exhibit 4.)
4.3.2		Mortgage Trust Indenture of Rockland Electric Company, dated as of July 1, 1954. (Designated in O&R's Registration Statement No. 2-14159 as Exhibit 2.16.)

211

4.3.3		Mortgage Trust Indenture of Pike County Light & Power Company, dated as of July 15, 1971. (Designated in O&R's Registration Statement No. 2-45632 as Exhibit 4.31.)
12.3		Statement of computation of ratio of earnings to fixed charges for the years ended 1998 - 2002.
21.3		Subsidiaries of O&R. (Included as part of Exhibit 21.1 hereto.)
24.3		Powers of Attorney of each of the persons signing this report by attorney-in-fact. (Included as part of Exhibit 24.1 hereto.)
99.3.1		Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.
99.3.2		Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

CON EDISON

Con Edison filed no Current Reports on Form 8-K during the quarter ended December 31, 2002. Con Edison filed a Current Report on Form 8-K, dated January 16, 2003, reporting (under Item 5) its unaudited net income for common stock for the year ended December 31, 2002 and certain information about its pension plan and furnishing (under Item 9) a copy of its press release, dated January 16, 2003, and certain additional information. Con Edison also filed a Current Report on Form 8-K, dated February 11, 2003, furnishing (under Item 9) a presentation dated February 11, 2003.

CON EDISON OF NEW YORK

Con Edison of New York filed a Current Report on Form 8-K, dated December 19, 2002, reporting (under Item 5) the completion the sale of $500 million aggregate principal amount of its 4.875% Debentures, Series 2002 B. No other Con Edison of New York Current Report on Form 8-K was filed during the quarter ended December 31, 2002.

O&R

O&R filed no Current Reports on Form 8-K during the quarter ended December 31, 2002.

212

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 27, 2003.

Consolidated Edison, Inc.
Consolidated Edison Company of New York, Inc.			Orange and Rockland Utilities, Inc.
By	/s/ JOAN S. FREILICH Joan S. Freilich Executive Vice President and Chief Financial Officer	By	/s/ EDWARD J. RASMUSSEN Edward J. Rasmussen Vice President, Controller and Chief Financial Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities, indicated on February 27, 2003.

Signature	Registrant	Title
Eugene R. McGrath*	Con Edison	Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)
	Con Edison of New York	Chairman of the Board, Chief Executive Officer and Trustee (Principal Executive Officer)
	O&R	Chairman of the Board and Director
Joan S. Freilich*	Con Edison	Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer)
	Con Edison of New York	Executive Vice President, Chief Financial Officer and Trustee (Principal Financial Officer)
Edward J. Rasmussen*	Con Edison	Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)
	Con Edison of New York	Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)
	O&R	Vice President, Controller, and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
John D. McMahon*	O&R	President, Chief Executive Officer and Director (Principal Executive Officer)
Vincent A. Calarco*	Con Edison	Director
	Con Edison of New York	Trustee
George Campbell Jr.*	Con Edison	Director
	Con Edison of New York	Trustee
Gordon J. Davis*	Con Edison	Director
	Con Edison of New York	Trustee
Michael J. Del Guidice*	Con Edison	Director
	Con Edison of New York	Trustee
Ellen V. Futter*	Con Edison	Director
	Con Edison of New York	Trustee
Sally Hernandez-Pinero*	Con Edison	Director
	Con Edison of New York	Trustee
Peter W. Likins*	Con Edison	Director
	Con Edison of New York	Trustee
Frederic V. Salerno*	Con Edison	Director
	Con Edison of New York	Trustee
Richard A. Voell*	Con Edison	Director
	Con Edison of New York	Trustee
Stephen R. Volk*	Con Edison	Director
George Strayton*	O&R	Director
*By JOAN S. FREILICH, Attorney-in-fact

213

CERTIFICATIONS

CON EDISON—Principal Executive Officer

I, Eugene R. McGrath, the principal executive officer of Consolidated Edison, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Consolidated Edison, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ EUGENE R. MCGRATH Eugene R. McGrath Chairman, President and Chief Executive Officer

214

CON EDISON—Principal Financial Officer

I, Joan S. Freilich, the principal financial officer of Consolidated Edison, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Consolidated Edison, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ JOAN S. FREILICH Joan S. Freilich Executive Vice President and Chief Financial Officer

215

CON EDISON OF NEW YORK—Principal Executive Officer

I, Eugene R. McGrath, the principal executive officer of Consolidated Edison Company of New York, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Consolidated Edison Company of New York, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ EUGENE R. MCGRATH Eugene R. McGrath Chairman and Chief Executive Officer

216

CON EDISON OF NEW YORK—Principal Financial Officer

I, Joan S. Freilich, the principal financial officer of Consolidated Edison Company of New York, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Consolidated Edison Company of New York, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ JOAN S. FREILICH Joan S. Freilich Executive Vice President and Chief Financial Officer

217

O&R—Principal Executive Officer

I, John D. McMahon, the principal executive officer of Orange and Rockland Utilities, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Orange and Rockland Utilities, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ JOHN D. MCMAHON John D. McMahon President and Chief Executive Officer

218

O&R—Principal Financial Officer

I, Edward J. Rasmussen, the principal financial officer of Orange and Rockland Utilities, Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Orange and Rockland Utilities, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003
		/s/ EDWARD J. RASMUSSEN Edward J. Rasmussen Vice President and Chief Financial Officer

219

QuickLinks

Table of Contents
Glossary of Terms
Con Edison of New York OPERATING STATISTICS
Con Edison of New York OPERATING STATISTICS (CONTINUED)
O&R OPERATING STATISTICS
O&R OPERATING STATISTICS (CONTINUED)

ITEM 3. LEGAL PROCEEDINGS

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA



                                                                EXHIBIT 10.1.9.1

                                                                  EXECUTION COPY

                                    GUARANTY

          GUARANTY, dated as of November 14, 2000 (this "GUARANTY"), from
CONSOLIDATED EDISON, INC., a New York corporation (the "GUARANTOR"), in favor of
HAWKEYE FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership (the
"LESSOR"), and its successors and assigns.

          WHEREAS, the Guarantor wishes to induce the Lessor to enter into a
certain Agreement for Lease (as defined below) and Lease (as defined below) with
a Subsidiary (as defined below) of the Guarantor; and

          WHEREAS, the Lessor is unwilling to enter into the Agreement for Lease
or the Lease unless the Guarantor enters into this Guaranty;

          NOW, THEREFORE, in order to induce the Lessor to enter into the
Agreement for Lease and the Lease, the Guarantor hereby agrees as follows:

                                    SECTION 1

                                 DEFINED TERMS;
                              RULES OF CONSTRUCTION

          1.1  DEFINITIONS. As used in this Guaranty, capitalized terms defined
in the preamble and other Sections of this Guaranty shall have the meanings set
forth therein, terms defined in EXHIBIT A shall have the meanings set forth
therein, and capitalized terms used herein or in EXHIBIT A but not otherwise
defined herein or in EXHIBIT A shall, except as otherwise provided in the
Agreement for Lease or the Lease, have the meanings set forth in the Lease, for
any period on or after the Effective Date (as defined in the Lease) or the
Agreement for Lease, for any period prior thereto.

          1.2  ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.

          1.3  USE OF CERTAIN TERMS. Unless the context of this Guaranty
requires otherwise, the plural includes the singular, the singular includes the
plural, and "including" has the inclusive meaning of "including without
limitation." The words "hereof," "herein," "hereby," "hereunder" and other
similar terms of this Guaranty refer to this Guaranty as a whole and not
exclusively to any particular provision of this Guaranty. All pronouns and any
variations thereof shall be deemed to refer to masculine, feminine or neuter,
singular or plural, as the identity of the Person or Persons may require.

          1.4  HEADINGS AND REFERENCES. Section and other headings are for
reference only, and shall not affect the interpretation or meaning of any
provision of this Guaranty. Unless otherwise provided, references to Articles,
Sections, Schedules and Exhibits shall be deemed references to Articles,
Sections, Schedules and Exhibits of this Guaranty. References to this Guaranty
and any



other Operative Document include this Guaranty and the other Operative Documents
as the same may be modified, amended, restated or supplemented from time to time
pursuant to the provisions hereof or thereof. A reference to any law shall mean
that law as it may be amended, modified or supplemented from time to time, and
any successor law. A reference to a Person includes the successors and assigns
of such Person, but such reference shall not increase, decrease or otherwise
modify in any way the provisions in this Guaranty governing the assignment of
rights and obligations under or the binding effect of any provision of this
Guaranty.

                                    SECTION 2

                                    GUARANTY

          2.1  GUARANTY. Subject to the terms and conditions in this Guaranty,
the Guarantor absolutely, unconditionally and irrevocably guarantees to the
Lessor and each Assignee that (a) all Payment Obligations will be promptly paid
in full as and when due in accordance with the terms thereof whether at the
stated due date, by acceleration or otherwise, and (b) the Lessee will duly and
punctually perform, comply with and observe all Covenant Obligations as and when
required in accordance with the terms thereof, in each case, without regard to
whether such Obligation is direct or indirect, absolute or contingent, now or
hereafter existing or owing, voluntary or involuntary, created or arising by
contract, operation of law or otherwise or incurred or payable before or after
commencement of any proceedings by or against the Lessee under any Bankruptcy
law.

          If an event permitting the exercise of remedies under the Operative
Documents shall at any time have occurred and be continuing and such exercise,
or any consequences thereof provided in the Operative Documents, shall at such
time be prevented by reason of the pendency against the Lessee of a case or
proceeding under any Bankruptcy law, the Guarantor agrees that, solely for
purposes of this Guaranty and its obligations hereunder, the Obligations and all
other amounts as to which such remedies would have been exercisable under the
Operative Documents in the absence of such case or proceeding shall be deemed to
have been declared in default, with all attendant consequences as provided in
the Operative Documents as if such declaration of default and the consequences
thereof had been accomplished in accordance with the terms of the Operative
Documents, and the Guarantor shall forthwith pay any such amounts guaranteed
hereunder, without further notice or demand.

          2.2  GUARANTY ABSOLUTE. This Guaranty is an absolute, unlimited and
continuing guaranty of performance and payment (and not of collection) of the
Obligations. This Guaranty is in no way conditioned upon any attempt to collect
from the Lessee or upon any other event or contingency, and shall be binding
upon and enforceable against the Guarantor without regard to the validity or
enforceability of any Operative Document, or of any term thereof.

          The obligations of the Guarantor set forth herein constitute the full
recourse obligations of the Guarantor enforceable against it to the full extent
of all its assets and properties, notwithstanding any provision in the Agreement
for Lease or the Lease limiting the liability of any Person, or any agreement by
Assignee to look for payment with respect thereto, solely to certain property
and other collateral as described in the Operative Documents. Without limiting

                                       -2-


the foregoing, it is agreed and understood that (a) repeated and successive
demands may be made and recoveries may be had hereunder as and when, from time
to time, the Lessee shall be in default with respect to the Obligations under
the terms of any Operative Document, and (b) notwithstanding the recovery
hereunder for or in respect of any given default with respect to the Obligations
by the Lessee under the Agreement for Lease or the Lease, this Guaranty shall
remain in full force and effect and shall apply to each and every subsequent
default with respect to the Obligations.

          2.3  REINSTATEMENT. In case any Operative Document shall be terminated
as a result of the rejection thereof by any trustee, receiver or liquidating
agent of the Lessee or any of its properties in any Bankruptcy or similar
proceeding, the Guarantor's obligations hereunder shall continue to the same
extent as if such agreement had not been so rejected. The Guarantor agrees that
this Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time payment to the Lessor of the Obligations or any part thereof
is rescinded or must otherwise be returned by the Lessor upon the Bankruptcy of
the Lessee, or otherwise, as though such payment to the Lessor had not been
made.

          2.4  ENFORCEMENT. The Guarantor shall pay all costs, expenses and
damages incurred (including reasonable attorneys' fees and disbursements) in
connection with the enforcement of the Obligations to the extent that such
costs, expenses and damages are not paid by the Lessee, and in connection with
the enforcement of the obligations of the Guarantor under this Guaranty.

          2.5  GUARANTY NOT SUBJECT TO SETOFF, ETC. The obligations of the
Guarantor hereunder shall not be subject to any counterclaim, setoff, deduction
or defense based upon any claim the Guarantor or the Lessee may have against the
Lessor or any claim the Guarantor may have against the Lessee or any other
Person and shall remain in full force and effect without regard to, and shall
not be released, discharged, reduced or in any way affected by any circumstance
or condition whatsoever (whether or not the Guarantor shall have any knowledge
or notice thereof) which might constitute a legal or equitable discharge or
defense including, but not limited to, (a) the amending, modifying,
supplementing or terminating (by operation of law or otherwise), expressly or
impliedly, of any Operative Document, or any other instrument applicable to the
Lessee or to its Obligations, or any part thereof; (b) any failure on the part
of the Lessee to perform or comply with any term of any Operative Document or
any failure of any other Person to perform or comply with any term of any
Operative Document; (c) any waiver, consent, change, extension, indulgence or
other action or any action or inaction under or in respect of any Operative
Document or this Guaranty, whether or not the Lessor, the Lessee or the
Guarantor has notice or knowledge of any of the foregoing; (d) any Bankruptcy or
similar proceeding with respect to the Lessor, the Guarantor or the Lessee, or
their respective properties or their creditors, or any action taken by any
trustee or receiver or by any court in any such proceeding; (e) any furnishing
or acceptance of additional security or any release of any security (and the
Guarantor authorizes the Lessor to furnish, accept or release said security);
(f) any limitation on the liability or Obligations of the Lessee under any
Operative Document (except as expressly set forth therein) or any termination
(by operation of law or otherwise), cancellation (by operation of law or
otherwise), frustration or unenforceability, in whole or in part, of any
Operative Document, or any term thereof; (g) any lien, charge or encumbrance on
or affecting the Guarantor's, the Lessor's or the Lessee's respective assets and
properties; (h) any act, omission or breach on the part of the Lessor or
Assignee under any Operative Document, or any other agreement at any

                                       -3-


time existing between the Lessor and the Lessee or any other law, governmental
regulation or other agreement applicable to the Lessor or any Obligation; (i)
any claim as a result of any other dealings among the Lessor, any Assignee, the
Guarantor or any of them; (j) the assignment or transfer of this Guaranty, any
Operative Document (whether or not in accordance with and subject to the terms
thereof) or any other agreement or instrument referred to in any Operative
Document or applicable to the Lessee or the Obligations by the Lessor to any
other Person; (k) any change in the name of the Lessor, Assignee, the Lessee or
any other Person; (l) any subleasing or further subleasing of the Project or any
part thereof, or any redelivery, repossession, sale, transfer or other
disposition, surrender or destruction of the Project or any part thereof; (m)
the transfer, assignment, mortgaging or purported transfer, assignment or
mortgaging of all or any part of the interest of the Lessor, its successors or
assigns, or the Lessee in the Project; (n) any failure of title with respect to
the interest of the Lessor or the Lessee, or their respective successors and
assigns, in the Project; (o) any defect in the compliance with specifications,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, or any interruption or cessation in the use of or failure to
complete, the Project or any portion thereof by the Lessee or any other Person
for any reason whatsoever (including, without limitation, any governmental
prohibition or restriction, condemnation, requisition, seizure or any other act
on the part of any governmental or military authority, or any act of God or of
the public enemy, or any Event of Loss), and regardless of the duration thereof
(even though such duration would otherwise constitute a frustration of the
Lease), whether or not without fault on the part of the Lessee or any other
Person; (p) any merger or consolidation of the Lessee or the Guarantor into or
with any other Person or any direct or indirect sale, lease or transfer of any
other assets of the Lessee or the Guarantor to any other Person; (q) any change
in the ownership of any shares of capital stock or other equity interests of the
Guarantor or the Lessee (including any such change which results in the
Guarantor no longer owning (directly or indirectly) capital stock of the
Lessee); or (r) any other event or circumstance whatsoever (other than payment
and performance in full of the Obligations).

          2.6  WAIVER. The Guarantor unconditionally waives: (a) notice of any
of the matters referred to in Section 2 hereof; (b) all notices which may be
required by statute, rule of law or otherwise to preserve any rights against the
Guarantor hereunder, including notice of the acceptance of this Guaranty by the
Lessor or Assignee, or the creation, renewal, extension, modification or accrual
of the Obligations or notice of any other matters relating thereto, any
presentment, demand, notice of dishonor, protest or nonpayment of any damages or
other amounts payable under any Operative Document; (c) any requirement for the
enforcement, assertion or exercise of any right, remedy, power or privilege
under or in respect of any Operative Document, including diligence in collection
or protection of or realization upon the Obligations or any part thereof or any
collateral therefor; (d) any requirement of diligence; (e) any requirement to
mitigate the damages resulting from a default or other termination under any
Operative Document, except that this shall not relieve the Lessor or such
Assignee of any such obligation; (f) the occurrence of every other condition
precedent to which the Guarantor or the Lessee may otherwise be entitled, except
as provided in any Operative Document; and (g) the right to require the Lessor
or such Assignee to proceed against the Lessee or any other Person liable on the
Obligations, to proceed against or exhaust security held from the Lessee or any
other Person, or to pursue any other remedy in the Lessor's power whatsoever,
and the Guarantor waives the right to have the property of the Lessee first
applied to the discharge of the Obligations.

                                       -4-


          The Lessor or Assignee may, at its election, exercise any right or
remedy it might have against the Lessee or any security held by the Lessor or
such Assignee, including the right to foreclose upon any such security by
judicial or nonjudicial sale, without affecting or impairing in any way the
liability of the Guarantor hereunder, except to the extent the Obligations have
been paid or satisfied, and the Guarantor waives any defense arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of the Guarantor against the Lessee or
any such security, whether resulting from such election by the Lessor or such
Assignee or otherwise. The Guarantor waives any defense arising by reason of any
disability or other defense of the Lessee, or by reason of the cessation from
any cause whatsoever of the liability, either in whole or in part, of the Lessee
to the Lessor or Assignee for the Obligations.

          The Guarantor understands that the Lessor's or Assignee's exercise of
certain rights and remedies contained in the Operative Documents may affect or
eliminate the Guarantor's rights of subrogation against the Lessee and that the
Guarantor may therefore incur partially or totally nonreimbursable liability
hereunder; nevertheless, the Guarantor hereby authorizes and empowers the Lessor
and each Assignee, to exercise in its or their sole discretion, any rights and
remedies, or any combination thereof, which may then be available, it being the
purpose and intent of the Guarantor that its obligations hereunder shall be
absolute, irrevocable, independent and unconditional under any and all
circumstances.

          The Guarantor assumes the responsibility for being and keeping
informed of the financial condition of the Lessee and of all other circumstances
bearing upon the risk of nonpayment of the Obligations and agrees that neither
the Lessor nor Assignee shall have any duty to advise the Guarantor of
information regarding any condition or circumstance or any change in such
condition or circumstance. The Guarantor acknowledges that neither the Lessor
nor Assignee has made any representation to the Guarantor concerning the
financial condition of the Lessee.

                                    SECTION 3

                           COVENANTS OF THE GUARANTOR

          3.1  AFFIRMATIVE COVENANTS. So long as any of the Obligations shall
remain outstanding, the Guarantor covenants to the Lessor and Assignee as
follows:

               3.1.1  OWNERSHIP OF CORE ELECTRICITY DISTRIBUTION BUSINESS. The
Guarantor shall at all times continue to beneficially own and operate, directly
or indirectly, at least fifty-one percent (51%) of the Core Electricity
Distribution Business.

               3.1.2  OWNERSHIP OF LESSEE. The Guarantor shall own (directly or
indirectly) beneficially and of record a majority of the membership interests of
the Lessee.

               3.1.3  FINANCIAL AND BUSINESS INFORMATION. The Guarantor will
deliver or otherwise make available to the Lessor and Assignee:

               (a) QUARTERLY STATEMENTS -- within 60 days after the end of each
          quarterly fiscal period in each fiscal year of the Guarantor (other
          than the last quarterly fiscal period of each such fiscal year),
          copies of:

                                       -5-


                     (i)    a consolidated balance sheet of the Guarantor and
               its Consolidated Subsidiaries as at the end of such quarter, and

                     (ii)   consolidated statements of income and cash flows of
               the Guarantor and its Consolidated Subsidiaries, for such quarter
               and (in the case of the second and third quarters) for the
               portion of the fiscal year ending with such quarter,

          setting forth in each case in comparative form the figures for the
          corresponding periods in the previous fiscal year, all in reasonable
          detail, prepared in accordance with GAAP applicable to quarterly
          financial statements generally, and certified by a Senior Financial
          Officer as fairly presenting, in all material respects, the financial
          position of the companies being reported on and their results of
          operations and cash flows, subject to changes resulting from year-end
          adjustments, PROVIDED that filing with the SEC of the Guarantor's
          Quarterly Report on Form 10-Q prepared in compliance with the
          requirements therefor shall be deemed to satisfy the requirements of
          this Section 3.1.3(a);

               (b) ANNUAL STATEMENTS -- as soon as available and in any event
          within 120 days after the end of each fiscal year of the Guarantor,
          copies of

                     (i)    a consolidated balance sheet of the Guarantor and
               its Consolidated Subsidiaries as at the end of such year, and

                     (ii)   consolidated statements of income, changes in
               shareholders' equity and cash flows of the Guarantor and its
               Consolidated Subsidiaries for such year,

          setting forth in each case in comparative form the figures for the
          previous fiscal year, all in reasonable detail, prepared in accordance
          with GAAP, and accompanied by an opinion thereon of independent public
          accountants of recognized national standing, which opinion shall state
          that such financial statements present fairly, in all material
          respects, the financial position of the companies being reported upon
          and their results of operations and cash flows and have been prepared
          in conformity with GAAP, and that the examination of such accountants
          in connection with such financial statements has been made in
          accordance with generally accepted auditing standards, and that such
          audit provides a reasonable basis for such opinion in the
          circumstances, PROVIDED that filing with the SEC of the Guarantor's
          Annual Report on Form 10-K for such fiscal year (together with the
          Guarantor's annual report to shareholders, if any, prepared pursuant
          to Rule 14a-3 under the Exchange Act) prepared in accordance with the
          requirements therefor shall be deemed to satisfy the requirements of
          this Section 3.1.3(b);

               (c) NOTICE OF POTENTIAL DEFAULT OR EVENT OF DEFAULT -- promptly,
          and in any event within five days after a Responsible Officer's
          becoming aware of the existence of any Potential Default or Event of
          Default, a written notice specifying the nature and period of
          existence thereof and what action the Guarantor is taking or proposes
          to take with respect thereto;

               (d) NO DEFAULT CERTIFICATES -- simultaneously with the delivery
          or earliest availability of each set of quarterly and annual financial
          statements referred to in paragraphs (a) and (b) of this Section
          3.1.3, a certificate of a Responsible Officer stating,

                                       -6-


          to the best knowledge of such Responsible Officer after reasonable
          inquiry, whether there exists on the date of such certificate any
          Potential Default or Event of Default, and if any Potential Default or
          Event of Default exists, specifying the nature and period of existence
          thereof and what action, if any, the Guarantor has taken, is taking,
          or proposes to take with respect thereto;

               (e) ERISA MATTERS -- promptly, and in any event within thirty
          (30) days after a Responsible Officer's becoming aware of any of the
          following, a written notice setting forth the nature thereof and the
          action, if any, that the Guarantor or a member of the ERISA Group
          proposes to take with respect thereto:

                     (i)    with respect to any Plan, any reportable event, as
               defined in section 4043(b) of ERISA and the regulations
               thereunder, for which notice thereof has not been waived pursuant
               to such regulations as in effect on the date hereof, or any
               successor regulations; or

                     (ii)   the taking by the PBGC of steps to institute, or the
               threatening by the PBGC of the institution of, proceedings under
               section 4042 of ERISA for the termination of, or the appointment
               of a trustee to administer, any Plan, or the receipt by the
               Guarantor or any member of the ERISA Group of a notice from a
               Multiemployer Plan that such action has been taken by the PBGC
               with respect to such Multiemployer Plan; or

                     (iii)  any event, transaction or condition that could
               result in the incurrence of any liability by the Guarantor or any
               member of the ERISA Group pursuant to Title I or IV of ERISA or
               the penalty or excise tax provisions of the Code relating to
               employee benefit plans, or in the imposition of any Lien on any
               of the rights, properties or assets of the Guarantor or any
               member of the ERISA Group pursuant to Title I or IV of ERISA or
               such penalty or excise tax provisions, if such liability or Lien,
               taken together with any other such liabilities or Liens then
               existing, will result, directly or indirectly, in a Material
               Adverse Effect; and

               (f) REQUESTED INFORMATION -- with reasonable promptness, and in
          any event within sixty (60) days after such request, such other data
          and information relating to the business, operations, affairs,
          financial condition, assets or properties of the Guarantor, any of its
          Material Subsidiaries or the Lessee as from time to time may be
          requested by the Lessor or Assignee, to the extent that such data and
          information relates to the ability of the Guarantor to perform its
          obligations under this Guaranty or the Consent and Agreement (as
          defined in the Note Purchase Agreement) of Guarantor or the ability of
          the Lessee to perform its obligations under the Agreement for Lease
          and the Lease.

               3.1.4  INTENTIONALLY OMITTED.

               3.1.5  INSPECTION. The Guarantor shall permit the Lessor, each
Qualifying Noteholder or their respective representatives: (a) at the expense of
the Lessor or such Qualifying Noteholder, as the case may be, if the Guarantor
is no longer required to make public filings with the SEC under the Securities
Exchange Act of 1934, as amended, or (b) at the expense of the

                                       -7-


Guarantor, if an Event of Default under the Lease or the Agreement for Lease
then exists, to visit and inspect any of the offices or properties of the
Guarantor, any Material Subsidiary or the Lessee, to discuss their respective
affairs, finances and accounts with their respective officers and independent
public accountants (and by this provision the Guarantor authorizes said
accountants to discuss the affairs, finances and accounts of the Guarantor, its
Material Subsidiaries and the Lessee), all at such times and as often as may be
requested (and subject to the requirement that each such representative sign the
Guarantor's customary confidentiality agreement with respect to any proprietary
information sought to be examined or discussed and compliance with the
Guarantor's or any Material Subsidiary's safety procedures), to the extent that
such examinations and discussions relate to the ability of the Guarantor to
perform its obligations under this Guaranty or the Consent and Agreement (as
defined in the Note Purchase Agreement) of the Guarantor or the ability of the
Lessee to perform its obligations under the Agreement for Lease and the Lease.

               3.1.6  COMPLIANCE WITH LAW. Without limiting the requirements of
Section 2 of the Lease, the Guarantor will and will cause each of its Material
Subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
Environmental Requirements, except where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or except where the
failure to comply will not result, directly or indirectly, in a Material Adverse
Effect.

               3.1.7  INTENTIONALLY OMITTED.

               3.1.8  MAINTENANCE OF PROPERTIES. Without limiting the
requirements of Section 9 of the Lease, the Guarantor will and will cause each
of its Material Subsidiaries to maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times, provided that
subject to the provisions of Section 3.1.1 hereof, this Section 3.1.8 shall not
prevent the Guarantor or any Material Subsidiary from disposing of or
discontinuing the operation and maintenance of any of its properties if such
disposition or discontinuance is desirable in the conduct of its business and
the Guarantor has concluded that such disposition or discontinuance will not,
directly or indirectly and individually or in the aggregate, result in a
Material Adverse Effect.

               3.1.9  PAYMENT OF TAXES AND CLAIMS. The Guarantor will and will
cause each of its Material Subsidiaries to file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of the
Guarantor or any Material Subsidiary, provided that neither the Guarantor nor
any Material Subsidiary need pay any such tax, assessment, charge, levy or claim
if (a) the amount, applicability or validity thereof is contested by the
Guarantor or such Material Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Guarantor or a Material Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Guarantor or such Material

                                       -8-


Subsidiary or (b) the nonpayment of all such taxes, assessments, charges, levies
or claims in the aggregate will not, directly or indirectly, result in a
Material Adverse Effect.

               3.1.10 CORPORATE EXISTENCE, ETC. Subject to Section 3.2.1, the
Guarantor will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 3.2.1, the Guarantor will at all times
preserve and keep in full force and effect the corporate existence of each of
its Material Subsidiaries and all rights and franchises of the Guarantor and its
Material Subsidiaries unless, in the good faith judgment of the Guarantor, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise will not, directly or indirectly and
individually or in the aggregate, result in a Material Adverse Effect.

          3.2  NEGATIVE COVENANTS. So long as any of the Obligations shall
remain outstanding, the Guarantor will not, and will not permit any Material
Subsidiary to:

               3.2.1  MERGERS AND CONSOLIDATIONS. Directly or indirectly merge
into or consolidate with any Person, except that:

               (a) any Material Subsidiary may merge into or consolidate with
          any other Material Subsidiary (including any Subsidiary that becomes a
          Material Subsidiary in connection with such merger or consolidation);
          and

               (b) any Material Subsidiary may merge into or consolidate with
          the Guarantor, and the Guarantor or any Material Subsidiary may merge
          into or consolidate with any other Person;

PROVIDED that in each case, immediately after giving effect thereto, (i) no
Event of Default shall occur and be continuing, (ii) in the case of any merger
or consolidation to which the Guarantor is not a party, either (A) a Subsidiary
of the Guarantor shall be the continuing or surviving Person or (B) such merger
or consolidation will not impair the ability of the Guarantor to perform its
obligations under this Guaranty, and (iii) in the case of any such merger or
consolidation to which the Guarantor is a party, either (A) the Guarantor is the
continuing or surviving Person or (B) if the Guarantor is not the continuing or
surviving Person: (I) the continuing or surviving Person shall be a corporation,
partnership or limited liability company that is duly formed and validly
existing under the laws of the United States, a State thereof or the District of
Columbia, (II) the continuing or surviving Person shall assume, by execution and
delivery of instruments reasonably satisfactory to the Lessor and Assignee, the
obligations of the Guarantor under this Guaranty and the CEI Note and shall
become successor to the Guarantor for purposes of this Guaranty and the CEI Note
and (III) the continuing or surviving Person shall deliver to the Lessor and
Assignee an opinion of counsel of such continuing or surviving Person, in form
and substance reasonably satisfactory to the Lessor and Assignee, with respect
to the enforceability of the assumption of this Guaranty and the CEI Note by
such continuing or surviving Person.

               3.2.2  CONSOLIDATED DEBT TO CONSOLIDATED CAPITAL. Permit
Consolidated Debt to exceed sixty-seven and one-half percent (67.5%) of
Consolidated Capital.

                                       -9-


                                    SECTION 4

                         REPRESENTATIONS AND WARRANTIES

          The Guarantor represents and warrants to the Lessor and Assignee that:

          4.1  ORGANIZATION; POWER AND AUTHORITY. The Guarantor is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required by
law, except where the failure to so qualify would not materially impair the
ability of the Guarantor to perform its obligations under this Guaranty.

          4.2  CORPORATE POWER. The Guarantor has full corporate power and
authority to execute, deliver and perform its obligations under this Guaranty
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Guaranty.

          4.3  AUTHORIZATION, ETC. This Guaranty has been duly authorized by all
necessary corporate and shareholder action on the part of the Guarantor, and
this Guaranty constitutes a legal, valid and binding obligation of the Guarantor
enforceable against the Guarantor in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

          4.4  DISCLOSURE. The Private Placement Memorandum dated September 2000
(such Private Placement Memorandum (as supplemented by a Supplementary Update on
or about September 21, 2000), together with any documents incorporated therein
by reference, collectively the "MEMORANDUM"), relating to the transactions
contemplated hereby fairly describes, in all material respects, the business and
properties of the Guarantor and its Material Subsidiaries. The Memorandum taken
as a whole does not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading
in light of the circumstances under which they were made. Since December 31,
1999, there has been no change in the financial condition, operations, business
or properties of the Guarantor or any Material Subsidiary except (a) changes
that have been disclosed in the Memorandum or in public filings made by the
Guarantor with the SEC after the date of the Memorandum and prior to the date
hereof, copies of which are attached as Schedule 4.4, and (b) changes that
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on (i) the ability of the Guarantor to perform its
obligations under this Guaranty in a timely manner, (ii) the business, assets,
properties, financial condition, operations or prospects of the Guarantor, or
(iii) the rights or interests of the Lessor or Assignee under this Guaranty.

          4.5  ORGANIZATION AND OWNERSHIP OF SHARES OF MATERIAL SUBSIDIARIES.
(a) Schedule 4.5 to this Guaranty contains on the date hereof complete and
correct lists of (i) the Material Subsidiaries, showing, as to each such
Material Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital stock or
similar equity interests outstanding owned by the Guarantor and each other
Subsidiary of the Guarantor and (ii) the Guarantor's directors and senior
officers.

                                      -10-


               (b)   All of the outstanding shares of capital stock or similar
equity interests of each Material Subsidiary shown in Schedule 4.5 as being
owned by the Guarantor and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Guarantor or another Subsidiary free
and clear of any Lien (except as otherwise disclosed in Schedule 4.5).

               (c)   Each Material Subsidiary is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and is duly qualified as a foreign corporation
or other legal entity and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on (i) the
ability of the Guarantor to perform its obligations under this Guaranty in a
timely manner, (ii) the business, assets, properties, financial condition,
operations or prospects of the Guarantor, or (iii) the rights or interests of
the Lessor or Assignee under this Guaranty. Each such Material Subsidiary has
the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.

               (d)   As of the date hereof, no Material Subsidiary is a party to
or otherwise subject to any legal restriction or any agreement (other than this
Guaranty, the agreements listed on Schedule 4.5 and customary limitations
imposed by corporate law statutes and applicable regulatory requirements,
including without limitation the Public Utility Holding Company Act of 1935 and
similar provisions of state and local law) restricting the ability of such
Material Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Guarantor or any of its Subsidiaries that owns
outstanding shares of capital stock of such Material Subsidiary.

          4.6  FINANCIAL STATEMENTS. The consolidated financial statements of
the Guarantor incorporated by reference in the Memorandum (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Guarantor and its Consolidated
Subsidiaries as of the respective dates of such financial statements and the
consolidated results of their operations and cash flows for the respective
periods of such financial statements and have been prepared in accordance with
GAAP consistently applied throughout the periods involved except as set forth in
the notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).

          4.7  CHANGES. Except as disclosed in the Memorandum or in public
filings made by the Guarantor with the SEC after the date of the Memorandum and
prior to the date hereof, copies of which are attached as Schedule 4.4, since
December 31, 1999, there has been no material adverse change in the business,
assets, properties, revenues, financial condition, operations or prospects of
the Guarantor, nor any change which could reasonably be expected to have a
material adverse effect on (a) the ability of the Guarantor to perform its
obligations under this Guaranty in a timely manner, (b) the business, assets,
properties, financial condition, operations or prospects of the Guarantor, or
(c) the rights or interests of the Lessor or Assignee under this Guaranty.

          4.8  COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution,
delivery and performance by the Guarantor of this Guaranty will not (a)
contravene, result in any breach of, or

                                      -11-


constitute a default under, or result in the creation of any Lien in respect of
any property of the Guarantor or any of its Subsidiaries under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other Material agreement or instrument to which the
Guarantor or any of its Subsidiaries is bound or by which the Guarantor or any
of its Subsidiaries or any of their respective properties may be bound or
affected, (b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority applicable to the Guarantor or any of its
Subsidiaries or (c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Guarantor or any of
its Subsidiaries.

          4.9  GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of any Governmental Authority is required in connection with the
execution, delivery or performance by the Guarantor of this Guaranty.

          4.10 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

               (a)   Except as disclosed in public filings made by the Guarantor
with the SEC prior to the date hereof and in the Memorandum (including the
Guarantor's consolidated financial statements incorporated therein by
reference), there are no actions, suits or proceedings pending or, to the
knowledge of the Guarantor, threatened against or affecting the Guarantor or any
of its Subsidiaries or any property of the Guarantor or any of its Subsidiaries
in any court or before any arbitrator of any kind or before or by any
Governmental Authority, which, if adversely determined, could reasonably be
expected to have a material adverse effect on (i) the ability of the Guarantor
to perform its obligations under this Guaranty in a timely manner, (ii) the
business, assets, properties, financial condition, operations or prospects of
the Guarantor, or (iii) the rights or interests of the Lessor or Assignee under
this Guaranty.

               (b)   Neither the Guarantor nor any of its Subsidiaries is in
default under any term of any agreement or instrument to which it is a party or
by which it is bound, or any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority applicable to it, or is in violation of any
applicable law, ordinance, rule or regulation (including without limitation
Environmental Requirements) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on (i) the ability of the Guarantor to perform
its obligations under this Guaranty in a timely manner, (ii) the business,
assets, properties, financial condition, operations or prospects of the
Guarantor, or (iii) the rights or interests of the Lessor or Assignee under this
Guaranty.

          4.11 TAXES. The Guarantor and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the
nonpayment of which could not, individually or in the aggregate, be expected to
have a material adverse effect on (i) the ability of the Guarantor to perform
its obligations under this Guaranty in a timely manner, (ii) the business,
assets, properties, financial condition, operations or prospects of the
Guarantor, or (iii) the rights or interests of the Lessor or Assignee under this
Guaranty; or (b) the amount, applicability or validity of which is currently
being contested in good faith by

                                      -12-


appropriate proceedings and with respect to which the Guarantor or any of its
Subsidiaries, as the case may be, has established adequate reserves in
accordance with GAAP.

          4.12 TITLE TO PROPERTY; LEASES. The Guarantor and its Material
Subsidiaries have good and sufficient title to their respective properties that
individually or in the aggregate are Material to their respective businesses,
including all such properties reflected in the most recent audited balance sheet
included in the Memorandum or purported to have been acquired by the Guarantor
or any Material Subsidiary after the date of such balance sheet (except as sold
or otherwise disposed of in the ordinary course of business). The Lease and all
other leases of Guarantor and its Material Subsidiaries that individually or in
the aggregate are Material to their respective businesses are valid and
subsisting and are in full force and effect in all material respects.

          4.13 LICENSES, PERMITS, ETC.

               (a)   The Guarantor and its Material Subsidiaries own or possess
all licenses, permits, franchises, authorizations, patents, proprietary
software, copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material, without known
conflict with the rights of others.

               (b)   No product of the Guarantor or any Material Subsidiary
infringes in any Material respect on any license, permit, franchise,
authorization, patent, proprietary software, copyright, service mark, trademark,
trade name or other right owned by any other Person.

               (c)   There is no Material violation by any Person of any right
of the Guarantor or any of its Material Subsidiaries with respect to any patent,
proprietary software, copyright, service mark, trademark, trade name or other
right owned or used by the Guarantor or any of its Material Subsidiaries.

          4.14 COMPLIANCE WITH ERISA.

               (a)   The Guarantor and each member of the ERISA Group have
operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a material adverse effect on (i) the ability
of the Guarantor to perform its obligations under this Guaranty in a timely
manner, (ii) the business, assets, properties, financial condition, operations
or prospects of the Guarantor, or (iii) the rights or interests of the Lessor or
Assignee under this Guaranty. Neither the Guarantor nor any member of the ERISA
Group has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in section 3 of ERISA), other than such liabilities as would not,
individually or in the aggregate, be Material, and no event, transaction or
condition has occurred or exists that could reasonably be expected to result in
the incurrence of any such liability by the Guarantor or any member of the ERISA
Group, or in the imposition of any Lien on any of the rights, properties or
assets of the Guarantor or any member of the ERISA Group, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not, individually or in the aggregate, be Material.

               (b)   The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined on the
basis of the actuarial assumptions specified for funding purposes in such Plan's
most recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Plan allocable to such benefit liabilities.

                                      -13-


The term "benefit liabilities" has the meaning specified in section 4001 of
ERISA and the terms "current value" and "present value" have the meaning
specified in section 3 of ERISA.

               (c)   The Guarantor and the ERISA Group have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.

               (d)   The expected postretirement benefit obligation (determined
as of the last day of the Guarantor's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Guarantor and its Subsidiaries is reflected in the
financial statements included in the Memorandum as of the respective dates
thereof.

               (e)   The execution and delivery of this Guaranty will not
involve any transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975(c)(1)(A)-(D) of the Code. The representation by the Guarantor in the first
sentence of this Section 4.14(e) is made in reliance upon and subject to the
accuracy of the representations of the Note Purchasers in Section 2.2 of the
Note Purchase Agreement as to the sources of the funds used to pay the purchase
price of the Notes to be purchased by them thereunder.

          4.15 OFFERING OF THE NOTES AND THIS GUARANTY, ETC. Neither the
Guarantor nor anyone authorized to act on its behalf has offered this Guaranty
or the Notes or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than the Note Purchasers and not more than 125
other institutional investors (all such investors being "accredited investors"
as defined under Section 501(a) of the Securities Act). Neither the Guarantor
nor anyone authorized to act on its behalf has taken, or will take, any action
that would subject the execution and delivery of this Guaranty or the issuance
or sale of the Notes to the registration requirements of Section 5 of the
Securities Act.

          4.16 EXISTING INDEBTEDNESS. Neither the Guarantor nor any Subsidiary
is in default, and no waiver of default is currently in effect, in the payment
of any principal or interest on any Indebtedness of the Guarantor or such
Subsidiary and no event or condition exists with respect to any such
Indebtedness of the Guarantor or any Subsidiary that would permit one or more
Persons to cause such Indebtedness to become due and payable before its stated
maturity, except in each case for any default, event or condition which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on (i) the ability of the Guarantor to perform its
obligations under this Guaranty in a timely manner, (ii) the business, assets,
properties, financial condition, operations or prospects of the Guarantor, or
(iii) the rights or interests of the Lessor or Assignee under this Guaranty.

                                    SECTION 5

                                  MISCELLANEOUS

          5.1  PAYMENTS. Each payment by the Guarantor under this Guaranty shall
be made in immediately available funds to or on the order of the Lessor or
Assignee, as the case may be, in

                                      -14-


each case without setoff or counterclaim; PROVIDED that, no such payment shall
be deemed a waiver of any rights the Guarantor may have against the Lessor or
the Lessee.

          5.2  PARTIES. This Guaranty shall inure to the benefit of the Lessor
and each Assignee and its and their respective successors, assigns or
transferees, and shall be binding upon the Guarantor and its successors and
assigns. Subject to the provisions of Section 3.2.1(b) hereof, the Guarantor may
not delegate any of its duties under this Guaranty without the prior written
consent of the Lessor and each Assignee. Upon notice to the Guarantor, the
Lessor and its successors, assigns and transferees may assign its or their
rights and benefits under this Guaranty to (a) any financial institutions
providing financing to the Lessor in connection with the Agreement for Lease and
the Lease or any trustee for such financial institutions, and (b) any purchaser
or transferee of all or a substantial portion of the rights and interests of the
Lessor and its successors, assigns or transferees in and to the Project.

          5.3  NOTICES. All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder shall be in writing, shall
be addressed as provided below and shall be considered as properly given (a) if
delivered in person, (b) if sent by express courier service (including Federal
Express, DHL, Airborne Express, and other similar express delivery services),
(c) in the event overnight delivery services are not readily available, if
mailed through the United States Postal Service, postage prepaid, registered or
certified with return receipt requested, or (d) if sent by telecopy and
confirmed; PROVIDED, that in the case of a notice by telecopy, the sender shall
in addition confirm such notice by writing sent in the manner specified in
clauses (a), (b) or (c) of this Section 5.3. All notices shall be effective upon
receipt by the addressee; PROVIDED, HOWEVER, that if any notice is tendered to
an addressee and the delivery thereof is refused by such addressee, such notice
shall be effective upon such tender. For the purposes of notice, the addresses
of the parties shall be as set forth below; PROVIDED, HOWEVER, that any party
shall have the right to change its address for notice hereunder to any other
location by giving written notice to the other party in the manner set forth
herein. The initial addresses of the parties hereto are as follows:

               If to the Lessor:

                     Hawkeye Funding, Limited Partnership
                     c/o Hawkeye Funding, Inc.,
                        as General Partner
                     c/o ML Leasing Equipment Corp.
                     Four World Financial Center
                     New York, New York 10080

                     Attention: Jean M. Tomaselli
                     Telecopier: (212) 449-2854
                     Telephone:  (212) 449-7925

               With a copy to:

                     ML Leasing Equipment Corp.
                     Controller's Office

                                      -15-


                     Two World Financial Center
                     14th Floor
                     New York, New York  10281

                     Attention: Kira Toone
                     Telecopier: (212) 236-7584
                     Telephone:  (212) 236-7203

               If to the Guarantor:

                     Consolidated Edison, Inc.
                     4 Irving Place
                     New York, New York  10003

                     Attention: Treasurer
                     Telecopier: (212) 460-2786
                     Telephone:  (212) 228-5713

               With a copy to:

                     Consolidated Edison, Inc.
                     4 Irving Place
                     New York, New York  10003

                     Attention: General Counsel
                     Telecopier: (212) 674-7329
                     Telephone:  (212) 460-6330

                     and to:

                     Consolidated Edison Development, Inc.
                     111 Broadway
                     16th Floor
                     New York, New York  10006

                     Attention: President
                     Telecopier: (212) 393-9282
                     Telephone:  (212) 393-9242

          5.4  REMEDIES. The Guarantor stipulates that the remedies at law in
respect of any default or threatened default by the Guarantor in the performance
of or compliance with any of the terms of this Guaranty may not be adequate, and
that any of such terms may be specifically enforced by a decree for specific
performance or by an injunction against violation of any such terms or
otherwise.

          5.5  RIGHT TO DEAL WITH THE LESSEE. At any time and from time to time,
without terminating, affecting or impairing the validity of this Guaranty or the
obligations of the

                                      -16-


Guarantor hereunder, the Lessor or Assignee may deal with the Lessee in the same
manner and as fully and as if this Guaranty did not exist and shall be entitled,
among other things, to grant the Lessee, without notice or demand and without
affecting the Guarantor's liability hereunder, such extension or extensions of
time to perform, renew, compromise, accelerate or otherwise change the time for
payment of or otherwise change the terms of payment or any part thereof
contained in or arising under any Operative Document, or to waive any Obligation
of the Lessee to perform any act or acts as the Lessor or Assignee may deem
advisable.

          5.6  SUBROGATION. The Guarantor will not exercise any rights which it
may acquire by way of subrogation hereunder, by any payment made hereunder or
otherwise, until all of the Obligations have been paid in full in cash and
performed in full. If any amount shall be paid to the Guarantor on account of
such subrogation rights at any time when all of the Obligations shall not have
been paid in full in cash, such amount shall be held in trust for the benefit of
the Lessor and Assignee and shall forthwith be paid as provided in Section 5.1
hereof to be credited and applied upon the Obligations, whether matured or
unmatured, in accordance with the terms of the Operative Documents. If (a) the
Guarantor shall make payment to the Lessor, Assignee or any successor, assignee
or transferee of the Lessor or Assignee of all or any part of the Obligations
and (b) all the Obligations shall be indefeasibly paid in full in cash, the
Lessor or any such successor, assignee or transferee of the Lessor will, at the
Guarantor's request and expense, execute and deliver to the Guarantor
appropriate documents, without recourse as set forth in Section 30 of the Lease,
and without representation or warranty, necessary to evidence the transfer by
subrogation to the Guarantor of an interest in the Obligations resulting from
such payment by the Guarantor.

          5.7  SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations, warranties, covenants and agreements made herein and in
statements or certificates delivered pursuant hereto shall survive any
investigation or inspection made by or on behalf of the Lessor or Assignee and
shall continue in full force and effect until all of the obligations of the
Guarantor under this Guaranty shall be fully performed in accordance with the
terms hereof including, without limitation, the payment and performance in full
of all Obligations.

          5.8  GOVERNING LAW AND CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
THIS GUARANTY HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. THE
GUARANTOR AND LESSOR AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY THE LAWS OF
THE STATE OF NEW YORK, THIS GUARANTY, AND THE RIGHTS AND DUTIES OF THE GUARANTOR
AND LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK IN ALL RESPECTS, INCLUDING, WITHOUT
LIMITATION, IN RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
THE GUARANTOR AND LESSOR EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS GUARANTY. THE GUARANTOR AND
LESSOR ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION 5.8 HAVE BEEN BARGAINED
FOR AND THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

                                      -17-


          5.9  SEVERABILITY. If any term of this Guaranty or any application
thereof shall be invalid or unenforceable, the remainder of this Guaranty and
any other application of such term shall not be affected thereby. Any term of
this Guaranty may be amended, modified, waived, discharged or terminated only by
an instrument in writing signed by the Guarantor and Lessor, and consented to by
each Assignee.

          5.10 COUNTERPARTS. This Guaranty may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

          5.11 NO MERGER. There shall be no merger of this Guaranty and the
Lease by reason of the fact that the same person, firm or entity is, directly or
indirectly, the Guarantor and a lessee under the Lease or acquires or holds the
leasehold estate created by the Lease or any part of such leasehold estate.

                            [SIGNATURE PAGE FOLLOWS]

                                      -18-


          IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be
executed and delivered as of the day and year first above written.

                                                 CONSOLIDATED EDISON, INC.,
                                                 as Guarantor


                                                 By:
                                                    ----------------------------
                                                    Name:
                                                    Title:



Acknowledged and Agreed:

HAWKEYE FUNDING, LIMITED PARTNERSHIP

By: Hawkeye Funding, Inc.,
    its General Partner


By:
   -------------------------
     Name:
     Title:

                                      -19-


                                    EXHIBIT A

                                  DEFINED TERMS

          "AFFILIATE" of any Person means any other Person controlling,
controlled by or under direct or indirect common control with such Person. For
the purposes of this definition, "CONTROL," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "CONTROLLING" and
"CONTROLLED" have meanings correlative to the foregoing.

          "AGREEMENT FOR LEASE" means the Agreement for Lease, dated as of
November 14, 2000, between the Lessor, as owner, and the Lessee, as agent, as
the same may be amended or supplemented from time to time in accordance with its
terms.

          "ASSIGNEE" means the Collateral Trustee and any successor to the
Collateral Trustee.

          "BANKRUPTCY" means, with respect to any Person, a Voluntary Bankruptcy
or an Involuntary Bankruptcy. A "VOLUNTARY BANKRUPTCY" means, with respect to
any Person, (a) the insolvency (however evidenced) of such Person, (b) an
admission of insolvency or bankruptcy by such Person, (c) the commencement by
such Person of a voluntary case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, (d) the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of such Person or
of any substantial part of such Person's property, (e) the making by such Person
of an assignment for the benefit of creditors, (f) the failure of such Person
generally to pay its debts as such debts become due, or (g) the taking of
corporate action by such Person in furtherance of any such actions set forth
above. An "INVOLUNTARY BANKRUPTCY" means, with respect to any Person, without
the consent or acquiescence of such Person, the entry of a decree or order for
relief in respect of such Person by a court having jurisdiction in the premises
or the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or of any substantial part of
such Person's property, or ordering the winding up or liquidation of such
Person's affairs, in an involuntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, and such decree or order remains
unstayed and in effect for sixty (60) consecutive days; or the commencement
against such Person of an involuntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, and the continuance of any such
case unstayed and in effect for a period of sixty (60) consecutive days.

          "CEI NOTE" means the Promissory Note, dated November 16, 2000, from
the Guarantor, as borrower, in favor of the Lessor, as lender, evidencing the
advances made by the Lessor to the Guarantor thereunder, and any promissory note
or notes of the Guarantor issued in substitution thereof.

                                       A-1


          "COLLATERAL TRUSTEE" means The Bank of New York, in its capacity as
collateral trustee under the Indenture of Trust, Security Agreement and
Collateral Assignment of Contracts, dated as of November 14, 2000, entered into
by the Lessor and the Collateral Trustee, pursuant to which the Lessor has
granted a security interest in certain collateral to the Collateral Trustee, as
the same may be amended, restated, modified or supplemented from time to time in
accordance with the terms thereof.

          "CONSOLIDATED CAPITAL" means, at any date, the sum of (i) Consolidated
Debt at such date and (ii) consolidated shareholder equity of the Guarantor and
its Consolidated Subsidiaries determined at such date in accordance with GAAP.

          "CONSOLIDATED DEBT" means all Indebtedness of the Guarantor and its
Consolidated Subsidiaries determined (without duplication) on a consolidated
basis.

          "CONSOLIDATED SUBSIDIARIES" means, at any date, all Subsidiaries of
the Guarantor the accounts of which would be consolidated with those of the
Guarantor in its consolidated financial statements in accordance with GAAP if
such statements were prepared as of such date.

          "CORE ELECTRICITY DISTRIBUTION BUSINESS" means the electricity
distribution business of Consolidated Edison Company of New York, Inc. in New
York City, viewed as a whole as of the date hereof.

          "COVENANT OBLIGATIONS" means all obligations (other than Payment
Obligations), covenants and undertakings of the Lessee contained in the
Operative Documents, after taking into account all applicable grace periods in
such Operative Documents.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

          "ERISA GROUP" means the Guarantor, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Guarantor or any
Subsidiary, are treated as a single employer under Section 414 of the Code.

          "EVENT OF DEFAULT" means any of the following events shall occur and
be continuing:

               (a)   The Guarantor shall fail to pay any amount due under this
          Guaranty when the same becomes due and payable (including, without
          limitation, any Payment Obligations); or

               (b)   The Guarantor shall fail to perform or observe (i) any
          term, covenant or agreement contained in Section 3 hereof, and in the
          case of a default arising under Section 3.1.3(a), 3.1.3(b) or 3.1.5(a)
          hereof, such default shall continue for thirty (30) days after written
          notice thereof shall have been given to the Guarantor by the Lessor or
          Assignee, or (ii) any other term, covenant or agreement contained in
          this Guaranty on its part to be performed or observed if the failure
          to perform or observe such other term,

                                        2


          covenant or agreement shall remain unremedied for thirty (30) days
          after written notice thereof shall have been given to the Guarantor by
          the Lessor or Assignee; or

               (c)   A default or event of default by the Guarantor or any of
          its Material Subsidiaries shall occur, the effect of which is that the
          holder or holders of any Indebtedness of the Guarantor or any such
          Material Subsidiary having a then outstanding principal balance in
          excess of $100,000,000, causes or declares such Indebtedness of the
          Guarantor or any such Material Subsidiary to become due prior to its
          stated maturity under the provisions of any agreement or agreements
          pursuant to which such Indebtedness was created; or

               (d)   The Guarantor or any of its Material Subsidiaries shall
          default in any payment of principal of or interest on any Indebtedness
          of the Guarantor or any such Material Subsidiary having a then
          outstanding principal balance in excess of $100,000,000, beyond the
          period of grace, if any, under the provisions of any instrument or
          instruments or agreement or agreements pursuant to which such
          Indebtedness was created; or

               (e)   Any final judgment or judgments for the payment of money in
          excess of $100,000,000 in the aggregate shall be rendered against the
          Guarantor or any of its Material Subsidiaries by any court of
          competent jurisdiction and the same shall remain undischarged for a
          period of thirty (30) days from the date such payment is due, during
          which execution of such judgment or judgments shall not be effectively
          stayed; or

               (f)   The entry of a decree or order for relief in respect of the
          Guarantor by a court having jurisdiction in the premises or the
          appointment of a receiver, liquidator, assignee, custodian, trustee,
          sequestrator (or similar official) of the Guarantor or of any
          substantial part of the Guarantor's property, or ordering the winding
          up or liquidation of the Guarantor's affairs, in an involuntary case
          under the Federal bankruptcy laws, as now or hereafter constituted, or
          any other applicable Federal or state bankruptcy, insolvency or other
          similar law, and such decree or order remains unstayed and in effect
          for sixty (60) consecutive days; or the commencement against the
          Guarantor of an involuntary case under the Federal bankruptcy laws, as
          now or hereafter constituted, or any other applicable Federal or state
          bankruptcy, insolvency or other similar law, and the continuance of
          any such case unstayed and in effect for a period of sixty (60)
          consecutive days; or

               (g)   The Guarantor's insolvency (however evidenced), or the
          Guarantor's admission of insolvency or bankruptcy, or the commencement
          by the Guarantor of a voluntary case under the Federal bankruptcy
          laws, as now or hereafter constituted, or any other applicable Federal
          or state bankruptcy, insolvency or other similar law, or the consent
          by the Guarantor to the appointment of or taking possession by a
          receiver, liquidator, assignee, custodian, trustee, sequestrator (or
          other similar official) of the Guarantor or of any substantial part of
          the Guarantor's property, or the making by the Guarantor of an
          assignment for the benefit of creditors, or the failure of the
          Guarantor generally to pay its debts as such debts become due, or the
          taking of corporate action by the Guarantor in furtherance of any such
          action.

                                        3


          "FINANCIAL STATEMENTS" means the financial statements accompanying the
Guarantor's Annual Report on Form 10-K or the Guarantor's Quarterly Reports on
Form 10-Q filed from time to time with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.

          "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, applied on a consistent basis.

          "INDEBTEDNESS" means, for any Person, without duplication, (i) all
obligations of such Person for borrowed money or under any lease which, in
either case, is recognized as debt on the balance sheet of such Person in
accordance with GAAP, (ii) all obligations of such Person to pay the deferred
purchase price of property or services, including any such obligations created
under or arising out of any conditional sale or other title retention agreement
(other than property and services obtained in the ordinary course of business or
operations), (iii) all non-contingent obligations of such Person under
reimbursement or similar agreements with respect to the issuance of letters of
credit and (iv) all obligations of any other Person of the type specified in
clause (i), (ii) or (iii) above, (A) the payment or collection of which such
Person has guaranteed (except by reason of endorsement for collection in the
ordinary course of business), (B) in respect of which such Person is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase products or securities, to provide funds for payment, to
maintain working capital or other balance sheet conditions or otherwise to
assure a creditor against loss, or (C) secured by any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person; PROVIDED, HOWEVER, that Indebtedness shall not include Non-Recourse Debt
(including, without limitation, Securitized Debt).

          "INDEMNIFICATION OBLIGATIONS" means any amount or amounts due to any
Indemnified Person from the Lessee pursuant to Section 11 of the Lease and
Section 12 of the Agreement for Lease.

          "LEASE" means the Lease Agreement, dated as of November 14, 2000,
between the Lessor and the Lessee, as the same may be amended or supplemented
from time to time in accordance with its terms.

          "LESSEE" means Newington Energy, L.L.C., a Delaware limited liability
company.

          "MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Guarantor and its
Subsidiaries taken as a whole.

          "MATERIAL ADVERSE EFFECT" means (a) the total common shareholders
equity of the Guarantor and its subsidiaries as determined on a consolidated
basis and as reflected in accordance with GAAP on the Guarantor's then most
recent Financial Statements shall fall below $4,610,510,000, (b) the fair market
sales value of the Project shall decrease by an amount equal to or greater than
7.5% of the Adjusted Acquisition Cost (as defined in the Lease) of the Project,
or (c) the Lessor or Assignee shall become, by virtue of the transactions or
activities contemplated by the Operative Documents, subject to financial, rate
or other similar regulation as, a public utility, or an electric utility or a
public utility holding company under a Legal Requirement (including any Legal
Requirement (i) under the 1935 Act, (ii) imposed by any state

                                        4


or local public utility commission or other similar regulatory body, authority
or group having jurisdiction over the Lessor or the Lessee or any such
transactions or activities or (iii) under the Federal Power Act, as amended).

          "MATERIAL SUBSIDIARY" means any Subsidiary with shareholders' equity
for financial reporting purposes in excess of $500,000,000.

          "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).

          "NON-RECOURSE DEBT" means, for any Person, obligations of such Person
of the type specified in clauses (i)-(iv) of the definition of "Indebtedness"
(not exceeding the cost of the acquisition, construction or creation of the
relevant asset, project or property) incurred or existing in connection with the
financing or refinancing of any asset, project or property, the repayment of
which obligations is to be made from the revenues arising out of, or other
proceeds of realization from, the acquired or created asset, project or
property, with recourse to those revenues and proceeds and assets forming the
subject matter of such asset, project or property (including, without
limitation, insurance contracts and shares or other rights of ownership in the
entity(ies) which own the relevant assets, projects or properties) and other
assets and properties ancillary thereto but without recourse to any other asset
or property or otherwise to such Person; PROVIDED that recourse liability shall
not be deemed to exist by reason of normal and customary sponsor support
arrangements.

          "NOTE PURCHASE AGREEMENT" means, collectively, the several Note
Purchase Agreements, each dated as of November 14, 2000, between the Lessor and
the purchasers of the Lessor's Senior Secured Notes due 2022, as the same may be
amended, restated, modified or supplemented from time to time.

          "OBLIGATIONS" means Payment Obligations and Covenant Obligations,
individually and collectively.

          "OPERATIVE DOCUMENTS" means the Agreement for Lease, the Lease, the
Pledge Agreement, the Consent and Agreement (as defined in the Note Purchase
Agreement), and the Reimbursement Agreement, dated as of the date hereof, among
the Lessee, the Lessor and ML Leasing Equipment Corp.

          "PAYMENT OBLIGATIONS" means all amounts stated in the Operative
Documents to be payable by the Lessee, after the expiration of all applicable
grace periods in such Operative Documents, including, without limitation,
amounts in respect of (a)(i) an Event of Loss, Event of Default or Event of
Project Termination (as each such term is defined in the Agreement for Lease),
(ii) an Event of Loss, Termination Event or Event of Default (as each such term
is defined in the Lease) and (iii) any other termination or expiration of the
Agreement for Lease and the Lease, including, without limitation, a termination
of the Agreement for Lease pursuant to the terms of Section 15 and subsection
18.11 of the Agreement for Lease, and a termination of the Lease or purchase of
the Project, as the case may be, pursuant to the terms of Section 12, Section
13, Section 14, Section 15, Section 16 and Section 19 of the Lease; (b) Basic
Rent, Additional Rent, Acquisition Cost, Debt Yield-Maintenance Premium and
Modified Call

                                        5


Premium; and (c) all amounts of Indemnification Obligations, in each case,
notwithstanding any rejection of the Agreement for Lease or Lease by the Lessee
or a trustee in any Federal or state Bankruptcy or other similar proceeding and
any limit imposed in any such proceeding or by statute or other applicable law
on the amounts payable under the Agreement for Lease or Lease by the Lessee.

          "PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, limited liability company,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.

          "PLAN" means, at any time, an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 4123 of the Internal Revenue Code
and either (i) is maintained, or contributed to, by any member of the ERISA
Group for employees of the ERISA group or (ii) has at any time within the
preceding five years been maintained, or contributed, to by any Person which was
at such time a member of the ERISA Group for employees of any Person which was
at such time a member of the ERISA Group.

          "POTENTIAL DEFAULT" means any event that, with the giving of notice,
lapse of time or both would constitute an Event of Default.

          "QUALIFYING NOTEHOLDER" has the meaning assigned to such term in the
Note Purchase Agreement.

          "RESPONSIBLE OFFICER" means the General Counsel or a Senior Financial
Officer of the Guarantor.

          "SEC" means the Securities and Exchange Commission.

          "SECURITIZED DEBT" means, for any Person, obligations of such Person
of the type specified in clauses (i)-(iv) of the definition of "Indebtedness"
secured by a Lien on one or more assets or rights to receive revenues, in each
case in respect of Stranded Costs (or related items) of such Person where the
holders of such obligations do not have recourse to any other assets, properties
or rights of such Person to receive revenue, in each case in respect of Stranded
Costs (or related items) of such Person.

          "SENIOR FINANCIAL OFFICER" means the Chief Financial Officer,
Treasurer or Controller of the Guarantor.

          "STRANDED COSTS" means (i) charges in respect of prior utility
investments or commitments in fossil-fueled and nuclear generating plants or
operations, (ii) commitments for decommissioning fossil-fueled and nuclear
generating plants or operations, (iii) charges with respect to contracts with
non-utility generators for electric power and energy, (iv) charges in respect of
prior utility investments or commitments in steam systems or operations and (v)
charges with respect to contracts with non-utility steam suppliers.

          "SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, joint venture, or other entity of which more than 50% of the
outstanding capital stock or other

                                        6


ownership interest (irrespective of whether or not at the time capital stock or
other equity interest of any other class or classes of such corporation,
partnership, joint venture, or other entity shall or might have voting power
upon the happening of any contingency) is at the time owned directly or
indirectly by such Person; unless otherwise specified, "Subsidiary" means a
Subsidiary of the Guarantor.

                                        7


                                  SCHEDULE 4.4

                               SEC PUBLIC FILINGS



                                  SCHEDULE 4.5

    LIST OF MATERIAL SUBSIDIARIES, GUARANTOR'S DIRECTORS AND SENIOR OFFICERS


MATERIAL SUBSIDIARIES OF GUARANTOR:

Name of Material Subsidiary: Consolidated Edison Company of New York, Inc.

          Jurisdiction of Incorporation:
               New York

          Percentage of Capital Stock Owned by Guarantor/Subsidiaries:
               Common Stock: 100% owned by Guarantor


DIRECTORS AND SENIOR OFFICERS OF GUARANTOR:

Directors:

George Campbell, Jr.        Director
E. Virgil Conway            Director
Gordon J. Davis             Director
Ruth M. Davis               Director
Michael J. Del Giudice      Director
Joan S. Freilich            Director
Ellen V. Futter             Director
Sally  Hernandez-Pinero     Director
Peter W. Likins             Director
Eugene R. McGrath           Director
Richard A. Voell            Director
Stephen R. Volk             Director


Senior Officers:

Eugene R. McGrath           Chairman of the Board, President and Chief Executive
                            Officer
Joan S. Freilich            Executive Vice President and Chief Financial Officer
John D. McMahon             Senior Vice President and General Counsel
Hyman  Schoenblum           Vice President, Controller and Chief Accounting
                            Officer
Robert P. Stelben           Vice President and Treasurer
Archie M. Bankston          Secretary



                             SCHEDULE 4.5 (CONT'D.)

    LIST OF MATERIAL SUBSIDIARIES, GUARANTOR'S DIRECTORS AND SENIOR OFFICERS

LIST OF AGREEMENTS RESTRICTING DIVIDENDS:

O&R Merger approval from NY PSC : "Joint petition of Con Edison and O&R for
approval of a certificate of merger and stock acquisition" Case 98-M-0961

Pending approval of NU Merger by NY PSC "Joint petition of Con Edison Inc. and
NU regarding merger and stock acquisition" Case 00-M-0095

Pending approval by Connecticut DPUC "Joint application of Con Edison, Inc and
NU for approval for a change of control" Docket No. 00-01-11



                                                                EXHIBIT 10.1.9.2

                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

                                                                  EXECUTION COPY


                          CONFIDENTIAL AND PROPRIETARY

                                 LEASE AGREEMENT

                          Dated as of November 14, 2000

                                     BETWEEN


                      HAWKEYE FUNDING, LIMITED PARTNERSHIP

                                    as Lessor


                                       and


                            NEWINGTON ENERGY, L.L.C.

                                    as Lessee


                    THIS LEASE HAS BEEN ASSIGNED AS SECURITY
                 FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 20.


This Lease has been manually executed in 40 counterparts, numbered consecutively
from 1 through 40, of which this is No. ___. To the extent, if any, that this
Lease constitutes chattel paper (as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction) no security
interest in this Lease may be created or perfected through the transfer or
possession of any counterpart other than the original executed counterpart which
shall be the counterpart identified as counterpart No. 1.

                                  10.1.9.2.DOC



                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY


                                                                          
SECTION 1.    DEFINED TERMS......................................................1

SECTION 2.    REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE...............17

SECTION 3.    LEASE OF THE PROJECT..............................................29

SECTION 4.    OPERATING LEASE...................................................30

SECTION 5.    ABSOLUTE OBLIGATION...............................................31

SECTION 6.    LEASE TERM........................................................33

SECTION 7.    RENT AND OTHER PAYMENTS...........................................33

SECTION 8.    RESTRICTED USE; COMPLIANCE WITH LAWS..............................34

SECTION 9.    MAINTENANCE, IMPROVEMENT AND REPAIR OF THE PROJECT................37

SECTION 10.   INSURANCE.........................................................39

SECTION 11.   INDEMNITIES.......................................................46

SECTION 12.   LESSEE'S RIGHT TO TERMINATE.......................................51

SECTION 13.   LESSEE'S RIGHTS OF PURCHASE AND RENEWAL...........................55

SECTION 14.   LESSOR'S RIGHT TO TERMINATE.......................................56

SECTION 15.   LOSS OF OR DAMAGE TO THE PROJECT..................................58

SECTION 16.   CONDEMNATION AND DEDICATION OF THE PROJECT; EASEMENTS.............59

SECTION 17.   SURRENDER OF THE PROJECT..........................................59

SECTION 18.   EVENTS OF DEFAULT.................................................60

SECTION 19.   RIGHTS UPON DEFAULT...............................................62

SECTION 20.   SALE OR ASSIGNMENT BY LESSOR......................................65

SECTION 21.   INCOME TAXES......................................................66

SECTION 22.   NOTICES AND REQUESTS..............................................66

SECTION 23.   COVENANT OF QUIET ENJOYMENT.......................................68

SECTION 24.   RIGHT TO PERFORM FOR LESSEE.......................................68

SECTION 25.   MERGER, CONSOLIDATION OR SALE OF ASSETS...........................68

SECTION 26.   EXPENSES..........................................................68

SECTION 27.   PERMITTED CONTESTS................................................68

SECTION 28.   INTENTIONALLY OMITTED.............................................69

SECTION 29.   MISCELLANEOUS.....................................................69

SECTION 30.   NO RECOURSE.......................................................72

SECTION 31.   NO MERGER OF ESTATES..............................................73


                                       -i-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY


                                                                          
SECTION 32.   INDUSTRIAL CORRIDOR ROAD..........................................73


Exhibit A - Legal Description of Premises and Easements
Exhibit B - List of Project Contracts
Exhibit C - List of Project Authorizations
Exhibit D - Semi-Annual Rent Component
Exhibit E - Pledge Agreement
Exhibit F - Easements
Exhibit G - CEI Note
Exhibit H - Section 12(c) Percentages

Schedule 2(f) - Public Filings of the Guarantor

                                      -ii-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

                                  CONFIDENTIAL

                                 LEASE AGREEMENT

     Lease Agreement, dated as of November 14, 2000 (as the same may be amended,
restated, modified or supplemented from time to time, "THIS LEASE"), between
HAWKEYE FUNDING, LIMITED PARTNERSHIP (the "LESSOR"), a Delaware limited
partnership formed by Hawkeye Funding, Inc., its general partner, as lessor, and
NEWINGTON ENERGY, L.L.C., a Delaware limited liability company, as lessee (the
"LESSEE").

        SECTION 1.   DEFINED TERMS.

          Unless the context otherwise requires, each term defined in this
Section 1 shall, when used in this Lease, have the meaning indicated:

          "ACCRUED DEFAULT OBLIGATIONS" has the meaning set forth in Section 19
hereof.

          "ACQUISITION COST" means, on the Effective Date, the Acquisition
Cost (as defined in the Agreement for Lease) under the Agreement for Lease after
making the Final Advance plus the Completion Amount.

          "ADDITIONAL RENT" has the meaning set forth in paragraph (d) of
Section 7 hereof.

          "ADJUSTED ACQUISITION COST" means, at the time of determination, the
Acquisition Cost of the Project less (i) the aggregate amount of all Semi-Annual
Rent Components theretofore included as portions of Basic Rent for any periods
for which Basic Rent has been paid, and less (ii) any reduction in Adjusted
Acquisition Cost provided for under subsection 2.3(b) of the Agreement for Lease
(as adjusted pursuant to Section 3 of this Lease) or paragraph (b) of Section 16
of this Lease.

          "AFFILIATE" of any Person means any other Person controlling,
controlled by or under direct or indirect common control with such Person. For
the purposes of this definition, "CONTROL," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "CONTROLLING" and
"CONTROLLED" have meanings correlative to the foregoing.

          "AGREEMENT FOR LEASE" means the Agreement for Lease, dated as of the
date hereof, between the Lessor, as owner, and the Lessee, as agent, providing
for the acquisition, construction and equipping of the Project, as the same may
be amended, restated, modified or supplemented from time to time.

          "APPRAISAL PROCEDURE" means the following procedure whereby an
independent appraiser shall be appointed by the Lessor and the Lessee, with the
consent of Assignee, to determine (A) the amount of wear and tear in excess of
that attributable to normal use of the Project to which the provisions of
paragraph (b)(iii) or paragraph (c)(iii) or paragraph (d) of



                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Section 12 apply or (B) the fair market value of the Project, if such
determination is required under paragraph (d) of Section 13 of this Lease. If no
such appraiser is appointed by the mutual agreement of the Lessor and the Lessee
within thirty (30) days of the written request of either the Lessor or the
Lessee that an appraiser be appointed, the Lessor and the Lessee shall each
appoint an independent appraiser within thirty (30) days thereafter, and the two
appraisers so appointed shall appoint a third independent appraiser. Each
appraiser appointed pursuant to the foregoing procedure shall, within thirty
(30) days after appointment of the last appraiser, independently determine the
amount of wear and tear in excess of that attributable to normal use or the fair
market value of the Project, as the case may be. If the Lessor or the Lessee
shall fail to appoint an independent appraiser within the above-mentioned thirty
(30) day period, the appraiser appointed by the other party shall determine such
amount or value. If a single appraiser is appointed, such appraiser's
determination shall be final. If three appraisers are appointed, the amounts or
values determined by the three appraisers shall be averaged, the amount or value
which differs the most from such average shall be excluded, the remaining two
amounts or values shall be averaged and such average shall be final. The
expenses of all appraisers shall be paid by the Lessee. Each appraiser appointed
pursuant to an "Appraisal Procedure" shall have experience in appraising
generation facilities similar to the Project.

          "ASSETS" means the Lessee's interest in any and all assets or property
of any kind, real or personal, tangible or intangible, now owned or hereafter
acquired by the Lessee.

          "ASSIGNEE" means the Collateral Trustee and any successor to the
Collateral Trustee. For purposes of the definition of "Material Adverse Effect",
paragraphs (i)(d), (i)(j), (i)(p), (i)(cc) and (ii)(i) of Section 2, paragraphs
(a) and (b) of Section 5, paragraph (h) of Section 8, paragraph (b) of Section
9, clauses (iii) and (iv) of paragraph (b) of Section 10, the last sentence of
clause (ii) of paragraph (d) of Section 10, clause (iv) (other than the last
reference to Assignee therein) of paragraph (d) of Section 10, paragraph (h) of
Section 10, Section 11, Section 12, paragraph (a) of Section 14, the last
sentence of paragraph (b) of Section 20, Section 26, and clause (iii) of
paragraph (a) and paragraph (b) of Section 27, the term "Assignee" shall include
each of the purchasers and holders from time to time of the Lessor's Senior
Secured Notes issued under the Note Purchase Agreement and each lender or other
Person providing credit support to Owner under a Financing Arrangement entered
into after the date hereof, and for purposes of paragraph (d) of Section 8, the
term "Assignee" shall include each of the Qualifying Noteholders (as defined in
the Note Purchase Agreement).

          "ASSIGNMENT" means each assignment agreement referred to in Section 20
hereof, between the Lessor and a third party, pursuant to which the Lessor
assigns certain of its rights under this Lease to such third party, as the same
may be amended, restated, modified or supplemented from time to time.

          "ASSUMED INDEBTEDNESS AMOUNT" has the meaning set forth in paragraph
(d) of Section 12 hereof.

          "BASIC RENT" means:

          (a)    At each Basic Rent Payment Date during the Initial Term and any
Extended Term, and in respect of the semi-annual period ending on June 30 or
December 30 in

                                       -2-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

which such Basic Rent Payment Date occurs, the sum of the Semi-Annual Rent
Component plus an amount (the "VARIABLE COMPONENT OF BASIC RENT") equal to the
sum of (X) plus (Y) plus (Z), where (X), (Y) and (Z) have the following
meanings:

     (X)  (i)    the Equity Capital before payment of Basic Rent for such
                 semi-annual period, multiplied by

          (ii)   a fraction having a numerator equal to 180 and a denominator
                 of 360, multiplied by

          (iii)  the decimal equivalent of a percentage equal to the LIBOR
                 Rate plus 2%.

     (Y)  (i)    the Debt Capital before payment of Basic Rent for such
                 semi-annual period, multiplied by

          (ii)   a fraction having a numerator equal to 180 and a denominator
                 of 360, multiplied by

          (iii)  the decimal equivalent of a percentage equal to the
                 Semi-Annual Cost of Project Debt.

     (Z)  (i)    the Adjusted Acquisition Cost before payment of Basic Rent
                 for such semi-annual period, multiplied by

          (ii)   a fraction having a numerator equal to the number of days in
                 such semiannual period and a denominator of 365, or in a
                 leap year, 366, multiplied by

          (iii)  0.00147.

          (b)    For any partial semi-annual period during the Initial Term and
any Extended Term, an amount equal to the sum of (X) plus (Y) plus (Z), where
(X), (Y) and (Z) have the following meanings:

     (X)  (i)    the Equity Capital, multiplied by

          (ii)   a fraction having a numerator equal to the number of days the
                 Project is under lease during such partial semi-annual period
                 (provided that, each full calendar month during such partial
                 semi-annual period shall be deemed to be a 30-day month) and a
                 denominator of 360, multiplied by

          (iii)  the applicable decimal referred to in paragraph (a)(X)(iii)
                 above; PROVIDED that, if the Effective Date falls on or after
                 the Lease Rate Date during such partial semi-annual period such
                 decimal shall be the decimal determined as of the next
                 succeeding Lease Rate Date.

     (Y)  (i)    the Debt Capital multiplied by

                                       -3-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (ii)   a fraction having a numerator equal to the number of days the
                 Project is under lease during such partial semi-annual period
                 (provided that, each full calendar month during such partial
                 semi-annual period shall be deemed to be a 30-day month) and a
                 denominator of 360, multiplied by

          (iii)  the decimal equivalent of a percentage equal to the Semi-Annual
                 Cost of Project Debt; PROVIDED that, if the Effective Date
                 falls on or after the Lease Rate Date during such partial
                 semi-annual period, the Semi-Annual Cost of Project Debt shall
                 be determined as of the next succeeding Lease Rate Date.

     (Z)  (i)    the Adjusted Acquisition Cost, multiplied by

          (ii)   a fraction having a numerator equal to the number of days the
                 Project is under lease during such partial semi-annual period
                 and a denominator of 365, or in a leap year, 366, multiplied by

          (iii)  0.00147.

          (c)    For each semi-annual period during the Renewal Term of the
Project, if any, an amount equal to the fair market rental value thereof,
determined as provided in paragraph (d) of Section 13 hereof.

          "BASIC RENT PAYMENT DATE" means June 20th and December 20th during the
Initial Term, the Extended Term or Renewal Term, or, if such day is not a
Business Day, the next succeeding Business Day.

          "BUDGET" has the meaning set forth in the Agreement for Lease.

          "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York are authorized by law to
close.

          "CAPITAL EXPENDITURES" means, for any period, the sum of the aggregate
amount of all expenditures of the Lessee (other than expenditures made with the
proceeds of casualty insurance) for fixed or capital assets made during such
period which, in accordance with GAAP, would be classified as capital
expenditures.

          "CASH PROCEEDS" has the meaning set forth in paragraph (a) of Section
12 hereof.

          "CEI NOTE" means the Promissory Note, dated November 16, 2000, from
the Guarantor, as borrower, in favor of the Lessor, as lender, evidencing the
advances made by the Lessor to the Guarantor thereunder, and any promissory note
or notes of the Guarantor issued in substitution thereof, a copy of which is
attached as Exhibit G hereto.

          "CERCLA" has the meaning set forth in paragraph (i)(o) of Section 2
hereof.

          "CERCLIS" has the meaning set forth in paragraph (i)(o) of Section 2
hereof.

                                       -4-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "CODE" means the Internal Revenue Code of 1986, as amended.

          "COLLATERAL INDENTURE" means the Indenture of Trust, Security
Agreement and Collateral Assignment of Contracts, dated as of the date hereof,
entered into by the Lessor and the Collateral Trustee, pursuant to which the
Lessor has granted a security interest in certain collateral to the Collateral
Trustee, as the same may be amended, restated, modified or supplemented from
time to time in accordance with the terms thereof.

          "COLLATERAL TRUSTEE" means The Bank of New York, in its capacity as
collateral trustee under the Collateral Indenture, and its successors.

          "COMPLETION AMOUNT" has the meaning set forth in paragraph (b) of
Section 3 hereof.

          "COMPUTATION PERIOD" has the meaning set forth in the definition of
Semi-Annual Cost of Project Debt in this Section 1.

          "CONTAMINANT" means any pollutant or substance that is or may be
harmful to human health, natural resources or the environment and any hazardous
substance, radioactive substance, hazardous material, toxic substance, hazardous
waste, medical waste, radioactive waste, special waste, industrial waste,
petroleum or petroleum-derived substance or waste, asbestos, PCBs or any
hazardous or toxic constituent thereof defined as such or, regulated under
Environmental Requirements as harmful to human health, natural resources or the
environment.

          "DEBT CAPITAL" means, at the time of determination, an amount equal to
Adjusted Acquisition Cost minus Equity Capital.

          "DEBT YIELD-MAINTENANCE PREMIUM" means an amount equal to the amount
of Make-Whole Premium (as defined in the Note Purchase Agreement) payable by the
Lessor at any time pursuant to the terms of the Note Purchase Agreement.

          "EASEMENTS" means the easements listed on Exhibit F attached hereto,
which easements have been or will be assigned and/or transferred to the Lessor,
as such easements may be amended, restated, modified or supplemented from time
to time in accordance with the terms hereof.

          "EFFECTIVE DATE" means the date provided in paragraph (a) of Section 3
of this Lease.

          "ENVIRONMENTAL APPROVALS" means all Governmental Actions, Permits,
consents, licenses, and other approvals or authorizations required under
applicable Environmental Requirements.

          "ENVIRONMENTAL DAMAGES" means any and all claims, judgments, damages
(including, without limitation, punitive damages), losses, penalties, fines,
interest, fees, liabilities (including, without limitation, strict liability),
taxes (other than taxes imposed by Section 59A of the Code or other taxes of
general application which are not taxes in respect of an environmental
condition), obligations, encumbrances, liens, costs and expenses (including,
without limitation,

                                       -5-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

costs and expenses of investigation and defense of any claim, whether or not
such claim is ultimately defeated, and of any good faith settlement or
judgment), of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, direct or indirect, including, without
limitation, reasonable attorneys' fees and disbursements and consultants' fees
(collectively "DAMAGES"), any of which are asserted, imposed or incurred at any
time pursuant to Environmental Requirements, including, without limitation:

          (i)    Damages arising from the existence of Contaminants at any
location or compliance or noncompliance with, or violation of, Environmental
Requirements;

          (ii)   Damages for personal injury or threatened personal injury
(including sickness, disease or death), or injury or threatened injury to
property or natural resources, foreseeable or unforeseeable, including, without
limitation, the cost of demolition and rebuilding of any improvements on real
property;

          (iii)  Reasonable fees incurred for the services of attorneys,
consultants, contractors, doctors, experts, laboratories and all other
reasonable costs incurred in connection with any damages as described in
subparagraphs (i) and (ii) of this definition, and the investigation or
remediation of Contaminants or the suspected presence of Contaminants or the
violation or threatened violation of Environmental Requirements, including, but
not limited to, the preparation of any feasibility studies or reports or the
performance of any investigation, cleanup, treatment, remediation, removal,
response, abatement, containment, closure, storage, disposal, transport,
restoration or monitoring work required by any federal, state, local or foreign
governmental agency or political subdivision, or otherwise expended in
connection with such conditions, and including, without limitation, any
reasonable attorneys' fees, costs and expenses incurred in enforcing this Lease
or the Agreement for Lease or collecting any sums due hereunder or thereunder;

          (iv)   Damages associated with Environmental Matters; and

          (v)    Liability to any third person or Governmental Authority to
indemnify such person or Governmental Authority for costs expended in connection
with the items referenced in subparagraphs (i), (ii), (iii) and (iv) of this
definition.

          "ENVIRONMENTAL EVENT" has the meaning set forth in paragraph (ii)(m)
of Section 2 hereof.

          "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental
Authority for any (a) liability under any Environmental Requirement, or (b)
damages arising from, or costs incurred by, such Governmental Authority in
response to a Release or threatened Release of a Contaminant into the
environment.

          "ENVIRONMENTAL MATTERS" means any matter, fact or situation relating
to or arising from (a) any violation or alleged violation of, or failure to
meet, an Environmental Requirement relating to the Project, (b) any Release or
threatened Release of any Contaminant on, under, emanating to or from the
Project or the presence of any Contaminant which has come to be located on, from
or under the Project from another location, (c) the generation, treatment,
transport or disposal of any Contaminant at, to or from the Project, (d) any
injury to human

                                       -6-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

health or safety or the environment by reason of the matters described in
clauses (a), (b) and (c) above, or (e) any revocation, expiration, termination
or failure to obtain or maintain any Environmental Approval applicable to or
required for the Project.

          "ENVIRONMENTAL REPORTS" means collectively, (i) the Environmental Site
Assessment Report dated May 21, 1998 with respect to the Avery Lane Site located
in Newington, New Hampshire and an environmental update thereto dated November
6, 2000 and (ii) the Environmental Site Assessment Report dated March 1, 2000
with respect to the River Road Site located in Newington, New Hampshire, each
prepared by TRC Environmental Corporation and delivered to the Lessor and
Assignee pursuant to Section 4 of the Agreement for Lease.

          "ENVIRONMENTAL REQUIREMENTS" means all applicable federal, state,
local and foreign laws (including duties under the common law), statutes, codes,
ordinances, rules, regulations, directives, binding policies, permits,
authorizations or orders relating to or addressing the environment, natural
resources or human health, including, but not limited to, any law, statute,
code, ordinance, rule, regulation, directive, binding policy, permit,
authorization or order relating to (a) the use, handling, disposal, Release or
threatened Release of any Contaminant or (b) worker health.

          "EPC CONTRACT" means the Engineer, Procure and Construct Contract,
dated as of May 24, 2000, between the Lessor and the General Contractor, as the
same may be amended, restated, modified or supplemented from time to time in
accordance with the terms hereof.

          "EPC GUARANTY" means each guaranty (or payment or performance bond
issued in lieu thereof) jointly and severally executed and delivered by Fluor
Corporation and Duke Energy Capital pursuant to Section 9.4 of the EPC Contract,
as the same may be amended, restated, modified or supplemented from time to time
in accordance with the terms hereof.

          "EQUITY CAPITAL" means, at the time of determination, the aggregate
amount of cash contributions to the Lessor's capitalization made by the Lessor's
general partner and limited partners constituting a part of Adjusted Acquisition
Cost, plus any undistributed Return on Equity Capital (as defined in the
Agreement for Lease), less the aggregate amount of any returns of capital made
to such partners at such time.

          "ERISA" has the meaning set forth in paragraph (i)(m) of Section 2
hereof.

          "EVENT OF DEFAULT" has the meaning set forth in Section 18 hereof.

          "EVENT OF LOSS" means any of the following events: (a) loss of all or
a substantial portion of the Project or the use thereof due to destruction,
damage beyond economical repair or rendition of the Project permanently unfit
for the use contemplated by the Project Contracts on a commercially feasible
basis for any reason whatsoever; and (b) any event which results in an insurance
settlement with respect to the Project on the basis of a total loss or
constructive total loss. A loss of a "substantial portion" of the Project or the
Premises shall be deemed to occur if after such event, the remainder is not
sufficient to permit operation of the Project on a commercially feasible basis.

                                       -7-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "EWG" means an Exempt Wholesale Generator, as defined in Section
32(a)(1) of the 1935 Act.

          "EXTENDED TERM" has the meaning set forth in paragraph (b) of Section
6 hereof.

          "FERC" means the Federal Energy Regulatory Commission, or any
successor agency thereto.

          "FINAL SURVEY" has the meaning set forth in the Agreement for Lease.

          "FINANCIAL STATEMENTS" means the financial statements accompanying the
Guarantor's Annual Report on Form 10-K or the Guarantor's Quarterly Reports on
Form 10-Q filed from time to time with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.

          "FINANCING ARRANGEMENT" means each credit agreement, note purchase
agreement, subordinated loan agreement, security agreement, indenture, mortgage,
deed of trust and each other agreement or arrangement between the Lessor and a
lender or lenders to the Lessor or other Person or Persons providing credit
support to the Lessor or to debt issued by or on behalf of the Lessor related to
the financing or refinancing of the Project, as any of the same may be amended,
restated, modified or supplemented from time to time.

          "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, applied on a consistent basis.

          "GE GUARANTY" means the guaranty, dated as of November 15, 2000, from
General Electric Company to the Lessee, guaranteeing the obligations of General
Electric International, Inc. under the O&M Agreement, as the same may be
amended, restated, modified or supplemented from time to time in accordance with
the terms hereof.

          "GENERAL CONTRACTOR" means Duke/Fluor Daniel, a North Carolina
partnership.

          "GOVERNMENTAL ACTION" has the meaning set forth in paragraph (i)(d) of
Section 2 hereof.

          "GOVERNMENTAL AUTHORITY" means any agency, department, court or other
administrative, legislative or regulatory authority of any federal, state, local
or foreign governmental body.

          "GUARANTOR" means Consolidated Edison, Inc., a New York corporation,
and its successors.

          "GUARANTOR'S CONSENT" means the Consent and Agreement, dated as of
November 14, 2000, by and among the Guarantor, the Lessor and the Collateral
Trustee, as the same may be amended, restated, modified or supplemented from
time to time.

                                       -8-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "GUARANTY" means the Guaranty, dated as of the date hereof, from the
Guarantor in favor of the Lessor and its successors and assigns, as the same may
be amended, restated, modified or supplemented from time to time.

          "INDEBTEDNESS" means, for any Person, without duplication, (i) all
obligations of such Person for borrowed money or under any lease which, in
either case, is recognized as debt on the balance sheet of such Person in
accordance with GAAP, (ii) all obligations of such Person to pay the deferred
purchase price of property or services, including any such obligations created
under or arising out of any conditional sale or other title retention agreement
(other than property and services obtained in the ordinary course of business or
operations), (iii) all non-contingent obligations of such Person under
reimbursement or similar agreements with respect to the issuance of letters of
credit and (iv) all obligations of any other Person of the type specified in
clause (i), (ii) or (iii) above, (A) the payment or collection of which such
Person has guaranteed (except by reason of endorsement for collection in the
ordinary course of business), (B) in respect of which such Person is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase products or securities, to provide funds for payment, to
maintain working capital or other balance sheet conditions or otherwise to
assure a creditor against loss, or (C) secured by any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person; PROVIDED, HOWEVER, that Indebtedness shall not include Non-Recourse Debt
(including, without limitation, Securitized Debt).

          "INDEMNIFIED PERSON" has the meaning set forth in Section 11 hereof.

          "INDEPENDENT ENGINEER" means any nationally recognized engineering
firm appointed as independent engineer by the Lessor and Assignee.

          "INDUSTRIAL CORRIDOR ROAD" has the meaning given to such term in the
Agreement for Lease.

          "INITIAL TERM" has the meaning set forth in paragraph (a) Section 6
hereof.

          "INSURANCE REQUIREMENTS" means all insurance required to be obtained
with respect to the Project pursuant to Section 10 hereof and all terms of any
insurance policy covering or applicable to the Project, all requirements of the
issuer of any such policy, all statutory requirements and all orders, rules,
regulations and other requirements of any governmental body related to insurance
applicable to the Project.

          "INTELLECTUAL PROPERTY RIGHTS" means, collectively, all patents,
patent applications, trademarks (whether registered or not), trademark
applications, trade names, proprietary computer software or copyrights (or any
licenses, permits or agreements with respect to any of the foregoing) necessary
to construct, operate, lease or use the Project or any part thereof.

          "JDA" has the meaning given to such term in the Agreement for Lease.

          "INTERCONNECTIONS" means the interconnections at or available to the
Project for transmission of electricity and the supply of water, natural gas,
and other necessary utilities and services.

                                       -9-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "LEASE RATE DATE" has the meaning set forth in paragraph (b) of
Section 7 hereof.

          "LEASE TERM" means the Initial Term plus the Extended Term.

          "LEGAL REQUIREMENTS" means all laws, judgments, decrees, ordinances
and regulations and any other governmental rules, orders and determinations and
all requirements having the force of law, now or hereinafter enacted, made or
issued, whether or not presently contemplated, and all agreements, covenants,
conditions and restrictions, applicable to the Project or the construction,
ownership, operation or use thereof, including, without limitation, all
requirements of labor laws and Environmental Requirements, compliance with which
is required at any time from the date hereof through the Lease Term and any
Renewal Term, whether or not such compliance shall require structural,
unforeseen or extraordinary changes to the Project or the operation, occupancy
or use thereof.

          "LESSEE" has the meaning set forth in the first paragraph of this
Lease.

          "LESSEE'S CONSENT" means the Consent and Agreement, dated as of
November 14, 2000, by and among the Lessee, the Lessor and the Collateral
Trustee, as the same may be amended, restated, modified or supplemented from
time to time.

          "LESSOR" means Hawkeye Funding, Limited Partnership or any successor
or successors to all of its rights and obligations as the Lessor hereunder and,
for purposes of Section 11 hereof, shall include any partnership (general or
limited), corporation, limited liability company, trust, individual or other
entity which computes its liability for income or other taxes on a consolidated
basis with Hawkeye Funding, Limited Partnership or the income of which for
purposes of such taxes is, or may be, determined or affected directly or
indirectly by the income of the Lessor or its successor or successors.

          "LESSOR LIEN" means any Lien or disposition of title (a) arising as a
result of any act or omission of the Lessor, or (b) which is otherwise claimed
by or through the Lessor and which is not related to the Project leased
hereunder or the business of the Lessee, and which, in either case, is not
permitted or contemplated by this Lease, the Agreement for Lease, any Financing
Arrangement, the Project Contracts or the transactions contemplated thereby.

          "LETTER OF CREDIT" means any letter of credit issued in favor of the
Lessor pursuant to Section 7.1(A) of the EPC Contract.

          "LIBOR RATE" means the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/16th of 1%) quoted by The Bank of New York to the
Lessor at or before 10:00 a.m. (New York, New York time) (or as soon thereafter
as practicable), for the offering to The Bank of New York by prime banks in the
London Eurodollar interbank market, at the time of determination and in
accordance with the then usual practice in such market, of deposits in dollars
for delivery on such date and having a maturity equal to six months. Each
determination by the Lessor of the LIBOR Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging and
attribution method.

          "LIEN" means any security interest, mortgage, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), or other security agreement
of any kind or nature

                                      -10-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing).

          "MARITIMES AGREEMENTS" means, collectively, (i) the Precedent
Agreement for Firm Transportation of Natural Gas to be entered into by and
between Maritimes & Northeast Pipeline, L.L.C. and the Lessee and (ii) the other
agreement or agreements to be entered into by and between Maritimes & Northeast
Pipeline, L.L.C. and the Lessee pursuant to the Precedent Agreement with respect
to the transportation of gas to the Project, as each of the same may be amended,
restated, modified, or supplemented from time to time.

          "MATERIAL ADVERSE EFFECT" where such definition is used means (a) the
total common shareholders equity of the Guarantor and its subsidiaries as
determined on a consolidated basis and as reflected in accordance with GAAP on
the Guarantor's then most recent Financial Statements shall fall below
$4,610,510,000, (b) the fair market sales value of the Project shall decrease by
an amount equal to or greater than 7.5% of the Adjusted Acquisition Cost of the
Project, or (c) the Lessor or any Assignee shall become, by virtue of the
transactions or activities contemplated by this Lease and the Agreement for
Lease, subject to financial, rate or other similar regulation as, a public
utility, or an electric utility or a public utility holding company under a
Legal Requirement (including any Legal Requirement (i) under the 1935 Act, (ii)
imposed by any state or local public utility commission or other similar
regulatory body, authority or group having jurisdiction over the Lessor or the
Lessee or any such transactions or activities or (iii) under the Federal Power
Act, as amended).

          "MATERIAL SUBSIDIARY" means any Subsidiary with shareholders' equity
for financial reporting purposes in excess of $500,000,000.

          "MEMORANDUM" means the Confidential Private Placement Memorandum dated
September 2000 prepared with respect to the offering of the Notes sold pursuant
to the Note Purchase Agreement, together with the appendices thereto, any
documents incorporated therein by reference, as supplemented by a Supplementary
Update on or about September 21, 2000.

          "MERRILL" means Merrill Lynch Money Markets Inc., a Delaware
corporation.

          "MERRILL LEASING" means ML Leasing Equipment Corp., a Delaware
corporation.

          "MERRILL LYNCH" means Merrill Lynch & Co., Inc., a Delaware
corporation.

          "MODIFIED CALL PREMIUM" means an amount equal to the amount of
Modified Call Premium (as defined in the Note Purchase Agreement) payable by the
Lessor at any time pursuant to the terms of the Note Purchase Agreement.

          "MOODY'S" means Moody's Investors Service, Inc., and any successor
thereto which is a nationally recognized statistical rating organization.

          "1935 ACT" means the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations issued, published or promulgated from
time to time thereunder.

                                      -11-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "NON-RECOURSE DEBT" means, for any Person, obligations of such Person
of the type specified in clauses (i)-(iv) of the definition of "Indebtedness"
(not exceeding the cost of the acquisition, construction or creation of the
relevant asset, project or property) incurred or existing in connection with the
financing or refinancing of any asset, project or property, the repayment of
which obligations is to be made from the revenues arising out of, or other
proceeds of realization from, the acquired or created asset, project or
property, with recourse to those revenues and proceeds and assets forming the
subject matter of such asset, project or property (including, without
limitation, insurance contracts and shares or other rights of ownership in the
entity(ies) which own the relevant assets, projects or properties) and other
assets and properties ancillary thereto but without recourse to any other asset
or property or otherwise to such Person; PROVIDED that recourse liability shall
not be deemed to exist by reason of normal and customary sponsor support
arrangements.

          "NOTE PURCHASE AGREEMENT" means, collectively, the several Note
Purchase Agreements, each dated as of the date hereof, between the Lessor and
the purchasers of the Lessor's Senior Secured Notes due 2022 (collectively, the
"NOTES") in respect of an aggregate principal amount of $340,971,000, as the
same may be amended, restated, modified or supplemented from time to time.

          "NOTES" has the meaning set forth in the definition of "Note Purchase
Agreement" in this Section 1.

          "NPL" has the meaning set forth in paragraph (i)(o) of Section 2
hereof.

          "O&M AGREEMENT" means the Operation and Maintenance Agreement, dated
as of December 20, 1999, between the Lessee and the Operator, relating to the
operation and maintenance of the Project, as the same may be amended, restated,
modified or supplemented from time to time in accordance with the terms hereof.

          "OPERATING ACCOUNT" has the meaning set forth in the Collateral
Indenture.

          "OPERATOR" means General Electric International Inc., a Delaware
corporation, or such other entity designated as successor operator of the
Project by the Lessee in accordance with the terms hereof.

          "PCBs" has the meaning set forth in paragraph (i)(o) of Section 2
hereof.

          "PERMITTED CONTEST" has the meaning set forth in paragraph (a) of
Section 27 hereof.

          "PERMITTED INDEBTEDNESS" means the following indebtedness or other
obligations of the Lessee: (i) letters of credit and other financial obligations
arising under the Project Contracts, (ii) trade accounts payable (other than for
borrowed money) arising, and accrued expenses incurred, in the ordinary course
of business so long as such trade accounts payable are payable within ninety
(90) days of the date the respective goods are delivered or the respective
services are rendered and (iii) purchase money obligations incurred to finance
certain items of discrete equipment not comprising an integral part of the
Project that can be installed and removed from the Project without diminishing
the value, utility or remaining economic useful

                                      -12-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

life which the Project would have had at such time had such equipment not been
installed and removed, which obligations extend only to the equipment being
financed in an aggregate amount of secured principal and capitalized lease
obligations not exceeding $5,000,000 at any one time outstanding.

          "PERMITTED LIENS" means the following Liens and other matters
affecting the Project: (a) Liens securing the payment of taxes, assessments and
other governmental charges or levies which are either not delinquent or, if
delinquent, are being contested by the Lessee in good faith as a Permitted
Contest (PROVIDED that the Lessee is in compliance with any security
requirements under paragraph (b) of Section 27 hereof relating thereto); (b)
zoning and planning restrictions, subdivision and platting restrictions,
easements, rights-of-way, licenses, reservations, covenants, conditions,
waivers, restrictions on the use of the Project, minor encroachments or minor
irregularities of title, none of which individually or in the aggregate could
reasonably be expected to materially impair the intended use or value of the
Project; (c) reservations of mineral interests, none of which individually or in
the aggregate could reasonably be expected to materially impair the intended use
or value of the Project; (d) the Liens created pursuant to any Financing
Arrangement; (e) leases, easements and licenses in effect with respect to the
Project which are permitted by this Lease or which are delivered to and accepted
by the Lessor and Assignee prior to the Effective Date provided they are
appurtenant to or benefit the use and operation of the Project; (f) other
exceptions to the title of the Project as set forth in the title insurance
policy delivered to the Lessor and Assignee under Section 4 of the Agreement for
Lease (for the period prior to Substantial Completion) and in a notice of
continuation or endorsement to the title insurance policy delivered to the
Lessor and Assignee under Section 6 of the Agreement for Lease (for the period
on and after Substantial Completion) other than Liens securing the payment of
taxes, assessments and other governmental charges or levies; (g) deposits or
pledges to secure statutory obligations or appeals and release of attachments,
stay of execution or injunction, performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or for purposes of like
general nature in the ordinary course of business, in each case for which the
Lessee has set aside adequate reserves (to the extent required by GAAP), none of
which individually or in the aggregate could reasonably be expected to
materially impair the intended use or value of the Project; (h) liens in
connection with workers' compensation, unemployment insurance or other social
security or pension obligations for which the Lessee has set aside adequate
reserves (to the extent required by GAAP), none of which individually or in the
aggregate could reasonably be expected to materially impair the intended use or
value of the Project; (i) legal or equitable encumbrances deemed to exist by
reason of the existence of any litigation or other legal proceeding if the same
is the subject of a Permitted Contest (excluding any attachment prior to
judgment, any judgment lien or any attachment in aid of execution on a
judgment), for which the Lessee has set aside adequate reserves (to the extent
required by GAAP), none of which individually or in the aggregate could
reasonably be expected to materially impair the intended use or value of the
Project; (j) materialmen's, mechanics', worker's, repairmen's, employees', or
similar Liens incurred in good faith and in the ordinary course of business
which are the subject of a Permitted Contest; (k) liens securing purchase money
obligations of the type described in clause (iii) of the definition of
"Permitted Indebtedness"; and (l) such other or additional matters as may be
approved in writing by the Lessor and each Assignee.

                                      -13-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          "PERSON" means any individual, corporation, partnership, limited
liability company, private limited company, joint venture, association,
joint-stock company, trust, unincorporated organization of government or any
agency or political subdivision thereof.

          "PLEDGE AGREEMENT" means the Pledge Agreement, dated as of the date
hereof, by and between the Lessee, as pledgor, and the Lessor, as pledgee, as
the same may be amended, restated, modified or supplemented from time to time, a
copy of which is attached as Exhibit E hereto.

          "POTENTIAL DEFAULT" means any event which, but for the lapse of time
or giving of notice, or both, would constitute an Event of Default.

          "PREMISES" means collectively (a) the real property acquired by the
Lessor pursuant to the Deeds (as defined in the Agreement for Lease), and (b)
the Easements, each as more particularly described in Exhibit A hereto.

          "PROJECT" means the Premises and the improvements and equipment
(including all related appliances, appurtenances, accessions, controls,
interconnection facilities, transmission lines, wiring, furnishings, materials
and parts, and other related facilities and equipment, along with any
replacements thereof) constructed thereon pursuant to the EPC Contract (or any
other construction contracts entered into by the Lessor or the Lessee) and the
Agreement for Lease, which constitute an approximately 525 megawatt nominal
combined-cycle dual fuel-fired power generation facility known as the Newington
Power Project, consisting of two GE Frame 7FA gas turbine generators, two heat
recovery steam generators, one steam turbine generator and related equipment.

          "PROJECT CONTRACTS" means the EPC Contract, the EPC Guaranty, the GE
Guaranty, the O&M Agreement, any Replacement O&M Agreement and replacement
guaranty (from and after the date such Replacement O&M Agreement and replacement
guaranty become effective), any replacement EPC Contract (from and after the
date such replacement EPC Contract becomes effective), the Letter of Credit (if
any), the Maritimes Agreements (from and after the date each such Maritimes
Agreement becomes effective), and any other agreement or agreements entered into
by the Lessee and necessary for the construction of the Project (from and after
the date each such agreement becomes effective). A list of the Project Contracts
as in existence on the date hereof is attached as Exhibit B hereto.

          "PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended from time to time, and the rules and regulations issued, published or
promulgated from time to time thereunder.

          "RELEASE" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migrating into
the indoor or outdoor environment of any Contaminant through or in the air,
soil, surface water, groundwater, or any structure.

          "RELEASE PARCEL" has the meaning set forth in paragraph (a) of Section
32 hereof.

          "REMEDIAL ACTION" means actions required or otherwise undertaken by a
Governmental Authority, or which are appropriate as a matter of prudent business
practice and commercial reasonableness, to (i) clean up, remove, treat or in any
other way address

                                      -14-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Contaminants in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release or minimize the further Release of Contaminants; (iii)
investigate and determine if a remedial response is needed; or (iv) design such
a response and post-remedial investigation, monitoring, operation, maintenance
and care.

          "REMOVABLE IMPROVEMENTS" has the meaning set forth in paragraph (b) of
Section 8 hereof.

          "RENEWAL NOTICE" has the meaning set forth in paragraph (c) of Section
13 hereof.

          "RENEWAL TERM" has the meaning set forth in paragraph (c) of Section
13 hereof.

          "REPLACEMENT O&M AGREEMENT" means any agreement relating to the
operation and maintenance of the Project, entered into by the Lessee and a third
party in accordance with the provisions of paragraph (ii)(n) of Section 2 hereof
upon the termination of the O&M Agreement or the expiration of the O&M Agreement
in accordance with its terms.

          "RESPONSIBLE OFFICER" shall mean the President, Vice President or
Secretary of the Lessee and any other officers or similar officials of the
Lessee responsible for administering the obligations of the Lessee hereunder as
designated in writing by the Lessee to the Lessor.

          "S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., and any successor thereto which is a nationally recognized
statistical rating organization.

          "SEC" means the Securities and Exchange Commission.

          "SECURITIZED DEBT" means, for any Person, obligations of such Person
of the type specified in clauses (i)-(iv) of the definition of "Indebtedness"
secured by a Lien on one or more assets or rights to receive revenues, in each
case in respect of Stranded Costs (or related items) of such Person where the
holders of such obligations do not have recourse to any other assets, properties
or rights of such Person to receive revenue, in each case in respect of Stranded
Costs (or related items) of such Person.

          "SEMI-ANNUAL COST OF PROJECT DEBT" means the weighted average
percentage cost per annum (including as part of such cost any fees payable under
or pursuant to any Financing Arrangements, but net of any investment earnings of
the Lessor applied to the payment of costs) of borrowings outstanding under any
Financing Arrangements (whether or not interest is accruing at a default rate)
at any time during the period from and including the first day of the first
month in the semi-annual period for which Basic Rent is being computed to and
including the last day of the last month of the semi-annual period for which
Basic Rent is being computed (the "COMPUTATION PERIOD") to finance or refinance
the acquisition and ownership of the Project.

          "SEMI-ANNUAL RENT COMPONENT" means, with respect to each semi-annual
period during the Lease Term, the amount set forth on Exhibit D hereto, as such
Exhibit D may be amended from time to time pursuant to the terms of this Lease.

          "STRANDED COSTS" means (i) charges in respect of prior utility
investments or commitments in fossil-fueled and nuclear generating plants or
operations, (ii) commitments for

                                      -15-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

decommissioning fossil-fueled and nuclear generating plants or operations, (iii)
charges with respect to contracts with non-utility generators for electric power
and energy, (iv) charges in respect of prior utility investments or commitments
in steam systems or operations and (v) charges with respect to contracts with
non-utility steam suppliers.

          "SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, joint venture, or other entity of which more than 50% of the
outstanding capital stock or other ownership interest (irrespective of whether
or not at the time capital stock or other equity interest of any other class or
classes of such corporation, partnership, joint venture, or other entity shall
or might have voting power upon the happening of any contingency) is at the time
owned directly or indirectly by such Person; unless otherwise specified,
"Subsidiary" means a Subsidiary of the Guarantor.

          "SUBSTANTIAL COMPLETION" has the meaning set forth in the Agreement
for Lease.

          "TAKING" has the meaning set forth in paragraph (a) of Section 16
hereof.

          "TERMINATION COVENANTS" means the following covenants made by the
Lessee to the Lessor as a condition to the sale of the Project pursuant to
Section 12 hereof: on the date of such sale (a) no Event of Loss, Taking,
Termination Event, Event of Default or Potential Default shall have occurred and
be continuing; (b) the Project shall not be undergoing any repairs, additions or
alterations that could reasonably be expected to diminish the fair market value,
utility or remaining economic useful life which the Project would have had at
such time had such repair, addition or alteration not been undergoing (assuming
the Project is in the condition required hereby); (c) the Project shall be in
compliance with all Legal Requirements; (d) the Lessee shall, at its expense,
deliver to the Lessor an environmental audit satisfactory in scope and content
to the Lessor and Assignee (in each case in their reasonable discretion), to the
effect that (i) no Environmental Matters exist with respect to the Project or
the Premises as a result of the construction, operation and maintenance of the
Project and (ii) the Project may be operated in accordance with the Project
Contracts and in compliance with Environmental Requirements; and (e) the Lessee
shall deliver to the Lessor and Assignee a report of the Independent Engineer
reasonably satisfactory to the Lessor and Assignee, to the effect that the
Project (i) has been maintained in accordance with the terms and conditions of
Section 9 of this Lease and (ii) is capable of being operated and maintained in
accordance with (1) the design specifications required by the EPC Contract, (2)
all Legal Requirements and (3) prudent industry practices.

          "TERMINATION EVENT" has the meaning set forth in paragraph (a) of
Section 14 hereof.

          "TERMINATION NOTICE" has the meaning set forth in paragraph (a) of
Section 12 hereof.

          "UNRECOVERED LIABILITIES AND JUDGMENTS" means all liabilities of an
Indemnified Person, including, without limitation, taxes, losses, obligations,
claims, damages (including, without limitation, Environmental Damages),
penalties, premiums, make-whole payments, causes of action, suits, costs and
expenses (including, without limitation, reasonable attorneys', experts',
consultants' and accountants' fees and expenses) or judgments of any nature
against an

                                      -16-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Indemnified Person relating to or in any way arising during the term of the
Agreement for Lease and relating to or in any way arising out of (i) the
Lessor's acquisition, ownership and financing of the Project, (ii) the Lessor's
acquisition of a fee interest in the Premises, (iii) the Lessee's construction
of the Project, (iv) the operation or use of the Premises or the Project by the
Lessee or any agent or subcontractor of the Lessee or (v) the Project Contracts,
in each case to the extent that such Indemnified Person has not received full
indemnification for such liabilities or judgments by the Lessee; PROVIDED,
HOWEVER, that this definition of Unrecovered Liabilities and Judgments shall not
include any taxes for which the Lessee is not obligated to indemnify such
Indemnified Person under the provisions of paragraph (b) of Section 11 hereof.

          "VARIABLE COMPONENT OF BASIC RENT" has the meaning set forth in the
definition of Basic Rent in Section 1 hereof.

          SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.

          (i)    The Lessee represents and warrants to the Lessor:

          (a)    CORPORATE MATTERS. The Lessee (i) has been duly formed and is
validly existing as a limited liability company in good standing under the laws
of the State of Delaware, (ii) has full power, authority and legal right to own
and operate its properties and to conduct its business as presently conducted
and to execute, deliver and perform its obligations under this Lease, the
Agreement for Lease, the Project Contracts, the Pledge Agreement and the
Lessee's Consent, and (iii) is duly qualified to do business as a foreign
limited liability company in good standing in the State of New Hampshire and in
each other jurisdiction in which its ownership or leasing of properties or the
conduct of its business requires such qualification.

          (b)    BINDING AGREEMENT. This Lease has been duly authorized,
executed and delivered by the Lessee and, assuming the due authorization,
execution and delivery of this Lease by the Lessor, this Lease is a legal, valid
and binding obligation of the Lessee, enforceable according to its terms,
subject, as to enforceability, to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).

          (c)    COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Lessee of this Lease, the Project Contracts, the Pledge
Agreement and the Lessee's Consent will not result in any violation of any
provision of the certificate of formation or the operating agreement of the
Lessee, do not require member approval or the approval or consent of any trustee
or holders of indebtedness of the Lessee except such as have been obtained prior
to the date hereof and will not conflict with or result in a breach of any terms
or provisions of, or constitute a default under, or result in the creation or
imposition of any Lien (other than a Permitted Lien) upon any property or assets
of the Lessee under, any indenture, mortgage or other agreement or instrument to
which the Lessee is a party or by which it or any of its property is bound, or
any existing applicable law, rule, regulation, license, judgment, order or
decree of any government, governmental body or court having jurisdiction over
the Lessee or any of its activities or properties.

                                      -17-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (d)    GOVERNMENTAL CONSENTS. There are no consents, licenses, orders,
authorizations, approvals, Environmental Approvals, Permits (as defined in the
Agreement for Lease), waivers, extensions or variances of, or notices to or
registrations or filings with any governmental or public body or authority (each
a "GOVERNMENTAL ACTION"), (i) which are or will be required in connection with
the valid execution, delivery and performance of this Lease or the Project
Contracts, (ii) which are or will be required in connection with any
participation by the Lessor or Assignee in the transactions contemplated by the
Project Contracts or this Lease, (iii) which are or will be required in
connection with the acquisition or ownership by the Lessor of the Project and
all equipment for use with respect thereto, (iv) which are or will be required
for the lease of the Project or the operation of the Project in accordance with
and as contemplated by the Project Contracts and this Lease or (v) which are or
will be required to be obtained by the Lessor, the Lessee, Merrill, Merrill
Leasing, Assignee or any Affiliate of the foregoing, during the term of this
Lease, the Agreement for Lease or the Project Contracts, with respect to the
Project or the Project Contracts, except such Governmental Actions (A) each of
which either (1) has been duly obtained, given or accomplished, is in full force
and effect, is final and is not under appeal, with a true copy thereof delivered
to the Lessor or (2) is to be obtained but is not now required (but which will
be able to be obtained in the ordinary course of business on or before the time
required), (B) as may be required by applicable law not now in effect, (C) which
may be required as a result of the business, properties or activities of the
Lessor, Merrill Lynch, Merrill Leasing, Assignee or any Affiliate of the
foregoing and which are not solely dependent on the nature of the Project or the
business of the Lessee, or (D) the failure to obtain which, individually or in
the aggregate, (x) will not subject either the Lessor or any Assignee to any
danger of civil liability for which the Lessor or such Assignee is not
adequately indemnified or subject the Lessor or any Assignee to any danger of
criminal liability, provided that, in the case of any such danger of criminal
liability, any grace period in which to cure such failure shall not be
applicable and (y) could not reasonably be expected to have a material adverse
effect on (a) the construction, operation, maintenance, leasing, ownership, use,
value or regulatory status of the Project (provided, that a material adverse
effect with respect to the regulatory status of the Project shall only be deemed
to occur if, as a result of the failure to obtain such Governmental Actions, the
Lessee is unable to comply with the provisions of paragraphs (i)(cc) and (ii)(i)
of Section 2 hereof or a Termination Event shall occur), (b) the ability of the
Lessee to observe and perform its obligations under this Lease, the Agreement
for Lease or the Project Contracts in a timely manner or the ability of the
Guarantor to perform its obligations under the Guaranty in a timely manner, (c)
the business, assets, properties, financial condition, operations or prospects
of the Guarantor, or (d) the rights or interests of the Lessor or Assignee under
this Lease, the Agreement for Lease, the Guaranty or the Project Contracts.

          (e)    FINANCIAL STATEMENTS. The Lessee has furnished to the Lessor
copies of the Guarantor's Reports on Form 10-K for the year ended December 31,
1999 and the Guarantor's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000 and June 30, 2000. The financial statements contained in such
documents fairly present the financial position, results of operations and
consolidated statements of cash flows of the Guarantor as of the dates and for
the periods indicated therein and have been prepared in accordance with GAAP.

          (f)    CHANGES. Except as disclosed in the Memorandum or in public
filings made by the Guarantor with the SEC after the date of the Memorandum and
prior to the date hereof, copies of which are attached as Schedule 2(f) hereto,
since December 31, 1999, there has

                                      -18-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

been no change in the business, assets, properties, revenues, financial
condition, operations or prospects of the Project or the Guarantor which has
caused, directly or indirectly, the total common shareholders equity of the
Guarantor and its subsidiaries as determined on a consolidated basis and as
reflected in accordance with GAAP on the Guarantor's most recent Financial
Statements to fall below $4,610,510,000.

          (g)    LITIGATION. There is no action, suit, claim, counterclaim,
proceeding or investigation, at law or in equity, by or before any court,
governmental body, agency, commission or other tribunal now pending or, to the
Lessee's knowledge, threatened against or affecting the Project, the Lessee, the
Guarantor or any subsidiaries of the Guarantor, or any property or rights of the
Lessee or the Guarantor or questioning the enforceability of this Lease or the
Project Contracts, which, if adversely determined, will result, directly or
indirectly, in a Material Adverse Effect.

          (h)    INTELLECTUAL PROPERTY. All Intellectual Property Rights
required for the construction and operation of the Project in accordance with
and as contemplated by the Project Contracts or this Lease, have been or will in
the ordinary course of business be timely obtained and, once obtained, will
remain in full force and effect. The Lessee owns or has the right to use all
technology, licenses, patents and other proprietary rights that are material and
are required to perform the Lessee's obligations under the Project Contracts
without any conflict with the rights of others.

          (i)    PROJECT CONTRACTS. Each Project Contract to which the Lessee is
a party has been duly authorized, executed and delivered by the Lessee and,
assuming the due authorization, execution and delivery of the Project Contracts
by the other parties thereto, is a legal, valid and binding obligation of the
Lessee, enforceable according to its terms, subject, as to enforceability, to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law). The Lessee has not received
notice from, nor is there any basis for the receipt of a notice from, any party
to a Project Contract that (i) such party is terminating any Project Contract,
(ii) a default has occurred under any Project Contract or any Person has alleged
that a default has occurred under any Project Contract or (iii) there are any
claims for damages existing as a result of the Lessee's performance of or its
failure to perform any of its obligations under any Project Contract. No default
has occurred and is continuing under any Project Contract on the date hereof.

          (j)    COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS.
The construction, operation, use, and physical condition of the Project (i) are
in full compliance with all Insurance Requirements and all premiums due with
respect to such Insurance Requirements have been paid, and (ii) are in full
compliance with all Legal Requirements, except any Legal Requirements, the
noncompliance with which, individually or in the aggregate, (A) will not subject
either the Lessor or any Assignee to any danger of civil liability for which the
Lessor or such Assignee is not adequately indemnified or subject the Lessor or
any Assignee to any danger of criminal liability, provided that, in the case of
any such danger of criminal liability, any grace period in which to cure such
non-compliance shall not be applicable and (B) could not reasonably be expected
to have a material adverse effect on (a) the construction, operation,
maintenance, leasing, ownership, use, value or regulatory status of the Project
(provided, that a

                                      -19-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

material adverse effect with respect to the regulatory status of the Project
shall only be deemed to occur if, as a result of the failure to comply with such
Legal Requirements, the Lessee is unable to comply with the provisions of
paragraphs (i)(cc) and (ii)(i) of Section 2 hereof or a Termination Event shall
occur), (b) the ability of the Lessee to observe and perform its obligations
under this Lease, the Agreement for Lease or the Project Contracts in a timely
manner or the ability of the Guarantor to perform its obligations under the
Guaranty in a timely manner, (c) the business, assets, properties, financial
condition, operations or prospects of the Guarantor, or (d) the rights or
interests of the Lessor or Assignee under this Lease, the Agreement for Lease,
the Guaranty or the Project Contracts.

          (k)    LIENS. The Project is not subject to any Lien, except for
Permitted Liens, and none of such Permitted Liens could reasonably be expected
to materially interfere with the use or possession of the Project or the use or
exercise by the Lessor of its rights under this Lease or any other document
contemplated hereby or entered into in connection herewith.

          (l)    AGREEMENT FOR LEASE. The Project has been built in accordance
with the terms of the Agreement for Lease. The representations and warranties of
the Lessee, as agent, in the Agreement for Lease (other than the representation
and warranty contained in subsection 8.10 thereof), are true and correct in all
material respects (except to the extent such representations and warranties
expressly relate specifically to an earlier date, in which case such
representations and warranties were true and correct in all material respects as
of such earlier date).

          (m)    ERISA. The Lessee has not established and does not maintain or
contribute to any employee benefit plan that is covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended from time to time
("ERISA").

          (n)    STATUS OF LESSEE. A majority of the membership interests of the
Lessee is owned (directly or indirectly) beneficially and of record by the
Guarantor.

          (o)    ENVIRONMENTAL MATTERS.

        (i)      Except as expressly identified in the Environmental Reports,
     the Lessee and the Project comply and have at all times complied with all
     material Environmental Requirements applicable to the Project. The Lessee
     and the Project shall at all times comply with all material Environmental
     Requirements applicable to the Project, including, without limitation, the
     use, maintenance and operation of the Project, and all activities and
     conduct of business related thereto, including, without limitation, the
     treatment, remediation, removal, transport, storage or disposal of any
     Contaminant, and no material capital expenditures not included in the
     Budget are anticipated to maintain or achieve compliance with Environmental
     Requirements;

        (ii)     The Lessee has obtained or has taken appropriate and timely
     steps, as required by Environmental Requirements, to obtain, and shall
     obtain and maintain all Environmental Approvals necessary for the
     construction and operation of the Project, all such Environmental Approvals
     already obtained are in good standing, and the Lessee and the Project are
     currently in material compliance and shall remain in material compliance

                                      -20-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     with all terms and conditions of such Environmental Approvals. No material
     change in the facts or circumstances reported or assumed in the
     applications for or the granting of such Environmental Approvals exists.
     There are no proceedings pending, or threatened, which would jeopardize the
     validity of or ability of the Lessee to obtain and comply with any such
     Environmental Approvals in a timely manner;

        (iii)    The Lessee has not received any notice that any of the third
     parties with which the Lessee has arranged, engaged or contracted to
     accept, treat, transport, store, dispose or remove any Contaminant
     generated or present at the Project, or which otherwise participate or have
     participated in activities or conduct related to the Project, were not
     properly permitted at the relevant time to perform the foregoing activities
     or conduct;

        (iv)     The Lessee has not received any notice that it or the Project
     is subject to any investigation, and is not subject to any judicial or
     administrative proceeding, notice, order, judgment, decree or settlement,
     alleging or addressing in connection with the Project (A) any violation of
     any Environmental Requirements, (B) any Remedial Action, or (C) any
     Environmental Damages, claims or liabilities and costs arising from the
     Release or threatened Release of any Contaminant;

        (v)      No Environmental Lien has attached to any portion of the
     Project, and the Lessee shall not cause or suffer any action or occurrence
     that will allow an Environmental Lien to attach to any portion of the
     Project;

        (vi)     The Lessee has not received, and is not otherwise aware of, any
     notice, claim or other communication concerning (A) any alleged violation
     of any Environmental Requirements at the Project, whether or not corrected
     to the satisfaction of the appropriate authority, (B) any alleged liability
     of the Lessee for Environmental Damages arising out of or related to the
     Project, or (C) any alleged liability of the Lessee arising out of or
     related to the Project for the Release or threatened Release of a
     Contaminant at any location, and there exists no writ, injunction, decree,
     order or judgment outstanding, nor, to the best knowledge of the Lessee,
     after due inquiry, any lawsuit, claim, proceeding, citation, directive,
     summons or investigation, pending or threatened, relating to the condition,
     ownership, use, maintenance or operation of the Project, or the suspected
     presence of Contaminants thereon or therefrom, nor does there exist any
     basis for such lawsuit, claim, proceeding, citation, directive, summons or
     investigation being instituted or filed;

        (vii)    To the best knowledge of the Lessee, there has been no Release
     of any Contaminants which would constitute a violation of any Environmental
     Requirement with respect to the Project and the Lessee shall not cause or
     suffer any such Release during the term of this Lease;

        (viii)   The Project is not listed or proposed for listing on the
     National Priorities List ("NPL") pursuant to the Comprehensive
     Environmental Response, Compensation, and Liability Act, as amended
     ("CERCLA"), or listed on the Comprehensive Environmental Response
     Compensation Liability Information System List ("CERCLIS")

                                      -21-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     or any similar state list of sites, and the Lessee is not aware of any
     conditions at the Project which, if known to a Governmental Authority,
     would qualify the Project for inclusion on any such list;

        (ix)     Neither the Lessee nor, to the best knowledge of the Lessee,
     after due inquiry, any contractor engaged by the Lessee in connection with
     the Project has transported or arranged for the transport of any
     Contaminant from the Project to any facility or site for the purpose of
     treatment or disposal which (A) is included on the NPL, or, to the best
     knowledge of the Lessee (B) is or was, at the time of disposal, subject to
     a Remedial Action requirement (other than routine, anticipated regulatory
     requirements, including, but not limited to, closure and post-closure
     related corrective action obligations affecting closed solid waste
     management units at such facility) issued under the federal Resource
     Conservation and Recovery Act or any state, local or foreign solid or
     hazardous waste regulatory law, or (C) at the time of the disposal was
     subject to a governmental enforcement action with respect to alleged
     violations of any Environmental Requirements and the Lessee shall use its
     best efforts not to suffer or permit any such arrangement for treatment or
     disposal during the term of this Lease;

        (x)      Neither the Lessee nor, to the best knowledge of the Lessee,
     after due inquiry, any contractor engaged by the Lessee in connection with
     the Project has engaged in or permitted, nor shall the Lessee engage in or
     permit, any operations or activities upon, or any use or occupancy of the
     Project or any portion thereof, for the purpose of or in any way involving
     the illegal or improper release, discharge, refining or dumping of any
     Contaminant or the illegal or improper handling, storage, use or disposal
     of any Contaminant, nor has the Lessee or any other Person caused any
     Contaminant to be deposited, released, stored, disposed, leached or
     otherwise come to be located on, under, in or about the Premises, nor to
     the knowledge of the Lessee has any Contaminant migrated from the Premises
     onto or underneath other properties;

        (xi)     To the best knowledge of the Lessee, after due inquiry, there
     is not constructed, placed, deposited, stored, disposed nor located on the
     Project any asbestos in any form which has become or threatens to become
     friable. The Lessee shall not cause or suffer the use of any
     asbestos-containing material in connection with its management and
     operation of the Project during the term of this Lease (other than any
     asbestos-containing equipment used by subcontractors of the Lessee during
     the construction of the Project in compliance with all Environmental
     Requirements and to the extent the Lessor has adequate insurance or
     indemnification with respect thereto under the EPC Contract);

        (xii)    To the best knowledge of the Lessee, after due inquiry, there
     is not constructed, placed, deposited, released, stored, disposed, leached
     nor located on the Project any polychlorinated biphenyls ("PCBs") or
     transformers, capacitors, ballasts, or other equipment which contain
     dielectric fluid containing PCBs. The Lessee shall not cause or suffer the
     use of any article containing PCBs at or on the Project during the term of
     this Lease (other than any equipment containing PCBs used by subcontractors
     of the Lessee during the construction of the Project in compliance with all
     Environmental Requirements and to the extent the Lessor has adequate
     insurance or indemnification with respect thereto under the EPC Contract);

                                      -22-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

        (xiii)   The Lessee has no liability, and has neither received nor is
     otherwise aware of any notice, claim or other communication alleging
     liability on the part of the Lessee, for the violation of any Environmental
     Requirements, for Environmental Damages, or for the Release or threatened
     Release of any Contaminant in connection with the Project; and

        (xiv)    None of the matters identified in the Environmental Reports,
     individually or in the aggregate, could reasonably be expected to result,
     directly or indirectly, in a Material Adverse Effect.

          (p)    PROJECT AUTHORIZATIONS. The Lessee has obtained, or shall in
the ordinary course of business obtain prior to the time required, all
certificates, permits, licenses, authorizations and approvals, including
Environmental Approvals, required (i) in the management and operation of the
Project in accordance with and as contemplated by the Project Contracts or this
Lease, (ii) for any change or modification of the use of the Project, (iii) for
construction of any improvements thereto and (iv) for acquisition of equipment
related to the Project for use with respect thereto, except where the failure to
obtain any permits, licenses, authorizations or approvals, individually or in
the aggregate, (A) will not subject either the Lessor or any Assignee to any
danger of civil liability for which the Lessor or such Assignee is not
adequately indemnified or subject the Lessor or any Assignee to any danger of
criminal liability, provided that, in the case of any such danger of criminal
liability, any grace period in which to cure such failure shall not be
applicable and (B) could not reasonably be expected to have a material adverse
effect on (a) the construction, operation, maintenance, leasing, ownership, use,
value or regulatory status of the Project (provided, that a material adverse
effect with respect to the regulatory status of the Project shall only be deemed
to occur if, as a result of the failure to obtain such permits, licenses,
authorizations or approvals, the Lessee is unable to comply with the provisions
of paragraphs (i)(cc) and (ii)(i) of Section 2 hereof or Za Termination Event
shall occur), (b) the ability of the Lessee to observe and perform its
obligations under this Lease, the Agreement for Lease or the Project Contracts
in a timely manner or the ability of the Guarantor to perform its obligations
under the Guaranty in a timely manner, (c) the business, assets, properties,
financial condition, operations or prospects of the Guarantor, or (d) the rights
or interests of the Lessor or Assignee under this Lease, the Agreement for
Lease, the Guaranty or the Project Contracts. A list of all such certificates,
permits, licenses, authorizations and approvals required by all applicable law
in effect on the date hereof is attached as Exhibit C hereto.

          (q)    COMPLIANCE WITH PROJECT CONTRACTS. The physical condition of
the Project as it is presently constructed complies with all material
requirements of each Project Contract and will enable the Lessee to perform all
obligations under the Project Contracts and this Lease in accordance with their
respective terms.

          (r)    PLEDGE AGREEMENT. The Pledge Agreement has been duly
authorized, executed and delivered by the Lessee and, assuming the due
authorization, execution and delivery of the Pledge Agreement by the Lessor, is
a legal, valid and binding obligation of the Lessee, enforceable according to
its terms, subject, as to enforceability, to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and to general principles
of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law). The

                                      -23-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Pledge Agreement creates a valid first priority security interest in the
Collateral (as defined in the Pledge Agreement) now in existence, securing the
payment of the Secured Obligations (as defined in the Pledge Agreement), all
action necessary to perfect the security interest in the Collateral has been
taken, and such security interest has priority over any other Lien on the
Collateral, except for Permitted Liens.

          (s)    OPERATION OF THE PROJECT. The Project will, on and after the
achievement of Substantial Completion (as such term is defined in the Agreement
for Lease), be able (i) to be operated in compliance with all material
Governmental Actions, the technical parameters and other continuing requirements
of the Project Contracts and this Lease for a period of at least 25 years
thereafter, and (ii) to be mechanically operated in compliance with all existing
material Governmental Actions for a period of at least 30 years thereafter.

          (t)    UTILITY AVAILABILITY. All utilities, services, facilities and
Interconnections required for the operation of the Project (including, but not
limited to, potable water supply, gas, electric and telephone facilities) are
available for use at the boundaries of the Premises or within a reasonable
distance from the Premises, and arrangements on commercially reasonable terms
have been made for the provision of such services to the Project.

          (u)    GUARANTY. The Guaranty has been duly authorized, executed and
delivered by the Guarantor and the Guaranty constitutes a legal, valid and
binding obligation of the Guarantor, enforceable according to its terms,
subject, as to enforceability, to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).

          (v)    DISCLOSURE. None of the financial statements referred to in
paragraph (i)(e) of Section 2 hereof, or the information described in the
Memorandum (insofar as such information relates to the Lessee, the Guarantor,
any Affiliate of the Guarantor or the Project), contained as of its date any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the representations contained herein or the
statements contained therein not misleading in light of the circumstances under
which they were made.

          (w)    NO DEFAULT. Neither the Lessee nor the Guarantor is in
violation of or in default under or with respect to any Legal Requirement in any
respect which will result, directly or indirectly, in a Material Adverse Effect.


          (x)    TAXES. the Lessee has filed or caused to be filed all tax
returns which are required to be filed by it, and has paid all taxes shown to be
due and payable on said returns or on any assessments made against it or any of
its assets and properties and has paid all other taxes, fees or other charges
imposed on it by any Governmental Authority (except taxes, fees and charges
subject to a Permitted Contest).

          (y)    BUDGETS. All budgets (including the Budget) furnished or to be
furnished to the Lessor and Assignee by or on behalf of the Lessee and the
summaries of significant assumptions related thereto, if any (i) have been and
will be prepared with due care in accordance with prudent business practices,
(ii) fairly present, and will fairly present the

                                      -24-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Lessee's expectations as to the matters covered thereby as of their date, (iii)
are based on, and will be based on, assumptions that are reasonable as to all
factual and legal matters material to the estimates therein (including interest
rates and construction and financing costs) and (iv) are in all material
respects consistent with, and will be in all material respects consistent with,
the provisions of this Lease, the Agreement for Lease and the Project Contracts.
The Budget includes all costs and expenses that could reasonably be expected to
be incurred in connection with the construction of the Project.

          (z)    NATURE OF LESSEE'S BUSINESS. The Lessee (A) has not engaged in
any business other than as contemplated by paragraph (ii)(j) of Section 2
herein, (B) is not a party to any contract, operating lease, agreement or
commitment other than as contemplated by paragraph (ii)(j) of Section 2 herein
and (C) has not created, assumed or incurred any Indebtedness other than
Permitted Indebtedness.

          (aa)   CEI NOTE. The CEI Note has been duly authorized, executed and
delivered by the Guarantor and is a legal, valid and binding obligation of the
Guarantor, enforceable according to its terms, subject, as to enforceability, to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).

          (bb)   PUBLIC UTILITY HOLDING COMPANY ACT. The Lessee is not subject
to regulation under the 1935 Act as a "public-utility company" or a "holding
company", within the meaning of the 1935 Act (except that the Lessee may become
an Affiliate of a holding company registered under the 1935 Act so long as the
rights of the Lessee under the Project Contracts and the rights of the Lessor or
Assignee under this Lease or any other document contemplated hereby are not
adversely affected).

          (cc)   REGULATION. Neither the Lessor nor any Assignee nor any of
their respective Affiliates is or will be, solely by reason of (i) its entering
into this Lease or any other document contemplated hereby, (ii) the acquisition,
ownership, leasing or financing of the Project (or any part thereof) or (iii)
the operation of the Project (or any part thereof) in accordance with and as
contemplated by the Project Contracts and this Lease, during the term of this
Lease or the Agreement for Lease, be subject to financial, rate or other similar
regulation as, a public utility, or an electric utility or a public utility
holding company under a Legal Requirement (including any Legal Requirement (A)
under the 1935 Act, (B) imposed by any state or local public utility commission
or other similar regulatory body, authority or group having jurisdiction over
the Lessor or the Lessee or any such transactions or activities, or (C) under
the Federal Power Act, as amended).

          (ii)   The Lessee covenants to the Lessor:

          (a)    LIMITATION ON INDEBTEDNESS. The Lessee will not incur, assume,
suffer to exist, directly or indirectly guaranty or at any time be liable with
respect to any Indebtedness except Indebtedness of the Lessee evidenced by this
Lease, the Agreement for Lease and any Permitted Indebtedness.

                                      -25-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (b)    DISTRIBUTIONS IN DEFAULT. So long as an Event of Default
pursuant to paragraph (a) of Section 18 of this Lease has occurred and is
continuing, the Lessee will not make any distributions or return of capital of
any kind to any of its equity investors or any payment of management fees.

          (c)    MAINTENANCE OF EXISTENCE. The Lessee will remain a validly
existing limited liability company in good standing under the laws of the State
of Delaware until the expiration or other termination of this Lease and the
indefeasible payment of all amounts owing hereunder.

          (d)    LIENS. The Lessee will not create, incur, assume or permit to
exist any Lien upon any of its Assets, other than Permitted Liens.

          (e)    SUBSIDIARIES. The Lessee will not acquire or create an equity
interest in any Person.

          (f)    PENSION PLANS. The Lessee will not establish or become party to
any employee benefit plan that is covered by Title IV of ERISA.

          (g)    DELIVERY OF INFORMATION. The Lessee shall deliver to the Lessor
and Assignee from time to time, (i) (A) promptly, and in any event not more than
120 days after the end of each fiscal year of the Lessee, copies of the Lessee's
annual financial statements and promptly, and in any event not more than 60 days
after the end of each fiscal quarter of the Lessee, copies of the Lessee's
quarterly unaudited financial statements, both prepared in accordance with GAAP,
and (B) promptly, and in any event not more than 120 days after each fiscal year
of the Guarantor, copies of the Guarantor's Annual Report on Form 10-K and
promptly, and in any event not more than 60 days after the end of each fiscal
quarter of the Guarantor, copies of the Guarantor's Quarterly Reports on Form
10-Q and promptly, and in any event within 30 days after filing, any current
reports on Form 8-K or other material reports the Guarantor files with the SEC
pursuant to the Securities Exchange Act of 1934, PROVIDED that filing with the
SEC of the Guarantor's Annual Report on Form 10-K and Quarterly Reports on Form
10-Q prepared in compliance with the requirements therefor shall be deemed to
satisfy the requirements of clause (i)(B) of this paragraph (g), (ii) promptly,
and in any event within five Business Days upon request, such other information
with respect to the Lessee's or the Guarantor's operations, business,
properties, assets, financial condition or litigation as the Lessor or Assignee
shall reasonably request, (iii) promptly, and in any event within five Business
Days after a Responsible Officer obtains knowledge of any Event of Default,
Potential Default, Event of Loss, Taking, Termination Event or any default or
alleged default by the other party thereto under any Project Contract, or of any
claims for damages existing as a result of the Lessee's performance of, or its
failure to perform any of its obligations under any Project Contract, a
certificate of a Responsible Officer specifying the nature and period of
existence of such Event of Default, Potential Default, Event of Loss, Taking,
Termination Event or default under any Project Contract, and what action, if
any, the Lessee has taken, is taking, or proposes to take with respect thereto,
(iv) promptly, and in any event within five Business Days after a Responsible
Officer obtains knowledge of any change in the financial condition or business
of the Lessee which will result, directly or indirectly, in a Material Adverse
Effect, or of any liabilities or obligations arising as a result of tortious
action or Environmental Damages or in respect of

                                      -26-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

governmental fines or obligations (other than taxes) or liabilities or
obligations arising as a result of Environmental Matters, or of any change in
the financial condition or business of the Guarantor which will result, directly
or indirectly, in a Material Adverse Effect, or of any litigation of the type
described in paragraph (i)(g) of this Section 2, a certificate of a Responsible
Officer describing such change, liabilities, obligations or litigation, as the
case may be, and what action, if any, the Lessee has taken, is taking, or
proposes to take with respect thereto, (v) simultaneously with the delivery of
each set of annual and quarterly financial statements referred to in clause (i)
of this paragraph (g), a certificate of a Responsible Officer stating, to the
best knowledge of such Responsible Officer after reasonable inquiry, whether
there exists on the date of such certificate any Event of Default, Potential
Default, Event of Loss, Taking, Termination Event, default under any Project
Contract, and if any Event of Default, Potential Default, Event of Loss, Taking,
Termination Event, or default under any Project Contract exists, specifying the
nature and period of existence thereof and what action, if any, the Lessee has
taken, is taking, or proposes to take with respect thereto and (vi) promptly,
and in any event within five Business Days after a Responsible Officer obtains
knowledge of any legal, governmental or regulatory proceeding that will result,
directly or indirectly, in a Material Adverse Effect, a certificate of a
Responsible Officer, describing each such proceeding and what action, if any,
the Lessee has taken, is taking, or proposes to take with respect thereto.

          (h)    PUBLIC UTILITY HOLDING COMPANY ACT. The Lessee is not and shall
not become a "public-utility company" or a "holding company" within the meaning
of the 1935 Act, is not and shall not become an Affiliate of a holding company
registered under the 1935 Act (except that the Lessee may become an Affiliate of
a holding company registered under the 1935 Act so long as the rights of the
Lessee under the Project Contracts and the rights of the Lessor or Assignee
under this Lease or any other document contemplated hereby are not adversely
affected), and is not and shall not become regulated as a public-utility company
or a holding company under any other Federal, state or local Legal Requirement
(except that the Lessee may become regulated as a public utility company so long
as the rights of the Lessee under the Project Contracts and the rights of the
Lessor and any Assignee under this Lease and any other documents contemplated
hereby are not adversely affected).

          (i)    REGULATION. Neither the Lessor nor any Assignee nor any of
their respective Affiliates shall, solely by reason of (i) its entering into
this Lease or any other document contemplated hereby, (ii) the acquisition,
ownership, leasing or financing of the Project (or any part thereof) or (iii)
the operation of the Project (or any part thereof) in accordance with and as
contemplated by the Project Contracts and this Lease, during the term of this
Lease or the Agreement for Lease, be subject to financial, rate or other similar
regulation as, a public utility, or an electric utility or a public utility
holding company under a Legal Requirement (including any Legal Requirement (A)
under the 1935 Act, (B) imposed by any state or local public utility commission
or other similar regulatory body, authority or group having jurisdiction over
the Lessor or the Lessee or any such transactions or activities, or (C) under
the Federal Power Act, as amended).

          (j)    LESSEE'S BUSINESS. The Lessee shall not construct or operate
any generation facility that is not subject to the terms of this Lease or the
Agreement for Lease. The Lessee will not enter into any business other than (i)
as contemplated by the terms of the Project Contracts, (ii) the constructing,
operating, maintaining, repairing and equipping of the Project as

                                      -27-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

agent of the Lessor pursuant to the Agreement for Lease, (iii) the leasing and
financing of the Project pursuant to this Lease and the documents incidental
hereto, and (iv) matters incidental to the performance of its obligations under
clauses (i), (ii) and (iii) of this sentence. The Lessee shall not enter into
any contract other than those contracts (1) contemplated by this Lease or (2) in
connection with matters contemplated by the foregoing clauses (i), (ii), (iii)
and (iv); PROVIDED that (a) the Lessee shall collaterally assign to the Lessor,
at no cost to the Lessor, all of the Lessee's right, title and interest in such
contracts pursuant to the Pledge Agreement, and (b) if (x) such contract will
adversely affect the Lessee's ability to perform its obligations under this
Lease or the Project Contracts, or (y) unless such contract is related to the
operation, maintenance or repair of the Project, such contract involves
Indebtedness or other obligations (contingent or otherwise) that after the
Project achieves Substantial Completion would exceed in the aggregate $1,000,000
in any four year period, the Lessee shall be required to obtain the consent of
the Lessor and Assignee to such contract prior to its execution.

          (k)    PROJECT INFORMATION. The Lessee shall furnish to the Lessor and
Assignee:

          (i)    all material written communications relating to any pending or
     threatened investigations, claims or proceedings with respect to any
     Governmental Action or proposing to amend, modify or affect any
     Governmental Action then required to be in effect with respect to the
     Project;

          (ii)   written notice of the occurrence of any event giving rise (or
     that could reasonably be expected to give rise) to a claim under any
     insurance policy maintained pursuant to the terms of this Lease in an
     amount greater than $1,000,000 together with copies of any document
     relating thereto (including copies of any such claim) in the possession or
     control of the Lessee;

          (iii)  promptly upon its execution, a copy of any Replacement O&M
     Agreement; and

          (iv)   promptly upon its execution a copy of any replacement Project
     Contract.

          (l)    CAPITAL EXPENDITURES. The Lessee will not make any Capital
Expenditures other than Capital Expenditures with respect to the Project that
will not result, directly or indirectly, in a Material Adverse Effect.

          (m)    NOTICE OF ENVIRONMENTAL EVENTS:

          (i)    The Lessee shall promptly, but in any case within five (5)
     Business Days of receiving actual or constructive notice thereof, notify
     the Lessor and Assignee if, after the date of this Lease, (A) any
     Environmental Matter has occurred involving the Project or any part thereof
     (including, but not limited to, the presence, emission or unpermitted
     Release of Contaminants or the violation of any applicable Environmental
     Requirements) that could reasonably be expected to result in penalties or
     other liabilities in excess of $1,000,000 or (B) the Lessee has received
     notification that it, the Project or any part thereof is the subject of a
     proceeding that could reasonably be expected to result in any ordered
     remediation or corrective action or other liability related to an
     Environmental

                                      -28-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     Matter, the cost of which liability is reasonably expected to exceed
     $1,000,000 (each of (A) and (B) an "ENVIRONMENTAL EVENT").

          (ii)   Following the receipt of a notice pursuant to (i) above, the
     Lessor and Assignee, in each case in their sole discretion, may require the
     Lessee to cause to be conducted by a qualified environmental consultant
     satisfactory in all respects to the Lessor and Assignee, an environmental
     audit of the Project or related operation on which the Lessor or Assignee
     may rely, the scope of which audit shall be limited to confirming the
     magnitude and anticipated cost of the liability resulting from the
     Environmental Event and to provide a copy of such environmental
     consultant's report on its audit to the Lessor and Assignee.

          (iii)  The Lessee shall immediately initiate, or cause to be initiated
     at no cost to the Lessor or Assignee, such actions as may be necessary to
     comply in all respects with all applicable Environmental Requirements and
     to alleviate any significant risk to human health or the environment if the
     same arises from a condition on or in respect of the Project or any part
     thereof, whether existing prior to, on or after the date of this Lease.
     Once the Lessee commences such actions, the Lessee shall thereafter
     diligently and expeditiously proceed to comply materially and in a timely
     manner with all Environmental Requirements and to eliminate any significant
     risk to human health or the environment and shall, at the request of the
     Lessor or Assignee during the Lease Term, give periodic progress reports on
     its compliance efforts and actions.

          (n)    REPLACEMENT O&M AGREEMENT. The Lessee shall not enter into any
Replacement O&M Agreement on terms and conditions that (i) will result, directly
or indirectly, in a Material Adverse Effect, or (ii) is not consistent with
generally accepted and prudent industry practices for contracts relating to the
operation and maintenance of facilities similar in size and nature to the
Project.

          (o)    DELIVERY OF FINAL SURVEY. The Lessee shall deliver the Final
Survey to the Lessor and Assignee within forty-five (45) days after the
Effective Date, which shall indicate that no encroachments are to exist by the
Project onto premises outside the boundary lines of the Premises or by existing
improvements located on adjacent premises onto the Premises other than those
that are Permitted Liens or that may have been consented to by the Lessor and
Assignee and all set-back requirements have been complied with; PROVIDED,
HOWEVER, that if any discrepancies exist between the legal description set forth
on the Survey delivered pursuant to paragraph (j) of Section 4 of the Agreement
for Lease and the legal description set forth on the Final Survey, the Lessor
and the Lessee shall cooperate in amending the legal descriptions in all
recorded documents creating or affecting the Premises.

          (p)    OPERATION OF PROJECT. The Lessee shall obtain in a timely
manner and maintain in full force and effect all Governmental Actions required
to perform its obligations under the Project Contracts and will upon the request
of the Lessor or Assignee provide a copy of each such Governmental Action to the
Lessor and Assignee.

          SECTION 3.   LEASE OF THE PROJECT

                                      -29-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (a)    The date upon which the Lessee receives the Final Advance (as
defined in the Agreement for Lease) under the Agreement for Lease shall be the
"EFFECTIVE DATE". From and after the Effective Date, and during the Lease Term
and any Renewal Term, the Lessor does hereby lease the Project (including a
lease of the Premises) to the Lessee and the Project and the rights and
obligations of the Lessor and the Lessee shall be governed by this Lease and not
the Agreement for Lease, except to the extent otherwise expressly provided in
this Lease and the Agreement for Lease. On the Effective Date, the Lessee shall
be deemed to have certified that all representations and warranties of the
Lessee contained in this Lease (other than the representation and warranty made
in paragraph (i)(f) of Section 2 hereof) are true and correct in all material
respects on and as of the Effective Date. As provided in the Agreement for
Lease, on the Effective Date, Exhibit D to this Lease shall be amended, if
necessary.

          (b)    Up to three (3) months after the Final Advance (as defined in
the Agreement for Lease), the Lessee may request Completion Advances under the
Agreement for Lease by delivering a Certificate of Increased Cost (as defined in
the Agreement for Lease) to the Lessor and otherwise complying with the terms of
Section 7 of the Agreement for Lease. On or before the fifth Business Day prior
to the date upon which the Lessee receives the Final Advance (as defined in the
Agreement for Lease), the Lessee shall designate the maximum aggregate amount of
all Completion Advances to be requested hereunder (the "COMPLETION AMOUNT").
After such designation the aggregate amount of all Completion Advances shall not
exceed the Completion Amount. The provisions of paragraph (b) of subsection 2.3
and Section 7 of the Agreement for Lease shall govern (i) the designation of the
Completion Amount, (ii) the making of Completion Advances and (iii) any
amendments to Exhibit D to this Lease occasioned thereby. At the time each
Completion Advance is made, the Lessee shall be deemed to have certified that
all representations and warranties of the Lessee contained in this Lease are
true and correct in all material respects on and as of such date.

          SECTION 4.   OPERATING LEASE.

          (a)    It is the intent of the Lessee and the Lessor that: (i) this
Lease constitutes an operating lease from the Lessor to the Lessee for purposes
of the SSSSLessee's financial reporting, (ii) this Lease and other transactions
contemplated hereby preserve the ownership of the Project in the Lessee for
federal, state and local income tax and bankruptcy purposes, and (iii) this
Lease grants to the Lessor a Lien on the Project. The Lessee and the Lessor
agree that the Lessor shall be deemed to have a valid and binding security
interest in and Lien on the Project, free and clear of all Liens, other than
Permitted Liens, as security for the obligations of the Lessee under this Lease
and the Agreement for Lease (it being understood and agreed that the Lessee does
hereby grant a Lien on, and convey, transfer, assign, mortgage and warrant to
the Lessor and its successors, transferees and assigns, for the benefit of the
Lessor and its successors, transferees and assigns, the Project and any proceeds
or products thereof, to have and hold the same as collateral security for the
payment and performance of the obligations of the Lessee under this Lease and
the Agreement for Lease).

          (b)    Specifically, without limiting the generality of paragraph (a)
of this Section 4, the Lessee and the Lessor intend and agree that in the event
of any insolvency or receivership proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency laws or statute of the
United States of America or any State thereof

                                      -30-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

affecting the Lessee, the Lessor, Assignee or any collection actions relating
thereto, the transactions evidenced by the Agreement for Lease and this Lease
shall be regarded as loans made by the Lessor to the Lessee.

          SECTION 5.   ABSOLUTE OBLIGATION.

          (a)    The obligations of the Lessee to pay all amounts payable
pursuant to this Lease (including specifically and without limitation amounts
payable under Sections 7 and 11 hereof) shall be absolute and unconditional
under any and all circumstances of any character, and such amounts shall be paid
without notice, demand, defense, set-off, deduction or counterclaim and without
abatement, suspension, deferment, diminution or reduction of any kind
whatsoever, except as herein expressly otherwise provided. The obligation of the
Lessee to lease the Project and pay Basic Rent, any Debt Yield-Maintenance
Premium or Modified Call Premium, Additional Rent and any other amounts due
hereunder for the Project accepted for lease pursuant to this Lease is without
any warranty or representation, express or implied, as to any matter whatsoever
on the part of the Lessor or any Assignee or any Affiliate of either, or anyone
acting on behalf of any of them.

          THE LESSEE HAS SELECTED THE PROJECT ON THE BASIS OF ITS OWN JUDGMENT.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN UPON A TRANSFER OF THE LESSOR'S
INTEREST IN THE PROJECT TO THE LESSEE OR A THIRD PARTY, NEITHER THE LESSOR NOR
ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY OF
THEM MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY, TITLE, CONDITION,
QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO
SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF THE PROJECT, OR AS TO WHETHER THE
PROJECT OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH ANY
LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.

          AS BETWEEN THE LESSEE AND THE LESSOR, ANY ASSIGNEE OR ANY INDEMNIFIED
PERSON, THE LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS,
DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, AS TO THE
LESSEE'S OBLIGATION TO PAY BASIC RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER,
INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:

          (A)    THE SAFETY, TITLE, CONDITION, QUALITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF THE PROJECT, LATENT OR NOT;

          (B)    ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER
TRANSACTION OR MATTER;

                                      -31-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (C)    ANY DEFECT IN TITLE OR OWNERSHIP OF THE PROJECT OR ANY TITLE
ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROJECT;

          (D)    ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR
DESTRUCTION OF, OR DAMAGE TO, THE PROJECT, IN WHOLE OR IN PART, OR CESSATION OF
THE USE OR POSSESSION OF THE PROJECT BY THE LESSEE FOR ANY REASON WHATSOEVER AND
OF WHATEVER DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE,
PURCHASE, TAKING OR FORFEITURE OF THE PROJECT, IN WHOLE OR IN PART;

          (E)    ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP,
OCCUPANCY OR POSSESSION OF THE PROJECT BY THE LESSEE;

          (F)    ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR
PROCEEDING BY OR AGAINST THE LESSEE OR THE LESSOR OR ANY ASSIGNEE;

          (G)    ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;

          (H)    THE INVALIDITY OR UNENFORCEABILITY OF THIS LEASE OR ANY OTHER
INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF THE LESSOR OR THE LESSEE
TO ENTER INTO THIS CONTRACT;

          (I)    THE INVALIDITY OR UNENFORCEABILITY OF ANY BILL OF SALE EXECUTED
IN CONNECTION WITH THIS LEASE OR ANY OTHER INFIRMITY THEREIN OR LACK OF POWER OR
AUTHORITY OF ANY PARTY THERETO TO ENTER INTO SUCH BILL OF SALE; OR

          (J)    ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT
SIMILAR TO ANY OF THE FOREGOING.

          THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE
CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND
OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF. Each
payment of Basic Rent, any Debt Yield-Maintenance Premium, any Modified Call
Premium, Additional Rent and any other amount due hereunder made by the Lessee
shall be final, and the Lessee, without waiving any other remedies it may have,
will not seek or have any right to recover all or any part of such payment from
the Lessor or any Assignee for any reason whatsoever.

          (b)    Notwithstanding any other provision contained in this Lease, it
is specifically understood and agreed that neither the Lessor nor any Assignee
nor any Affiliate of

                                      -32-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

either, nor anyone acting on behalf of any of them makes any warranties or
representations or has any responsibility to disclose any relevant information,
nor, except as set forth in Section 21 of this Lease, has the Lessor or any
Assignee or any Affiliate of either, or anyone acting on behalf of any of them
made any covenants or undertakings or has any other responsibility or duty, as
to the accounting treatment to be accorded the Lessee or as to the U.S. Federal
or any state income or any other tax consequences, if any, to the Lessee as a
result of or by virtue of the transactions contemplated by this Lease.

          SECTION 6.   LEASE TERM.

          (a)    The "INITIAL TERM" shall commence on the Effective Date and
shall continue until June 30, 2010, unless terminated earlier pursuant to
Section 12, 13, 14, 15, 16 or 19 hereof.

          (b)    The "EXTENDED TERM" shall commence on the first day of the
calendar month following the last day of the Initial Term and shall continue
until June 30, 2022, unless terminated earlier pursuant to Section 12, 13, 14,
15, 16 or 19 hereof.

          SECTION 7.   RENT AND OTHER PAYMENTS.

          (a)    The Lessee hereby agrees to pay the Lessor on each Basic Rent
Payment Date, in immediately available funds, as provided in paragraph (e) of
this Section 7, Basic Rent for the semi-annual period (or part thereof) ending
in the month in which such Basic Rent Payment Date falls; PROVIDED that, if the
Effective Date is on or after the Lease Rate Date in any first partial
semi-annual period of the Initial Term, Basic Rent for such partial semi-annual
period shall be payable on the next succeeding Basic Rent Payment Date.

          (b)    The Lessor shall furnish to the Lessee on the 16th day of each
calendar month in which a Basic Rent Payment Date falls the Semi-Annual Cost of
Project Debt for such semi-annual period, or, if such day is not a Business Day,
on the next succeeding Business Day (the "LEASE RATE DATE"). At least four (4)
days prior to each Basic Rent Payment Date the Lessor shall furnish the Lessee
with a summary of the calculations of Basic Rent for such Basic Rent Payment
Date.

          (c)    The Lessee hereby agrees to pay on demand all amounts (other
than Basic Rent) payable hereunder, including, without limitation, all amounts
payable to any Indemnified Person pursuant to Section 11 hereof.

          (d)    Without prejudice to the full exercise by the Lessor of its
rights under Sections 18 and 19 hereof, the Lessee shall pay to the Lessor from
time to time, on demand, as additional rent ("ADDITIONAL RENT") (i) amounts
required to reimburse the Lessor for its obligations, costs and expenses (not
previously included in Basic Rent or Acquisition Cost) incurred in acquiring,
financing (including obtaining, maintaining and terminating equity financing and
all fees payable to the Lessor's general partner under its partnership agreement
and, subject to any applicable restriction described in the Lessee's Consent,
all amounts owing by the Lessor to its partners as a result of a sale of limited
partnership interests by a limited partner of the Lessor or a modification of
the terms of such equity financing) and maintaining security for and exercising
remedies in connection with any such financing and leasing the

                                      -33-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Project (including, without limitation, all obligations, costs and expenses of
the Lessor arising in connection with the termination of any Financing
Arrangement (whether as a result of a default thereunder or otherwise)), all
interest (including, without limitation, interest at a default rate), the Debt
Yield-Maintenance Premium, the Modified Call Premium and other costs, fees and
expenses incurred by the Lessor under any Financing Arrangement (including any
such accruing after the commencement of a bankruptcy or similar proceeding) and
amounts owing under any Project Contracts, and (ii) to the extent legally
enforceable, an amount computed by multiplying (A) all sums not paid by the
Lessee to the Lessor as provided in this Lease on or before the date such
payments are due, by (B) the decimal equivalent of the Semi-Annual Cost of
Project Debt as most recently furnished by the Lessor, and by (C) a fraction
having a numerator equal to the number of days in the period from but excluding
such due date to and including the date of payment thereof (provided that, all
full calendar months during such period shall be computed on the basis of a
30-day month) and a denominator of 360. The Lessee shall also pay to the Lessor
on demand an amount equal to any expenses incurred by the Lessor in collecting
such unpaid sums.

          (e)    Basic Rent, any Debt Yield-Maintenance Premium, any Modified
Call Premium, Additional Rent and any other amount payable by the Lessee to the
Lessor shall be paid such that immediately available funds in the full amount
due are available by not later than 2:00 p.m. (New York City time) on the date
due, to the account of the Lessor at such bank, or to such account of such other
Person at such bank, or otherwise as the Lessor may from time to time designate.

          SECTION 8.   RESTRICTED USE; COMPLIANCE WITH LAWS.

          (a)    The Lessee will not do or permit any act or thing which might
impair, other than normal wear and tear arising out of the proper and normal use
thereof, the value or usefulness of the Project.

          (b)    The Lessee shall promptly and duly execute, deliver, file and
record, at the Lessee's expense, all such documents, statements, filings and
registrations, and take such further action, as the Lessor shall from time to
time reasonably request in order to establish, perfect and maintain the Lessor's
title to and interest in the Project (other than Removable Improvements) and
Assignee's interest in this Lease or the Project as against the Lessee or any
third party in any applicable jurisdiction. Equipment, machinery, apparatus,
fixtures, structures and installations may be substituted for portions of the
Project (other than Removable Improvements) if (i) the Lessor and Assignee
consent to such substitution, such consent not to be unreasonably withheld or
denied, (ii) the Lessor and Assignee shall determine that such substitution is
consistent with prudent business practices and could not reasonably be expected
to adversely affect the Lessee's ability to perform its obligations under this
Lease and the Project Contracts nor result in a reduction in the value, utility
or remaining economic useful life of the Project (assuming the Project is in the
condition required hereby), or (iii) such substitution is performed by the
Lessee or the Operator in the normal course of operating and maintaining the
Project in accordance with the Project Contracts and is consistent with prudent
industry practices. As equipment, machinery, apparatus, fixtures, structures and
installations are added to, or substituted for, portions of the Project (other
than Removable Improvements), title to such additional or substitute equipment,
machinery, apparatus, fixtures, structures and installations shall

                                      -34-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

automatically be transferred to the Lessor and such equipment, machinery,
apparatus, fixtures, structures and installations shall become a part of the
Project and shall be subject to this Lease and title to the existing equipment,
machinery, apparatus, fixtures, structures and installations which are being
substituted for (other than Removable Improvements) shall be released by the
Lessor to the Lessee. The Lessee may, so long as no Potential Default, Event of
Default, Event of Loss, Taking or Termination Event has occurred and is
continuing, remove any Removable Improvement in its entirety. "REMOVABLE
IMPROVEMENTS", for the purposes hereof, shall mean any part that (i) is in
addition to, and not in replacement of or substitution for (x) any part
originally incorporated or installed in or attached to the Project on the
Effective Date or (y) any part in replacement of, or substitution for, any such
part, (ii) is not required to be incorporated or installed in or attached or
added to the Project pursuant to the terms of the Plans (as defined in the
Agreement for Lease), the Project Contracts or this Lease and (iii) can be
removed from the Project without causing damage to the Project or any portion
thereof, without adversely affecting the ability of the Project to operate in
accordance with the Project Contracts and this Lease and without diminishing the
value, utility or remaining economic useful life which the Project would have
had at such time had such alteration, modification or addition not been made
(assuming the Project is in the condition required hereby). Upon the removal by
the Lessee of any Removable Improvement as provided in the immediately preceding
two sentences, title thereto shall, without further act, vest in the Lessee and
such Removable Improvement will no longer be deemed part of the Project. Any
Removable Improvement not removed by the Lessee prior to the return of the
Project to the Lessor hereunder shall remain the property of the Lessor.

          (c)    The Lessee shall use every reasonable precaution to prevent
loss or damage to the Project and to prevent injury to third persons or property
of third persons. The Lessee shall cooperate fully with the Lessor and all
insurance companies providing insurance pursuant to Section 10 hereof in the
investigation and defense of any claims or suits arising from the ownership,
operation, occupancy or use of the Project; PROVIDED that nothing contained in
this paragraph (c) shall be construed as imposing on the Lessor any duty to
investigate or defend any such claims or suits. The Lessee shall comply and
shall cause all Persons using, operating or occupying the Project to comply with
all Insurance Requirements and Legal Requirements applicable to the Project, to
the Lessee or such Person in connection with such Person's use, operation or
occupancy of the Project (as the case may be) and to the acquiring, titling,
registering, leasing, insuring, using, occupying, operating and disposing of the
Project or any part thereof, and the licensing of operators thereof.

          (d)    The Lessor or Assignee, or any authorized representative of
either, may during reasonable business hours and upon reasonable prior notice
from time to time inspect the Project and deeds, registration certificates,
certificates of title and related documents, including as to Environmental
Matters, covering the Project wherever the same may be located, but neither the
Lessor nor Assignee shall have any duty to make any such inspection.

          (e)    The Lessee shall not, without the prior written consent of the
Lessor, permit, or suffer to exist, any Lien upon the Project, including
mechanics' liens or create any Lien upon the Premises, other than Permitted
Liens or Liens which are subject to a Permitted Contest, nor may it assign any
right or interest herein or in the Project. The Lessee shall not relinquish
possession of the Project or any part thereof, except to the Operator, the
General Contractor and to any other contractor for use in performing work on the
Project for the Lessee

                                      -35-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

pursuant to and in accordance with the Project Contracts; PROVIDED that such
relinquishment of possession shall in no way affect the obligations of the
Lessee or the rights of the Lessor hereunder and with respect to the Project.
The Lessee may sublease the Project; PROVIDED that (A) the terms of the
instrument of sublease and the identity of the sublessee shall be subject to the
prior written approval of the Lessor and Assignee, which approval shall not be
unreasonably withheld or delayed, (B) each such sublease shall expressly be made
subject and subordinate to the provisions hereof and shall, at the sole option
of the Lessor and Assignee, by its terms be subject to termination upon the
termination for any reason of this Lease, (C) no such sublease shall modify or
limit any right or power of the Lessor or Assignee hereunder or affect or reduce
any obligation of the Lessee hereunder, and all such obligations shall continue
in full force and effect as obligations of a principal and not of a guarantor or
surety, as though no such subletting had been made, and (D) any such sublease
made otherwise than as expressly permitted by this paragraph (e) shall be void
and of no force and effect. As additional security to the Lessor for the
performance of the Lessee's obligations under this Lease, the Lessee hereby
assigns to the Lessor all of its right, title and interest in and to all
subleases permitted hereby and agrees to cause any sublessee to enter into
attornment agreements with the Lessor as the Lessor shall request. The Lessor
shall have the present and continuing right to collect and enjoy all rents and
other sums of money payable under any such sublease, and the Lessee hereby
irrevocably assigns such rents and other sums to the Lessor for the benefit and
protection of the Lessor; PROVIDED that, unless a Potential Default, Event of
Default, Event of Loss, Taking or Termination Event shall have occurred and be
continuing hereunder, the Lessee shall be entitled to collect and enjoy such
rents and other sums. The Lessee shall, within thirty (30) days after the
execution of any such sublease, deliver a conformed copy thereof to the Lessor.
Nothing contained in this Lease shall be construed as constituting the consent
or request of the Lessor, express or implied, to or for the performance by any
contractor, laborer, materialman or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Project or any part thereof. Notice is hereby given
that the Lessor will not be liable for any labor, services or materials
furnished or to be furnished to the Lessee, or to anyone holding the Project or
any part thereof through or under the Lessee, and that no mechanics' or other
liens for any such labor, services or materials shall attach to or affect the
interest of the Lessor in and to the Project.

          (f)    If any Lien or charge of any kind or any judgment, decree or
order of any court or other Governmental Authority (including, without
limitation, any state or local tax lien affecting the Project), whether or not
valid, shall be asserted or entered which would interfere with the due and
timely payment of any sum payable or the exercise of any of the rights or the
performance of any of the duties or responsibilities under this Lease, the
Lessee shall, upon obtaining knowledge thereof or upon receipt of notice to that
effect from the Lessor, take such action to prevent or terminate such
interference.

          (g)    So long as this Lease is in effect or thereafter if the Lessee
remains as party to any Project Contract as a result of its failure to assign to
the Lessor (or its designated purchaser) all right, title and interest of the
Lessee in and to such Project Contract pursuant to the terms of this Lease, the
Lessee shall not create, incur, assume or permit to exist any Lien upon the
Lessee's rights or obligations with respect to any Project Contract (other than
the Lien of the Pledge Agreement or any Permitted Lien), or sell or assign the
Lessee's interest in any Project Contract, other than as permitted pursuant to a
Financing Arrangement and the Pledge

                                      -36-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Agreement. The Lessee agrees that without the prior written consent of the
Lessor and Assignee, no amendment, modification, supplement or restatement shall
be made to any Project Contract, nor shall any Project Contract be terminated or
replaced by a substitute agreement, nor shall the Lessee grant or request any
waiver pursuant to any Project Contract other than (i) change orders under the
EPC Contract in the manner and to the extent permitted under the Agreement for
Lease, (ii) the termination of the EPC Contract upon making arrangements for a
replacement construction contract, (iii) the termination of the O&M Agreement
upon making arrangements for replacement operating and maintenance services,
(iv) the replacement of the O&M Agreement by any Replacement O&M Agreement, in
the manner and to the extent permitted under paragraph (ii)(n) of Section 2
hereof, and (v) any amendment, modification, supplement, restatement consent or
waiver which could not reasonably be expected to result, directly or indirectly,
in a Material Adverse Effect.

          (h)    The Project shall be maintained and operated solely as
contemplated by the Project Contracts. The Lessee shall at its own expense take
all actions as may from time to time be necessary so that neither the Lessor,
Assignee nor any of their Affiliates will, solely as a result of entering into
this Lease or any other document contemplated hereby or entered into in
connection herewith or the transactions contemplated hereby or thereby
(including, without limitation, the acquisition, operation, leasing, ownership
or financing of the Project (or any part thereof) or the delivery of
electricity) be deemed to be, or be subject to regulation as, a public utility,
an electric utility or a public utility holding company under any Legal
Requirement, and the Lessee shall promptly and duly prepare and, if necessary,
execute and file, and prepare for execution and filing by the Lessor, Assignee
or any Affiliate thereof, such notices, applications and other documents as
shall be necessary so that the Lessor, Assignee or any such Affiliate, as the
case may be, shall be free of all such regulation. The Lessor, Assignee or any
Affiliate thereof shall cooperate with the Lessee with respect to all actions of
the Lessee required by this paragraph (h).

          SECTION 9.   MAINTENANCE, IMPROVEMENT AND REPAIR OF THE PROJECT.

          (a)    Upon the request of the Lessee, the Lessor will, so long as no
Event of Default shall have occurred and be continuing, assign or otherwise make
available to the Lessee any and all rights the Lessor may have under any
vendor's or manufacturer's warranties or undertakings with respect to any
equipment constituting a part of the Project.

          (b)    The Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the ownership, use, operation or occupancy of the
Project. Except as otherwise provided in Section 15, the Lessee shall at all
times, at its own expense, and subject to reasonable wear and tear, maintain or
cause the Operator to maintain the Project as contemplated by, and during the
term of, the Project Contracts. The Lessee hereby agrees to indemnify and hold
the Lessor and Assignee harmless from and against all costs, expenses, claims,
losses, damages, fines or penalties, including reasonable counsel fees, arising
out of or due to the Lessee's failure to fulfill its obligations under this
paragraph (b).

          (c)    The Lessee shall pay and discharge: (i) all taxes, assessments,
levies, fees, water and sewer rents and charges, and all other governmental
charges, general and special,

                                      -37-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

ordinary and extraordinary, foreseen and unforeseen, which are, at any time,
imposed or levied upon or assessed against (A) the Project, (B) any Basic Rent,
any Additional Rent or other sum payable hereunder or (C) this Lease, the
leasehold estate hereby created, or which arises in respect of the ownership,
operation, occupancy, possession or use of the Project; (ii) all gross receipts
or similar taxes (i.e., taxes based upon gross income which fail to take into
account all customary deductions (e.g., ordinary operating expenses,
depreciation and interest) relating to the Project) imposed or levied upon,
assessed against or measured by any Basic Rent or any Additional Rent or other
sum payable hereunder and all New York Unincorporated Business Tax owing by the
Lessor; (iii) all sales, value added, use and similar taxes at any time levied,
assessed or payable on account of the acquisition, leasing or use of the
Project; and (iv) all charges of utilities and communications services serving
the Project. Notwithstanding the previous sentence, the Lessee shall not be
required to pay any franchise, estate, inheritance, income or similar tax of the
Lessor or any of its Affiliates (other than any tax referred to in clause (ii)
above) unless such tax is imposed, levied or assessed in substitution for any
other tax, assessment, charge or levy which the Lessee is required to pay
pursuant to this paragraph (c); PROVIDED, HOWEVER, that, if at any time during
the term of this Lease, the method of taxation shall be such that there shall be
levied, assessed or imposed on the Lessor a capital levy or other tax directly
on the rents received therefrom, or upon the value of the Project or any present
or any future improvement or improvements on the Project, then all such taxes,
assessments, levies or charges or the part thereof so measured or based, shall
be payable by the Lessee, and the Lessee shall pay and discharge the same as
herein provided. The Lessee will furnish to the Lessor, promptly after demand
therefor, proof of payment of all items referred to above which are payable by
the Lessee. If any such assessments may legally be paid in installments, the
Lessee may pay such assessment in installments. The Lessee will pay and
discharge, or cause to be paid and discharged, all taxes, assessments and
governmental charges or levies imposed upon it or its income or properties,
prior to the date on which penalties attach thereto, except to the extent that
any such tax, assessment, governmental charge or levy is the subject of a
Permitted Contest. The Lessor shall cooperate in good faith with the Lessee with
respect to all matters described in this paragraph (c). Notwithstanding anything
contained herein to the contrary, this paragraph (c) is not intended to increase
the Lessee's obligations to pay any tax under this Lease beyond those taxes for
which the Lessee is obligated to indemnify the Lessor or any other Indemnified
Person under the provisions of paragraph (b) of Section 11 hereof. In addition,
any refund of local real estate taxes payable to the Lessor with respect to the
Project shall be promptly paid over to the Lessee.

          (d)    So long as no Event of Default, Event of Loss, Taking or
Termination Event shall have occurred and be continuing, the Lessee may, at its
expense, make or permit additions to and alterations to the Project; PROVIDED
that the Lessee has obtained the prior approval of the Lessor and Assignee that
during construction and upon completion of such additions or alterations (i)
neither the fair market value of the Project shall be lessened thereby nor the
condition of the Project impaired, below the value, utility or condition thereof
immediately prior to such action (assuming the Project was then of a condition
and repair required to be maintained pursuant to paragraph (b) of Section 9
hereof), (ii) such work shall be completed in a good and workmanlike manner in
accordance with generally accepted and prudent engineering and construction
practices and in compliance with all applicable Legal Requirements and Insurance
Requirements and (iii) at all times the Project will be capable of delivering
electricity at or above the level of its capability prior to the undertaking of
such

                                      -38-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

additions or alterations and will continue to be able to fully perform under
(without any default or excuse to performance) all Project Contracts and this
Lease.

          (e)    The Lessee agrees to, or to cause the Operator to, maintain at
the Project at all times the necessary equipment in such condition so as to
enable the Project to be operated and maintained in accordance with generally
accepted and prudent industry practices and any other standards required by the
Project Contracts and this Lease. The Lessee shall obtain or cause to be
obtained in a timely manner and maintain or cause to be maintained in full force
and effect all Governmental Actions required for the ownership, construction,
leasing, operation and maintenance of the Project in accordance with and as
contemplated by the Project Contracts and this Lease and as otherwise necessary
to perform its obligations under the Project Contracts and will promptly upon
the request of the Lessor or Assignee provide a copy of each such Governmental
Action to the Lessor and Assignee. The Lessee shall obtain and maintain, or
cause to be obtained and maintained, all patents, licenses and proprietary
rights and technology necessary in connection with the construction, operation
and maintenance of the Project.

          (f)    The Lessee shall give notice to the Lessor and each Assignee
promptly upon the receipt of any notices from any party to any Project Contract
that (i) such party is amending, modifying or waiving or has proposed to amend,
modify or waive any term of any Project Contract, (ii) such party is commencing
or proposes to commence any dispute resolution procedure under the terms of any
Project Contract, (iii) such party is terminating or has proposed to terminate
any Project Contract, (iv) a default or a force majeure event has occurred under
any Project Contract or any Person has alleged that a default or a force majeure
event has occurred under any Project Contract, or (v) there are claims for
damages existing as a result of the Lessee's performance of or its failure to
perform any of its obligations under any Project Contract.

          SECTION 10.  INSURANCE.

          (a)    Insurance pursuant to the Project Contracts. The Lessee shall
maintain or cause to be maintained in full force and effect at all times
insurance required by the terms of the Project Contracts.

          (b)    Insurance by the Lessee.

          (i)    The Lessee shall procure (or cause to be procured) at its own
     cost and expense and maintain (or cause to be maintained) in full force and
     effect at all times on and after the Effective Date (except with respect to
     the physical damage described in clause (ii) below), and continuing
     throughout the term of this Lease insurance policies with responsible
     insurance companies with a Best Insurance Reports rating of "A-" or better
     and a financial size category of "X" or higher, or if not rated by Best, an
     S&P claims paying ability rating of BBB+ or higher, or, if not rated by
     either of the foregoing, the Lessee's insurance companies shall be of
     substantially equivalent financial strength and creditworthiness of
     insurance companies that maintain such ratings (or such other company
     acceptable to the Lessor and each Assignee), with such deductibles as are
     approved by the Lessor and each Assignee, and with such limits and coverage
     as is

                                      -39-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     consistent with prudent industry practices, but in no event less than the
     limits and coverage provisions set forth below:

          (1)    Workers' Compensation Insurance. Workers' compensation
                 insurance, if the Lessee has any employees, in accordance with
                 and as required under the laws of the State of New Hampshire.

          (2)    Employer's Liability Insurance. Employer's liability insurance,
                 if the Lessee has any employees, providing compensation for
                 occupational diseases and for injuries sustained by or death
                 resulting to employees of the Lessee as required by law,
                 including the laws of each state wherein any work is performed
                 under the Lease and where employment contracts of such
                 employees were made, including employer's liability insurance
                 coverage with a $2,000,000 minimum limit per accident.

          (3)    General Liability Insurance. Liability insurance on an
                 occurrence (or AEGIS or EIM claims-made form) basis against
                 claims for bodily injury (including death) and property damage.
                 Such insurance shall provide coverage for products-completed
                 operations, contractual liability, explosion, collapse and
                 underground coverage, broad form property damage, personal
                 injury insurance, and hostile fire exception to the pollution
                 liability exclusion with a $1,000,000 minimum limit per
                 occurrence and $2,000,000 annual aggregate for combined bodily
                 injury and property damage.

          (4)    Automobile Liability Insurance. Automobile liability insurance
                 against claims for bodily injury (including death) and property
                 damage covering all owned, leased non-owned and hired motor
                 vehicles, including loading and unloading, with a $1,000,000
                 minimum limit per occurrence for combined bodily injury and
                 property damage and containing appropriate no-fault insurance
                 provisions wherever applicable.

          (5)    Excess Insurance. Excess liability insurance on an occurrence
                 or claims-made basis covering claims in excess of the
                 underlying insurance described in the foregoing subsections
                 (2), (3) and (4), with a $100,000,000 minimum limit per
                 occurrence; PROVIDED, HOWEVER, that in the event the available
                 limit of liability is less than $50,000,000 due to claims
                 against such excess liability insurance, the Lessee shall
                 purchase additional coverage so that the available limit of
                 liability under such excess liability insurance is not less
                 than $100,000,000. Notwithstanding the foregoing, the Lessee
                 shall be entitled to maintain the insurance with respect to
                 this subsection (5) with EIM, provided that EIM maintains a
                 Best Insurance Reports rating of "A-" or better and a financial
                 size category of "IX" or higher.

     The amounts of insurance required in the foregoing subsections (2), (3),
(4) and this subsection (5) may be satisfied by the Lessee purchasing coverage
in the amounts specified or by

                                      -40-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

any combination of primary and excess insurance, so long as the total amount of
insurance meets the requirements specified above.

          (ii)   The Lessee shall procure (or cause to be procured) at its own
     cost and expense and maintain (or cause to be maintained) in full force and
     effect at all times on and after the Effective Date and continuing
     throughout the term of this Lease insurance policies with responsible
     insurance companies with a Best Insurance Reports rating of "A-" or better
     and a financial size category of "X" or higher, or if not rated by Best, an
     S&P's claims paying ability rating of BBB+ or higher, or, if not rated by
     either of the foregoing, the Lessee's insurance companies shall be of
     substantially equivalent financial strength and creditworthiness of
     insurance companies that maintain such ratings (or such other company
     acceptable to the Lessor and Assignee), with such limits and coverage
     provisions sufficient to satisfy the requirements set forth in each of the
     Project Contracts, but in no event less than the limits and coverage
     provisions set forth below:

                 Physical Damage Insurance. Property damage insurance on an "all
                 risk" basis, boiler and machinery insurance on a comprehensive
                 basis (covering all production machinery, including but not
                 limited to pressure vessels, electrical turbines, generators,
                 transformers and other related equipment, motors, air tanks,
                 boilers, machinery, pressure piping or any other similar
                 objects) including coverage against damage or loss caused by
                 earth movement (including, but not limited to, earthquake,
                 landslide, subsidence and volcanic eruption) fire, lightning
                 and flood and providing coverage for (1) the Project in an
                 amount equal to one hundred percent (100%) of the "full
                 insurable value" of the Project, (2) transit including ocean
                 marine transit, if applicable, with sub-limits of $5,000,000,
                 (3) gas, steam and electrical transmission lines along with
                 related equipment for which the Lessee has an insurable
                 interest and (4) engineering and other consulting costs up to a
                 sublimit of $250,000, and permit fees directly incurred in
                 order to repair or replace damaged insured property in a
                 minimum amount of $1,000,000. For purposes of this Section
                 10(b)(ii), "full insurable value" shall mean the full
                 replacement value of the Project, including any improvements,
                 equipment, spare parts, fuel and supplies, without deduction
                 for physical depreciation and/or obsolescence. All such
                 insurance may be subject to such reasonable and customary
                 deductibles as is consistent with prudent industry practices
                 after accounting for the size and value of the Project. Such
                 insurance shall (1) not include any coinsurance provision, (2)
                 provide for increased cost of construction and loss to
                 undamaged property as the result of enforcement of building
                 laws or ordinances with sub-limits not less than 10% of the
                 "full insurable value" of the Project, and (3) include debris
                 removal with sub-limits not less than $1,000,000 or 15% of the
                 loss, whichever is greater. The earth movement and flood
                 coverage may be insured with a sub-limit not less than
                 $100,000,000. The property damage coverage shall not contain an
                 exclusion for freezing, mechanical breakdown, loss or damage
                 covered under any guaranty or warranty, or resultant damage
                 caused by faulty workmanship, design or materials.

                                      -41-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

                 If the insurance company providing the physical damage
                 insurance is different from the insurance company providing the
                 boiler & machinery insurance required in this Section 10, then
                 a joint loss agreement between such companies will be required
                 and included as part of the respective policies.

          (iii)  Notwithstanding the foregoing provisions of paragraph (a) and
     (b) above, in the event (i) the Lessee is unable to procure, or cause to be
     procured, the renewal of any insurance policies in effect on the date of
     this Lease and (ii) the Lessee is unable to procure, or cause to be
     procured, in the Lessee's judgment, replacement insurance policies with
     insurance companies that satisfy the Best Insurance Reports rating and
     financial size category standards described in paragraphs (a) and (b)
     above, the Lessee shall be permitted to procure, or cause to be procured,
     replacement insurance policies for up to twenty-five percent (25%) of the
     aggregate required limits of such insurance being replaced, with insurance
     companies with a Best Insurance Reports rating below "A-" and a financial
     size category below "X".

          (iv)   Endorsements. All policies of insurance required by this
     Section 10 shall provide for waivers of subrogation by the insurers in
     favor of the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general
     partner of the Lessor and its shareholders, officers and directors, the
     limited partners of the Lessor and Assignee and their respective officers,
     directors, members, trustees and employees (and such other Persons as may
     be required by the Project Contracts).

          All policies of liability insurance required to be maintained by the
     Lessee under paragraphs (b)(i)(3), (4) and (5) of this Section 10 shall be
     endorsed as follows:

          (1)    To provide a severability of interest or cross liability
                 clause;

          (2)    Such that the insurance shall be primary and not excess to or
                 contributing with any insurance or self-insurance maintained by
                 the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the
                 general partner of the Lessor and its shareholders, officers
                 and directors, the limited partners of the Lessor or Assignee;

          (3)    To name Merrill, Merrill Lynch, Merrill Leasing, the general
                 partner of the Lessor and its shareholders, officers and
                 directors, the limited partners of the Lessor and Assignee and
                 their respective officers, directors, members, trustees and
                 employees (and such other Persons as may be required by the
                 Project Contracts) as additional insureds; and

          (4)    To name the Lessor as a named insured.

     All policies of insurance required to be maintained by the Lessee under
paragraph (b)(ii) of this Section 10 shall name the Lessor as a named insured
and name Merrill, Merrill Lynch, Merrill Leasing, the general partner of the
Lessor and its shareholders, officers and directors, the limited partners of the
Lessor and Assignee and its respective officers and employees (and such other
Persons as may be required by the Project Contracts) as additional insureds.

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (v)    Waiver of Subrogation. The Lessee hereby waives any and all
     claims for recovery from the Lessor, Merrill, Merrill Lynch, Merrill
     Leasing, the general partner of the Lessor and its shareholders, officers
     and directors, the limited partners of the Lessor and Assignee and their
     respective officers, directors, members, trustees and employees for any and
     all loss or damage covered by any of the insurance policies to be
     maintained under this Lease to the extent that such loss or damage is
     recovered under any such policy. Inasmuch as the foregoing waiver will
     preclude the assignment of any such claim to the extent of such recovery,
     by subrogation (or otherwise), to an insurance company (or other Person),
     the Lessee shall give written notice of the terms of such waiver to each
     insurance company which has issued, or which may issue in the future, any
     such policy of insurance (if such notice is required by the insurance
     policy) and shall cause each such insurance policy to be properly endorsed
     by the issuer thereof, or to otherwise contain one or more provisions that
     prevent the invalidation of the insurance coverage provided thereunder by
     reason of such waiver.

          (c)    Amendment of Requirements. The Lessor, with the consent of
Assignee, may at any time amend the requirements and approved insurance
companies of this Section 10, due to (i) new information not known by the Lessor
or Assignee on the date of this Lease or (ii) changed circumstances after the
date of this Lease which in the reasonable judgment of the Lessor or Assignee
either renders such coverage materially inadequate or materially reduces the
financial ability of the approved insurance companies to pay claims.

          (d)    Additional Requirements.

          (i)    The Lessee shall promptly notify the Lessor and Assignee of any
     loss in excess of $100,000 covered by any insurance maintained pursuant to
     paragraph (b)(ii) of this Section 10.

          (ii)   All policies of insurance required to be maintained pursuant to
     paragraph (b)(ii) of this Section 10 shall provide that the Collateral
     Trustee shall be the lenders' loss payee thereunder and that the proceeds
     of such policies shall be payable to the Operating Account pursuant to a
     standard first mortgage endorsement substantially equivalent to the Lenders
     Loss Payable Endorsement 438BFU or ISO endorsement CP12181091, without
     contribution. The Lessor and Assignee shall have the right to join the
     Lessee in adjusting any loss in excess of $100,000. All policies (other
     than in respect to liability or workers compensation insurance) shall
     insure the interests of the Lessor, Merrill, Merrill Lynch, Merrill
     Leasing, the general partner of the Lessor, the limited partners of the
     Lessor and Assignee regardless of any breach or violation by the Lessee or
     Lessor of any warranties, declarations or conditions contained in such
     policies, any action or inaction of the Lessee or the Lessor or others, or
     any foreclosure relating to the Project or any change in ownership of all
     or any portion of the Project.

          (iii)  A loss under any insurance required to be carried under
     paragraph (b)(ii) of this Section 10 shall be adjusted with the insurance
     companies, including the filing in a timely manner of appropriate
     proceedings by the Lessee, subject to the approval of the Lessor and
     Assignee if such loss is in excess of $100,000. In addition the Lessee may
     in its reasonable judgment consent to the settlement of any loss; PROVIDED
     that, in the event

                                      -43-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     that the amount of the loss exceeds $100,000, the terms of such settlement
     shall be consented to by the Lessor and Assignee.

          (iv)   All policies of insurance required to be maintained pursuant to
     paragraph (b) of this Section 10 shall be endorsed so that if at any time
     they should be canceled, or coverage shall be reduced in a manner which
     affects the interests of the Lessor, Merrill, Merrill Lynch, Merrill
     Leasing, the general partner of the Lessor, the limited partners of the
     Lessor or Assignee, such cancellation or reductions shall not be effective
     as to the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general
     partner of the Lessor, officers and directors, the limited partners of the
     Lessor and Assignee for 60 days (except for non-payment of any premium,
     which shall be for 10 days), after receipt by the Lessor and the Assignee
     of written notice from such insurer of such cancellation or reduction.

          (v)    The Lessee may, at its own cost and expense, prosecute any
     claim against any insurer or contest any settlement proposed by any
     insurer, and the Lessee may bring any such prosecution or contest in the
     name of the Lessor, the Lessee, or both, and the Lessor will join therein
     at the Lessee's request, provided that the Lessee shall indemnify the
     Lessor against any losses, costs or expenses (including reasonable
     attorney's fees) which the Lessor may incur in connection with such
     prosecution or contest.

          (e)    Evidence of Insurance. On the date of this Lease and on an
annual basis at least two days prior to each policy anniversary, the Lessee
shall furnish the Lessor and Assignee with (1) approved certification of all
insurance required under this Section 10 and (2) a schedule of the insurance
policies held by or for the benefit of the Lessee and required to be in force by
the provisions of paragraph (b) of this Section 10. Such certification shall be
executed by each insurer or by an authorized representative of each insurer
where it is not practical for such insurer to execute the certificate itself.
Such certification shall identify underwriters, the type of insurance, the
insurance limits and the policy term and shall specifically list the special
provisions enumerated for such insurance required by paragraph (b) of this
Section 10. Upon request, the Lessee will promptly furnish the Lessor and
Assignee with copies of all insurance policies, binders and cover notes or other
evidence of such insurance relating to the insurance required to be maintained
by the Lessee. The schedule of insurance shall include, to the extent such
information is not included on the insurance certificates, the name of the
insurance company, policy number, type of insurance, major limits of liability
and expiration date of the insurance policies.

          (f)    Reports. Upon the request of the Lessor, concurrently with the
furnishing of the certification referred to in paragraph (e) above, the Lessee
shall furnish the Lessor and Assignee with a report of an independent broker,
signed by an officer of the broker, stating that in the opinion of such broker,
the insurance then carried or to be renewed is in accordance with the terms of
paragraph (b) of this Section 10 and attaching an updated copy of the schedule
of insurance required by paragraph (e) above. In addition, the Lessee will
advise the Lessor and Assignee in writing promptly of any default in the payment
of any premium and of any other act or omission on the part of the Lessee which
may invalidate or render unenforceable, in whole or in part, any insurance being
maintained by the Lessee pursuant to paragraph (b) of this Section 10.

                                      -44-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (g)    Failure to Maintain Insurance. In the event the Lessee fails to
maintain the full insurance coverage required by paragraph (b) of this Section
10, the Lessor or Assignee, upon 30 days' prior notice (unless the
aforementioned insurance would lapse within such period, in which event notice
should be given as soon as reasonably possible) to the Lessee of any such
failure, may (but shall not be obligated to) take out the required policies of
insurance and pay the premiums on the same.

          (h)    No Duty of the Lessor or Assignee to Verify or Review. No
provision of this Section 10, or any provision of this Lease or any Project
Contract, shall impose on the Lessor or Assignee any duty or obligation to
verify the existence or adequacy of the insurance coverage maintained by the
Lessee, nor shall the Lessor or Assignee be responsible for any representations
or warranties made by or on behalf of the Lessee to any insurance company or
underwriter. Any failure on the part of the Lessor or Assignee to pursue or
obtain the evidence of insurance required by this Lease from the Lessee and/or
failure of the Lessor or the Assignee to point out any non-compliance of such
evidence of insurance shall not constitute a waiver of any of the insurance
requirements in this Lease.

          (i)    Application of Insurance Proceeds for Loss or Taking. It is
agreed that any insurance payments received as the result of the occurrence of
(i) any Event of Loss, or (ii) any event of Taking described in paragraph (a) of
Section 16 hereof, shall be paid to the Operating Account and disposed of as set
forth in paragraph (c) of Section 15 hereof.

          (j)    Application of Insurance Proceeds for Other than Loss or
Taking. The insurance proceeds of any property loss to the Project or any event
of Taking described in paragraph (b) of Section 16 hereof will be held in the
Operating Account and applied in payment (or to reimburse the Lessee) for
repairs or replacement in accordance with the terms of paragraph (b) of Section
15 hereof. The Lessee shall be entitled, subject to its compliance with the
immediately succeeding sentence, (i) to receive the amounts so deposited against
certificates, invoices or bills reasonably satisfactory to the Lessor, delivered
to the Lessor from time to time as such work or repair progresses, and (ii) to
direct the investment of the amounts so deposited as provided in paragraph (k)
of this Section 10. To the extent that the Lessor reasonably estimates that the
cost of such work or repair shall exceed the amount of proceeds, the Lessee
shall make adequate provisions for the payment thereof, which provisions shall
be reasonably acceptable to the Lessor and Assignee (as to the terms of the
commitment and the creditworthiness of the funding party). Any moneys remaining
in the aforesaid account after final payment for repairs has been made shall be
paid to the Lessee.

          (k)    Investment. The Lessor, at the Lessee's instruction, shall
invest the amounts deposited with the Lessor pursuant to paragraph (j) of this
Section 10 in any investments permitted under a Financing Arrangement. Such
investments shall mature in such amounts and on such dates so as to provide that
amounts shall be available on the draw dates sufficient to pay the amounts
requested by and due to the Lessee. Any interest earned on investments of such
funds shall be paid to the Lessee. The Lessor shall not be liable for any loss
resulting from the liquidation of each and every such investment and the Lessee
shall bear the risk of such loss, if any.

          (l)    Application. Any amount referred to in paragraphs (i), (j) or
(k) of this

                                      -45-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Section 10 which is payable to the Lessee shall not be paid to the Lessee or, if
it has been previously paid to the Lessee, shall not be retained by the Lessee,
if at any time of such payment a Potential Default or an Event of Default, Event
of Loss, Taking or Termination Event shall have occurred and be continuing. In
such event, all such amounts shall be paid to and held by the Lessor as security
for the obligations of the Lessee hereunder or, at the Lessor's option, applied
by the Lessor toward payment of any of such obligations of the Lessee at the
time due hereunder as the Lessor may elect. At such time as there shall not be
continuing any Potential Default, Event of Default, Event of Loss, Taking or
Termination Event, all such amounts at the time held by the Lessor in excess of
the amount, if any, which the Lessor shall have elected to apply as above
provided shall be paid to the Lessee.

          (m)    "Claims Made" Policies for Certain Types of Insurance. If any
liability insurance required under the provisions of this Section 10 is allowed
to be written on a "claims made" basis, then such insurance shall include the
following:

          (i)    The retroactive date (as such term is specified in each of such
                 policies) shall be no later than the date of this Lease; and

          (ii)   each time any policy written on a "claims made" basis is not
                 renewed or the retroactive date of such policy is to be
                 changed, the Lessee shall obtain or cause to be obtained for
                 each such policy or policies the broadest extended reporting
                 period coverage, or "tail" reasonably available in the
                 commercial insurance market for each such policy or policies,
                 as determined in the reasonable judgment of the Lessor and
                 Assignee, but in no event less than two years after the
                 expiration of such policy or policies.

          (n)    Use or Operation of the Project. The Lessee covenants that it
will not use, occupy or operate the Project or permit the use, occupancy or
operation of the Project at a time when the insurance required by this Section
10 is not in force.

          (o)    Environmental Impairment Liability Insurance. Within ten (10)
days following the date of this Lease, the Lessee shall provide the Lessor with
(i) a binder of coverage demonstrating that the Lessee has obtained an
environmental impairment liability insurance policy which contains the following
terms and conditions: (A) coverage for third-party claims for on-site bodily
injury and property damage, (B) coverage for third-party claims for off-site
investigation and remediation costs, if deemed property damage or environmental
damage under the policy, (C) coverage for third-party claims for off-site bodily
injury and property damage, (D) coverage for onsite investigation and
remediation, (E) coverage for legal defense costs, (F) policy limit in an amount
not less than $10,000,000, and (G) a self-insured retention not to exceed
$100,000 per claim; and (ii) an Officer's Certificate of the Lessee or the
Guarantor setting forth such insurance and stating that it is in full force and
effect and that all premiums then due thereon have been paid.

          SECTION 11.  INDEMNITIES.

          (a)    The Lessee shall indemnify, protect, defend and hold harmless
the Lessor, each general and limited partner of the Lessor, Merrill, Merrill
Lynch, Merrill Leasing, each

                                      -46-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Assignee, and their respective assigns and successors, and each Affiliate of
each of them, and their respective officers, directors, trustees, incorporators,
shareholders, partners (general and limited, including, without limitation, the
general and limited partners of the Lessor), employees, agents and servants
(each of the foregoing an "INDEMNIFIED PERSON") from and against any and all
liabilities (including, without limitation, Environmental Damages and strict
liability in tort), losses, obligations, claims (including, without limitation,
Environmental Damages and strict liability in tort), damages, penalties, causes
of action, suits, costs and expenses (including, without limitation, attorneys',
experts', consultants' and accountants' fees and expenses) or judgments of any
nature relating to or in any way arising out of:

          (i)   the purchasing, ordering, delivery, acquisition, construction,
title on acquisition, rejection, installation, possession, titling, retitling,
registration, re-registration, custody by the Lessee of title and registration
documents, ownership, fee interest in the Premises, use, non-use, misuse,
financing, operation, transportation, repair or control of the Project or any
part thereof, accident, injury, death or property damage on or about the Project
and the Project Contracts, (A) except to the extent that such costs are included
in the Acquisition Cost or Adjusted Acquisition Cost of the Project, (B) except
for any general administrative expenses of the Lessor and (C) except that this
indemnity shall not increase any payment required to be made by the Lessee
pursuant to paragraph (b)(iii)(A) or (c)(iii)(A) of Section 12 of this Lease;
PROVIDED, THAT, this paragraph (a) of Section 11 shall not require
indemnification for any tax, regardless of whether indemnification for any tax
is required under paragraph (b) of this Section 11;

          (ii)  the assertion of any claim or demand based upon any infringement
or alleged infringement of any patent or other right, by or in respect of the
Project or any part thereof; PROVIDED, HOWEVER, that, upon request of the
Lessee, the Lessor will make available to the Lessee the Lessor's rights under
any similar indemnification arising from any manufacturer's or vendor's
warranties or undertakings with respect to any equipment constituting a part of
the Project;

          (iii) any violation, or alleged violation, by the Lessee of this Lease
or the Project Contracts or of any contracts or agreements to which the Lessee
is a party or by which it is bound or of any laws, rules, regulations, orders,
writs, injunctions, decrees, consents, approvals, exemptions, authorizations,
licenses and withholdings of objection, of any governmental or public body or
authority and all other Legal Requirements applicable to the Project;

          (iv)  any and all Environmental Damages relating to or in any way
arising out of the Project, including, without limitation:

                (A) the violation or alleged violation of or compliance or
          non-compliance with any Environmental Requirements (i) in connection
          with the ownership or operation of the Project, and (ii) by any prior
          owner or operator of the Premises in connection with the ownership or
          operation of the Premises;

                (B) the Release or threatened Release at, to or from any
          location of any Contaminants, or Remedial Action or corrective action
          (as the latter term is used

                                      -47-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          in Section 3004(u), 3004(v), and 3008(h) of the Resource Conservation
          and Recovery Act or any equivalent state, local or foreign law) to
          address any Contaminants, (i) generated, treated, recycled, stored,
          processed, used or disposed by or on behalf of the Lessee at or in
          connection with the Project, (ii) generated, treated, recycled,
          stored, processed, used or disposed by or on behalf of any prior owner
          or operator of the Premises in connection with the ownership or
          operation of the Premises, (iii) transported by or on behalf of the
          Lessee or any other Person to or from the Project for treatment,
          recycling, processing, use or disposal at any location, or (iv)
          removed by any Person from any portion of the Project; and

                (C) the presence of any Contaminant at, in, on or under the
          Project;

                (D) the failure to report, disclose or remediate any of the
          foregoing or to comply with any applicable consent order or voluntary
          agreement with any Governmental Authority relating to any of the
          foregoing; and

                (E) any allegations of any of the foregoing;

          (v)   any breach of a representation, warranty or covenant made herein
     or which is contained in any certificate, document or financial or other
     statement furnished by or on behalf of the Lessee under or in connection
     with this Lease;

          (vi)  any default by the Lessee in the performance or observance of
     any term, covenant, condition or obligation contained in this Lease; and

          (vii) the Project Contracts.

     (b)  The Lessee agrees to indemnify, protect, defend and hold harmless each
Indemnified Person from and against all U.S. Federal, state, county, municipal,
foreign or other fees and taxes of whatsoever nature, including, but not limited
to, license, qualification, franchise, rental, withholding, sales, use, net
income, gross income, gross receipts, ad valorem, business, personal property,
real estate, value added, excise, motor vehicle, occupation fees and stamp or
other taxes or tolls of any nature whatsoever, and penalties and interest
thereon (all of which shall be deemed to be taxes), assessed, levied against or
payable by the Lessor or any Indemnified Person, with respect to the Project or
the acquisition, purchase, sale, rental, use, operation, control or ownership of
the Project (including, without limitation, any claim by any Governmental
Authority for transfer tax, transfer gains tax, mortgage recording tax, filing
or other similar taxes or fees in connection with the acquisition of the Project
by the Lessor or otherwise in connection with this Lease) or measured in any way
by the value thereof or by the business of, investment in, or ownership by the
Lessor with respect thereto; PROVIDED, HOWEVER, that this indemnity shall not
apply to (i) any U.S. withholding tax imposed because the recipient or legal or
beneficial owner of the amount being taxed is not a U.S. Person within the
meaning of Section 7701 of U.S. Internal Revenue Code of 1986 by reason of the
failure by an Indemnified Person to comply with any withholding certification or
other procedure required by applicable law as a precondition to any exemption
from, or reduction of, such tax to which such Indemnified Person would be
legally entitled and eligible to make such certification or comply with such
procedure, (ii) as long as no Event of Default shall have occurred and be
continuing,

                                      -48-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

taxes that result solely from events (other than the payments of amounts
described in this Lease) that occur and relate to periods after the expiration
or earlier termination of this Lease as provided under Sections 12, 13 and 14
hereof, (iii) any taxes or increase in taxes imposed on an Indemnified Person as
a result of such Indemnified Person not being a citizen or resident of, or not
being organized under the laws of, the United States or any political
subdivision thereof, or having had a permanent establishment or otherwise been
engaged in a trade or business outside the United States, PROVIDED, that such
tax or increase in tax would not have been imposed had such Indemnified Person
been a U.S. Person without a foreign permanent establishment or trade or
business outside the United States, (iv) taxes that result from (a) any
voluntary transfer by an Indemnified Person (including such Indemnified Person's
voluntary imposition of a Lessor Lien) of any interest in or obligation of the
Project or any part thereof or the Lessor or any interest arising under this
Lease other than to which the Lessee consents or which is otherwise expressly
permitted or contemplated by this Lease, the Agreement for Lease or any document
contemplated thereby, or (b) from any voluntary transfer of any interest in an
Indemnified Person or from any involuntary transfer of any of the foregoing
interests in connection with any bankruptcy or other proceeding for the relief
of debtors in which such Indemnified Person is the debtor or any foreclosure by
a creditor of any Indemnified Person; PROVIDED, HOWEVER, that this exclusion
(iv) shall not apply if any such transfer occurs at any time after an Event of
Loss, Event of Default or Termination Event hereunder, or an Event of Default
(as defined in the Agreement for Lease), Event of Project Termination (as
defined in the Agreement for Lease), or Event of Loss (as defined in the
Agreement for Lease) shall have occurred and is continuing, (v) taxes that have
not been paid or credited and that are being contested in accordance with the
provisions of Section 27 or 11(f) hereof, during the pendency of such contest,
(vi) taxes (including, without limitation, taxes in the nature of interest,
penalties, fines and additions to tax), payable as the result of an Indemnified
Person's failure to file, in accordance with the appropriate filing procedures
and on a timely basis, any tax reports, returns or statements (other than any
such tax reports, returns or statements which the Lessee is required to file
pursuant to the terms of this Lease), and (vii) Federal, state, local or other
net income taxes imposed directly upon the Lessor or any Indemnified Person, and
PROVIDED, FURTHER that, subject to clauses (i) through (vi) above, this
indemnity shall apply to (1) such net income taxes imposed by a state or local
government or other taxing authority thereof (A) as a result of the location or
use of the Project within the jurisdiction of such government or taxing
authority or (B) to the extent imposed in whole or in part by reason of a
relationship or asserted relationship between such government or other taxing
authority and the Project or the transactions contemplated herein, (2) such net
income taxes to the extent imposed as a result of the inability to claim, or
disallowance or other loss of deductions customarily allowed in computing net
income (e.g., interest expense, financing, administrative, ordinary operating
expenses and other fees and expenses), by reason of such Indemnified Person's
relationship to the Project, to the extent, if any, that such circumstances
described in clause (1) and (2) above shall have resulted in a net increase in
the overall net income taxes of such Indemnified Person over the net income
taxes that would have occurred without regard to such circumstances and, in each
case to the extent such net income taxes (or benefit of a deduction as the case
may be) would not have been imposed (a) had the Lessee been the titled owner of
the Project under applicable state law and (b) had the Lessor made a secured
loan to the Lessee corresponding to the characterization contemplated by Section
21 hereof, or (3) the Lessor for the New York Unincorporated Business Tax.

                                      -49-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     (c)  The Lessee shall forthwith upon demand, reimburse any Indemnified
Person for any sum or sums expended with respect to any of the foregoing or,
upon request from any Indemnified Person, shall pay such amounts directly. Any
payment made to, or on behalf of, any Indemnified Person pursuant to this
Section 11 shall be increased to such amount as will, after taking into account
all taxes imposed with respect to the accrual or receipt of such payment (as the
same may be increased pursuant to this sentence), equal the amount of the
payment, reduced by the amount of any savings in such taxes actually realized by
the Indemnified Person as a result of the payment or accrual of the amounts in
respect of which the payment to or on behalf of the Indemnified Person hereunder
is made. To the extent that the Lessee in fact indemnifies any Indemnified
Person under the indemnity provisions of this Lease, the Lessee shall be
subrogated to such Indemnified Person's rights in the affected transaction and
shall have the exclusive right to determine the settlement of such indemnified
claims therein. If any Indemnified Person shall actually realize a tax benefit
as a result of the failure of the Lessee to be treated as the owner of the
Project for Federal, state or local income tax purposes, which tax benefit has
not previously been taken into account in computing the amount of the indemnity
payable with respect to claims under Section 11(b) hereof, then an amount equal
to such tax benefit shall reduce any amount that the Lessee is subsequently
obligated to pay pursuant to Section 11(b) hereof. The determination of whether
a tax benefit has actually been realized or whether such tax benefit has
previously been taken into account by such Indemnified Person, shall be
determined in good faith by such Indemnified Person.

     (d)  The indemnities and all exclusions to the tax indemnity and tax
savings provisions contained in this Section 11 shall not be affected by any
termination or expiration of this Lease.

     (e)  Notwithstanding any provisions of this Section 11 to the contrary, the
Lessee shall not indemnify and hold harmless any Indemnified Person against any
claims, liabilities or taxes to the extent arising from the gross negligence or
willful misconduct of such Indemnified Person.

     (f)  Promptly after receipt by an Indemnified Person of notice of
any claim, action, proceeding or suit against such Indemnified Person, the
Lessor or such Indemnified Person will, if a claim for indemnification is to be
made against the Lessee under this Section 11 with respect thereto, notify the
Lessee in writing of such claim or the commencement of such action, proceeding
or suit, but an omission so to notify will not relieve the Lessee from any
liability which it may have to an Indemnified Person under this Section 11,
except to the extent that any amount for which indemnity is required hereunder
is a direct result of such failure to give notice. In case any such claim,
action, proceeding or suit is brought against an Indemnified Person, and the
Lessor or such Indemnified Person notifies the Lessee of the existence thereof,
the Lessee will be entitled to participate in and, to the extent that it may
wish, assume the defense thereof, with counsel selected by the Lessee and
reasonably satisfactory to such Indemnified Person, it being understood that
Bingham Dana LLP is reasonably acceptable for this purpose. The Indemnified
Person will cooperate with the Lessee in such defense. After notice from the
Lessee to an Indemnified Person of its election to assume the defense of any
claim or action, the Lessee will not be liable to such Indemnified Person under
this Section 11 for any legal or other expenses subsequently incurred by such
Indemnified Person in connection with the defense thereof, unless incurred at
the request or with the consent of the Lessee or unless the Lessee fails, in a
timely manner, to engage such counsel reasonably satisfactory to such
Indemnified Person; PROVIDED, that the Lessee shall not have the right to assume
the defense thereof, to the extent that

                                      -50-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

such Indemnified Person shall deliver to the Lessee a written notice waiving the
benefits of the indemnification of such Indemnified Person provided by this
Section 11 in connection with such claim, action, proceeding or suit and any
other claim, action, proceeding or suit whose outcome will be controlled
thereby. Notwithstanding the foregoing, if (i) any criminal proceeding is
brought against an Indemnified Person who is an individual, (ii) the action
threatens to restrain or adversely affect the conduct of the business of an
Indemnified Person, excluding the business of the Lessor's ownership of the
Project, or (iii) independent counsel to an Indemnified Person shall conclude
that there may be defenses available to such Indemnified Person which are
different from, or additional to, and may conflict with those available to the
Lessee, the Lessee shall not have the right to assume the defense of any such
action on behalf of the Indemnified Person if such Indemnified Person chooses to
defend such action, and all reasonable costs, expenses and attorneys' fees
incurred by the Indemnified Person in defending such action shall be borne by
the Lessee; provided, that with respect to claims arising under clause (ii) or
(iii) of this sentence, the Lessee shall have the right, at the Lessee's cost
and expense, to participate in the defense of any such action. Notwithstanding
the assumption of its defense by the Lessee pursuant to this paragraph, any
Indemnified Person shall have the right to employ separate counsel and to
participate in its defense, but, except as set forth in the immediately
preceding sentence, the fees and expenses of such counsel shall be borne by the
Indemnified Person. In addition, the Lessee will not be liable in all events for
any settlement of any claim, action, proceeding or suit unless the Lessee has
consented thereto in writing (such consent not to be unreasonably withheld). Any
decision by an Indemnified Person to employ its own counsel rather than counsel
selected by the Lessee (whether or not at the Lessee's expense) shall in no way
affect any rights of such Indemnified Person otherwise arising under this Lease.

          SECTION 12.  LESSEE'S RIGHT TO TERMINATE.

     (a)  So long as the Lessee can satisfy the Termination Covenants, the
Lessee shall have the right, upon eighteen (18) months' irrevocable notice (the
"TERMINATION NOTICE") to the Lessor (which notice shall indicate if the Lessee
will cause the Guarantor to assume the outstanding indebtedness of the Lessor
under its Financing Arrangements pursuant to the terms of paragraph (d) of this
Section 12 at the end of the Initial Term), to terminate the lease of the
Project as a whole (i) on the last day of the last month of the Initial Term or
the Extended Term or (ii) on any Basic Rent Payment Date during the Renewal
Term, by arranging, at its own cost and expense, for the sale of the Project in
an arm's-length transaction on the date of termination and the indefeasible
receipt by the Lessor of cash in an amount equal to the sale price of the
Project (the "CASH PROCEEDS"). In the event the Lessee is unable to satisfy the
Termination Covenants, the Lessee shall not terminate this Lease pursuant to
this paragraph (a) unless the Lessee has obtained the prior written consent of
the Lessor and Assignee to such termination of this Lease and the sale of the
Project. In addition, if an Event of Default or Termination Event has occurred
and is continuing, and, prior to the termination of this Lease pursuant to this
paragraph (a), the Lessor arranges for the sale of the Project to a third party
purchaser, the Termination Notice shall be invalidated and the Lessee shall no
longer have the right to cause the termination of the lease of the Project and
sale of the Project to its designee in accordance with the terms of this
paragraph (a). At the time the Project is sold pursuant to this Section 12, the
Lessor shall deliver the documents described in paragraph (i) of Section 29
hereof. In addition, (i) the Lessee shall assign to the purchaser, at no cost,
all right, title and interest of the Lessee in, to and under all Governmental
Actions and Intellectual Property Rights needed for the

                                      -51-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

equipping, maintenance, operation or use of the Project and obtained and held by
the Lessee at that time, (ii) the Lessee shall assign to the purchaser, at no
cost, and the purchaser shall assume, all right, title and interest of the
Lessee in, to and under the Project Contracts, and in the event any additional
consent of any party to a Project Contract is required as a precondition
thereunder to an assignment to any such non-foreclosure purchaser designated by
the Lessee, to use its best efforts to obtain any such required consent to such
proposed non-foreclosure assignment and assumption of the Project Contracts, and
(iii) the Lessee shall assign to the purchaser, at no cost, all right, title and
interest of the Lessee in, to and under all service agreements in existence at
that time in connection with the equipping, maintenance, operation or use of the
Project. In the event the Lessee fails to obtain any consents required in clause
(ii) of the immediately preceding sentence, at the request of such purchaser,
the Lessee shall agree to (1) at the expense of such purchaser, continue to
perform under and maintain in full force and effect the Project Contracts and
pay all sums received under the Project Contracts to such purchaser, (2) at the
expense of such purchaser, and subject to the receipt of indemnification
acceptable to the Lessee, take all actions requested by such purchaser with
respect to such Project Contracts (including all actions with respect to the
enforcement of the Lessee's rights and remedies under such Project Contracts),
and (3) not amend, modify, supplement, waive a provision of, grant any consent
under or terminate any such Project Contract without the prior written consent
of such purchaser.

     (b)  In the event the Lessee exercises its right to terminate the lease of
the Project pursuant to this Section 12 on the last day of the last month of the
Initial Term or in the event a termination of the lease of the Project occurs
pursuant to paragraph (a) of Section 14 hereof and the date on which such
termination occurs is on or before the last day of the last month of the Initial
Term and the Lessee chooses to effect a sale pursuant to this Section 12:

          (i)    if the Cash Proceeds are greater than the Adjusted Acquisition
                 Cost plus the Modified Call Premium, the Lessor shall pay to
                 the Lessee the amount by which such Cash Proceeds exceed the
                 Adjusted Acquisition Cost plus the Modified Call Premium;

          (ii)   if the Cash Proceeds are equal to or less than the Adjusted
                 Acquisition Cost plus the Modified Call Premium, but greater
                 than or equal to 27.06% of the Adjusted Acquisition Cost plus
                 the Modified Call Premium, the Lessee shall pay to the Lessor
                 an amount equal to (A) the Adjusted Acquisition Cost plus the
                 Modified Call Premium less (B) the Cash Proceeds; and

          (iii)  if the Cash Proceeds are less than 27.06% of the Adjusted
                 Acquisition Cost plus the Modified Call Premium (or if there
                 are no Cash Proceeds), the Lessee shall pay to the Lessor an
                 amount equal to the sum of (A) 72.94% of the Adjusted
                 Acquisition Cost and (B) the amount, if any, by which the
                 residual value of the Project has been reduced by wear and tear
                 in excess of that attributable to normal and proper use (the
                 amount of such excess wear and tear to be such amount as the
                 Lessor and the Lessee agree, or if no agreement is reached, the
                 amount determined pursuant to the Appraisal Procedure).

                                      -52-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     (c)  In the event the Lessee exercises its right to terminate the lease of
the Project pursuant to this Section 12 on the last day of the last month of the
Extended Term or on any Basic Rent Payment Date during any Renewal Term or in
the event a termination of the lease of the Project occurs pursuant to paragraph
(a) of Section 14 hereof or the Lessee exercises its option under paragraph (e)
of Section 13 to arrange for the Project to be sold and the date on which such
termination occurs or such option is exercised is on or before the last day of
the last month of the Extended Term or during any Renewal Term and the Lessee
chooses to effect a sale pursuant to this Section 12:

          (i)    if the Cash Proceeds are greater than the Adjusted Acquisition
                 Cost, the Lessor shall pay to the Lessee the amount by which
                 such Cash Proceeds exceed the Adjusted Acquisition Cost;

          (ii)   if the Cash Proceeds are equal to or less than the Adjusted
                 Acquisition Cost, but greater than or equal to the percentage
                 of the Adjusted Acquisition Cost described in Exhibit H hereto
                 and for the periods described therein, the Lessee shall pay to
                 the Lessor an amount equal to (A) the Adjusted Acquisition Cost
                 less (B) the Cash Proceeds; and

          (iii)  if the Cash Proceeds are less than 33.13% of the Adjusted
                 Acquisition Cost (or if there are no Cash Proceeds), the Lessee
                 shall pay to the Lessor an amount equal to the sum of (A)
                 66.87% of the Adjusted Acquisition Cost and (B) the amount, if
                 any, by which the residual value of the Project has been
                 reduced by wear and tear in excess of that attributable to
                 normal and proper use (the amount of such excess wear and tear
                 to be such amount as the Lessor and the Lessee agree, or if no
                 agreement is reached, the amount determined pursuant to the
                 Appraisal Procedure).

     (d)  All payments and credits referred to in paragraphs (b) and (c) above
shall be made on the termination date of the lease of the Project pursuant to
this Section 12, and the parties shall account to each other for such payments
and credits, and the Lessee shall pay to the Lessor (i) all Basic Rent payable
through the date of termination of this Lease, (ii) the Variable Component of
Basic Rent accrued through the date of termination of this Lease, (iii) any
Additional Rent owing, (iv) all amounts payable pursuant to Sections 11, 24 and
26 hereof, (v) all losses, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses, commissions, filing fees and sales or
transfer taxes) sustained by the Lessor by reason of such sale, and (vi) all
other amounts owing hereunder (after taking into account the application under
the Financing Arrangements of such purchase price and other payments hereunder),
each as of the termination date; PROVIDED, HOWEVER, that with respect to the
amounts described in clause (v) of this sentence, the Lessee shall not be
obligated to pay any such amounts that, when combined with the amounts paid by
the Lessee pursuant to paragraph (b) or (c) of this Section 12, as the case may
be, exceed an amount equal to 72.94% of the Adjusted Acquisition Cost (in the
case of a termination pursuant to such paragraph (b)) or 66.87% of the Adjusted
Acquisition Cost (in the case of a termination pursuant to such paragraph (c)),
plus the amount, if any, by which the residual value of the Project has been
reduced by wear and tear in excess of that attributable to normal and proper use
(the amount of such excess wear and tear to

                                      -53-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

be such amount as the Lessor and the Lessee agree, or if no agreement is
reached, the amount determined pursuant to the Appraisal Procedure). Upon
indefeasible receipt by the Lessor of the Cash Proceeds and all other amounts
then due and owing hereunder, including, without limitation, the amount of
excess wear and tear determined pursuant to paragraph (b)(iii) or (c)(iii) of
Section 12, as the case may be, the Lessor shall transfer its interest in the
Project to the purchaser at the sale designated by the Lessee. The "CASH
PROCEEDS" referred to in paragraphs (b) and (c) of this Section 12 shall mean
the cash proceeds of sale without reduction for any amounts paid by the Lessee.
In the event of a sale pursuant to this Section 12, neither the Lessee nor any
Affiliate of the Lessee shall purchase the Project; PROVIDED, HOWEVER, that if
(A) the Lessee exercises its right to terminate the lease of the Project
pursuant to paragraph (b) of Section 12 hereof on the last day of the last month
of the Initial Term, (B) such sale results in the applicability of paragraph
(b)(ii) or paragraph (b)(iii) of Section 12, and (C) the Lessee provided notice
to the Lessor pursuant to paragraph (a) of this Section 12 that it will cause
the Guarantor to assume the outstanding indebtedness of the Lessor under its
Financing Arrangements, the Lessee shall be required, as an alternative to
making the payment required under such paragraph (b)(ii) or paragraph (b)(iii),
as the case may be, to cause the Guarantor to assume the Lessor's outstanding
indebtedness under all Financing Arrangements pursuant to the terms and
conditions of such Financing Arrangements, in a principal amount equal to the
amount the Lessee would have been obligated to pay to the Lessor pursuant to
such paragraph (b)(ii) or paragraph (b)(iii), as the case may be (the "ASSUMED
INDEBTEDNESS AMOUNT"), on the terms and conditions required for such assumption
of indebtedness under such Financing Arrangements. Upon such assumption of
indebtedness, the Lessor and the Assignee shall execute and deliver
documentation permitting the Guarantor to assume the Lessor's obligations under
the Financing Arrangements, and to release the Lessor from all obligations in
respect of the Financing Arrangements, this Lease, the Agreement for Lease, and
all related documents, and the Lessor and Assignee shall take all such other
actions (at the Lessee's cost and expense) as are reasonably necessary to permit
such assumption by the Guarantor. In the event the Guarantor assumes the
outstanding indebtedness of the Lessor under its Financing Arrangements pursuant
to this paragraph (d), if the Cash Proceeds plus the Assumed Indebtedness Amount
are greater than the Adjusted Acquisition Cost plus the Modified Call Premium,
the Lessor shall pay to the Lessee the amount by which the Cash Proceeds plus
the Assumed Indebtedness Amount exceed the Adjusted Acquisition Cost plus the
Modified Call Premium.

     (e)  In its notice given pursuant to paragraph (a) of this Section 12, the
Lessee shall advise the Lessor if the sale provided for in such notice will
result in the applicability of paragraph (b)(iii) or (c)(iii) of Section 12
hereof. If the Lessee advises the Lessor that any such paragraph will be
applicable, the Lessor shall have the right to arrange for a sale of the Project
to be made to a purchaser designated by the Lessor, if such purchaser will pay
an amount greater than the amount offered by the Lessee's purchaser. Unless the
Lessor shall arrange for such sale and shall give the Lessee notice thereof
within thirty (30) days of the Lessor's receipt of the Lessee's notice, the
Lessee may proceed with the sale to a purchaser designated by it. Within thirty
(30) days of the Lessee's receipt of the Lessor's notice provided for in the
preceding sentence, the Lessee may arrange for such sale to be made to another
purchaser designated by it, if such purchaser shall pay an amount sufficient to
render paragraph (b)(iii) of Section 12 or paragraph (c)(iii) of Section 12
hereof inapplicable.

                                      -54-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          SECTION 13.  LESSEE'S RIGHTS OF PURCHASE AND RENEWAL.

     (a)  The Lessee (or the Guarantor as its designee) shall have the right,
upon ninety (90) days' written notice to the Lessor, to purchase the Project as
a whole on any Basic Rent Payment Date for an amount equal to its Adjusted
Acquisition Cost; PROVIDED, HOWEVER, that, if an Event of Default or Termination
Event has occurred and is continuing, and, prior to the purchase by the Lessee
pursuant to this paragraph (a), the Lessor arranges for the sale of the Project
to a third party purchaser, the Lessee shall no longer have the right to
purchase the Project in accordance with the terms of this paragraph (a). If the
Guarantor elects to purchase the Project pursuant to this Section 13, the
Guarantor has the option to assume in whole (but not in part) the outstanding
indebtedness of the Lessor under all Financing Arrangements pursuant to the
terms and conditions of such Financing Arrangements, in which case the cash
portion of the purchase price to be paid by the Guarantor shall be reduced by an
amount equal to the principal outstanding under such Financing Arrangements so
assumed by the Guarantor. Upon such assumption of indebtedness, the Lessor and
Assignee shall execute and deliver documentation permitting the Guarantor to
assume the Lessor's obligations under the Financing Arrangements, and to release
the Lessor from all obligations in respect of the Financing Arrangement, this
Lease, the Agreement for Lease, and all related documents, and the Lessor and
Assignee shall take all such other actions (at the Lessee's cost and expense) as
are reasonably necessary to permit such assumption by the Guarantor. In
connection with, and as a condition to, any purchase under this Section 13, on
the date upon which such purchase occurs, the Lessee shall pay to the Lessor (i)
the purchase price, (ii) all Basic Rent payable through the date of purchase,
(iii) the Variable Component of Basic Rent accrued through the date of purchase,
(iv) any Additional Rent and Debt Yield-Maintenance Premium owing, (v) all
amounts payable pursuant to Sections 11, 24 and 26 hereof, (vi) all Unrecovered
Liabilities and Judgments, (vii) all losses, damages, costs and expenses
(including, without limitation, attorneys' fees and expenses, commissions,
filing fees and sales or transfer taxes) sustained by the Lessor by reason of
such purchase, and (viii) all other amounts owing hereunder (after taking into
account the application under the Financing Arrangements of such purchase price
and other payments hereunder). At the time the Project is sold pursuant to this
paragraph (a), the Lessor shall deliver the documents described in paragraph (i)
of Section 29 hereof.

     (b)  Upon the occurrence of an Event of Default and upon the written
request of the Lessee, which shall be received no later than fifteen (15)
Business Days subsequent to receipt of notice from the Lessor or Assignee
pursuant to this Lease that an Event of Default has occurred, the Lessee shall
have the right, not later than thirty (30) Business Days after the Lessor's
receipt of such request, to purchase the Project as a whole at a price equal to
its then Adjusted Acquisition Cost; PROVIDED that the purchase option contained
in this paragraph shall only be available to the Lessee if (i) in the reasonable
judgment of counsel to the Lessor and Assignee, the purchase price and all other
amounts paid by the Lessee will not in the circumstances in which such payment
is made constitute a preferential payment or a voidable transfer or otherwise be
subject to recapture pursuant to the provisions of the Federal Bankruptcy Code
in a bankruptcy proceeding by or against the Lessee and will not otherwise
result in the payment being subject to recapture from the Lessor or (ii) the
Guarantor has provided a guaranty of the payment of such purchase price and all
other amounts required to be paid by the Lessee under this paragraph (b) in the
event payment of such amounts is recovered as such a preferential payment or
voidable transfer, which guaranty shall be in form and substance reasonably

                                      -55-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

satisfactory to the Lessor and Assignee. In connection with, and as a condition
to, the purchase of the Project pursuant hereto, (1) the Lessee shall pay at the
time of purchase, in addition to the purchase price, (A) all Basic Rent owing
through the date of termination, (B) any Additional Rent and Debt
Yield-Maintenance Premium owing, (C) all amounts payable pursuant to Sections
11, 24 and 26 hereof, (D) all Unrecovered Liabilities and Judgments, (E) all
losses, damages, costs and expenses (including, without limitation, attorneys'
fees and expenses, commissions, filing fees and sales or transfer taxes),
sustained by the Lessor by reason of such purchase, and (F) all other amounts
owing by the Lessee hereunder as of the date of termination, and (2) when the
Lessor transfers title, such transfer shall be on an as-is, non-installment sale
basis, without warranty by, or recourse to, the Lessor, but free of any Lessor
Lien. At the time the Project is sold pursuant to this paragraph (b), the Lessor
shall deliver the documents described in paragraph (i) of Section 29 hereof.

     (c)  Subject to the provisions of paragraph (a) of Section 14 of this
Lease, so long as (i) no Event of Default, Event of Loss, Taking or Termination
Event has occurred and is continuing and (ii) all amounts owing under any
Financing Arrangements and all Equity Capital have been paid in full (after
taking into account the application under the Financing Arrangements of all
payments hereunder), the Lessee shall have the right, upon twelve (12) months'
written notice to the Lessor (the "RENEWAL NOTICE"), to renew the lease of the
Project for an additional term (the "RENEWAL TERM") to be determined by the
Lessee, commencing on the first day of the calendar month following the last day
of the Extended Term, on the same terms and conditions (including, without
limitation, being subject to all rights and remedies of the Lessor and Assignee
relating to Events of Default and Events of Loss) as existed during the Lease
Term, at the fair market value rental.

     (d)  The fair market value rental of the Project for purposes of paragraph
(c) of this Section 13 shall be an amount agreed to by the Lessor and the Lessee
or, if they are unable to agree, an amount determined pursuant to the Appraisal
Procedure.

     (e)  In the event the Lessee does not deliver the Renewal Notice in
accordance with the provisions of paragraph (c) of this Section 13, the Lessee
shall take either of the following two actions: (i) purchase, on the last day of
the Extended Term the Lessor's interest in the Project for cash at its Adjusted
Acquisition Cost, in accordance with the provisions of paragraph (a) of this
Section 13 (including the payment of all amounts described in such paragraph
(a)) or (ii) arrange for the Project to be sold in accordance with the
provisions of Section 12 hereof and with the consequences therein provided
(including, without limitation, indefeasible receipt by the Lessor of the Cash
Proceeds and all other amounts described in such Section 12), except that such
sale must occur on the last day of such Extended Term; PROVIDED, HOWEVER, that
if the Project is not sold pursuant to Section 12 hereof on the last day of the
Extended Term and the Lessee does not purchase the Project pursuant to clause
(i) above on the last day of the Extended Term, then a sale of the Lessee's
interest in the Project to the Lessor pursuant to Section 12 shall be deemed to
occur, the Cash Proceeds shall be deemed to be $1, and the provisions of Section
12 and the eighth paragraph of Section 19 hereof shall be applicable.

          SECTION 14.  LESSOR'S RIGHT TO TERMINATE.

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     (a)  The Lessor shall have the right, upon written notice to the Lessee, to
terminate the lease of the Project as a whole, if any of the following events
(each a "TERMINATION EVENT") shall occur during the term of this Lease: (A)
solely as a result of this Lease, the Agreement for Lease, a Financing
Arrangement, the Project Contracts and the transactions contemplated hereby or
thereby, the Lessor becomes (or with the passage of time would become), or is
declared by any Governmental Authority to be a "public-utility company" as
defined in the 1935 Act, or the Lessor, Merrill, Merrill Leasing, Assignee, any
Affiliate of the foregoing or their respective officers, directors, members,
trustees, shareholders, partners (general and limited, including, without
limitation, the general and limited partners of the Lessor) or employees shall
become subject to regulation under the 1935 Act; (B) solely as a result of this
Lease, the Agreement for Lease, a Financing Arrangement, the Project Contracts
and the transactions contemplated hereby or thereby, the Lessor becomes (or with
the passage of time would become), or is declared by the Secretary of Energy (or
any successor thereto) or the FERC to be, a public utility, an electric utility
or a utility holding company subject to regulation under the Federal Power Act,
as amended, or the Lessor, Merrill, Merrill Leasing, Assignee, any Affiliate of
the foregoing or their respective officers, directors, shareholders, partners
(general and limited, including, without limitation, the general and limited
partners of the Lessor) or employees shall become subject to regulation by the
FERC; (C) solely as a result of this Lease, the Agreement for Lease, a Financing
Arrangement, the Project Contracts and the transactions contemplated hereby or
thereby, the Lessor becomes (or with the passage of time would become), or is
declared by any relevant Governmental Authority under the laws of any state or
locality to be, subject to regulation as a public utility, an electric utility
or a utility holding company or the Lessor, Merrill, Merrill Leasing, Assignee,
any Affiliate of the foregoing or their respective officers, directors,
shareholders, partners (general and limited, including, without limitation, the
general and limited partners of the Lessor) or employees shall become subject to
regulation as a public utility, an electric utility or a utility holding company
under any such laws; or (D) any law or regulation or interpretation of any law
or regulation shall be adopted or enforced by any Governmental Authority
(including, without limitation, the Secretary of Energy, the FERC, the public
service commission of any state or any similar commission of any locality and
the Securities and Exchange Commission), and as a result of such adoption or
enforcement, approval of this Lease, the Agreement for Lease, a Financing
Arrangement, the Project Contracts or the transactions contemplated thereby
shall be required and shall not have been obtained within any grace period after
such adoption or enforcement, or as a result of which adoption or enforcement
this Lease, the Agreement for Lease, a Financing Arrangement, the Project
Contract or the transactions contemplated thereby, including any payments to be
made by or to the Lessee or the ownership of the Project by the Lessor, shall be
or become unlawful or unenforceable or the performance of this Lease, the
Agreement for Lease, a Financing Arrangement, the Project Contracts or the
transactions contemplated thereby shall be rendered impracticable in any
material way. Promptly upon learning of any action or event, the effect of which
results in any Termination Event, the Lessee shall notify the Lessor of such
action or event.

     (b)  Upon the occurrence of a Termination Event pursuant to paragraph (a)
of this Section 14, the Lessee shall, at its option, either (A) arrange for the
Project to be sold in accordance with the terms of Section 12 above and with the
consequences therein provided (other than the payment of Debt Yield-Maintenance
Premium or Modified Call Premium referred to in Section 12), except that if such
sale does not occur within nine (9) months after the date stipulated in the
written notice contemplated in paragraph (a) of this Section 14 and the Lessee

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

does not purchase the Project pursuant to clause (B) below on or before such
date, then a sale of the Lessee's interest in the Project to the Lessor pursuant
to Section 12 shall be deemed to occur, the Cash Proceeds shall be deemed to be
$1, and the provisions of Section 12 and the eighth paragraph of Section 19
hereof shall be applicable, or (B) purchase, within nine (9) months after the
date stipulated in the written notice contemplated by paragraph (a) of this
Section 14, the Project for cash at its Adjusted Acquisition Cost. In connection
with, and as a condition to, any sale or purchase under this paragraph, on the
date upon which such sale or purchase occurs, the Lessee shall pay to the
Lessor, in addition to any amount payable in connection with a sale or purchase,
all other amounts owing hereunder as of the date of such sale or purchase
including, without limitation, (i) all Basic Rent payable and the Variable
Component of Basic Rent accrued through the date of sale or purchase, (ii) any
Additional Rent owing, (iii) all amounts payable pursuant to Sections 11, 24 and
26 hereof, (iv) all losses, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses, commissions, filing fees and sales or
transfer taxes) sustained by the Lessor by reason of such sale or purchase, (v)
all Unrecovered Liabilities and Judgments and (vi) all other amounts owing
hereunder. At the time the Project is sold pursuant to this paragraph (b), the
Lessor shall deliver the documents described in paragraph (i) of Section 29
hereof.

          SECTION 15.  LOSS OF OR DAMAGE TO THE PROJECT.

     (a)  The Lessee hereby assumes all risk of loss of or damage to the
Project, however caused. No loss of, or damage to, the Project shall impair any
obligation of the Lessee under this Lease, which shall continue in full force
and effect regardless of such loss or damage. The foregoing shall not be
construed as requiring the Lessee to repair the Project when it is not otherwise
required to do so under paragraphs (b) or (c) of this Section 15.

     (b)  In the event of damage of any kind whatsoever to the Project (unless
the same is reasonably determined by the Lessor and Assignee to be damaged
beyond repair) the Lessee, at its own cost and expense, shall place the same in
good operating order, repair, condition and appearance. The Lessee's right to
any proceeds paid under any insurance policy or policies required under Section
10 of this Lease with respect to any such damage to the Project which has been
so placed by the Lessee in good operating order, repair, condition and
appearance is governed by paragraph (j) of Section 10 hereof.

     (c)  If (A) an Event of Loss shall occur, or (B) a Taking as described in
paragraph (a) of Section 16 shall occur, then in any such event, (i) the Lessee
shall promptly notify the Lessor in writing of such event, (ii) within one
hundred eighty (180) days of such event the Lessee shall pay to the Lessor an
amount equal to the Adjusted Acquisition Cost and (iii) the Initial Term,
Extended Term or Renewal Term shall continue until the Lessor receives payment
from the Lessee of the amount payable pursuant to this paragraph (c) including,
without limitation, (1) all Basic Rent payable and the Variable Component of
Basic Rent accrued through the date of purchase, (2) any Additional Rent owing,
(3) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (4) all
losses, damages, costs and expenses (including, without limitation, attorneys'
fees and expenses, commissions, filing fees and sales or transfer taxes)
sustained by the Lessor by reason of such event and (5) all other amounts owing
hereunder after taking into account the application under the Financing
Arrangements of such payments hereunder, and shall thereupon terminate. Upon the
indefeasible payment by the Lessee of all amounts referred

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

to in the immediately preceding sentence, (x) insurance and condemnation
proceeds up to an amount equal to the Adjusted Acquisition Cost of the Project
(net of all collection costs), shall be paid by the Lessor to the Lessee, (y)
the Lessee shall be subrogated to the Lessor's rights resulting from the events
described in clauses (A) and (B) above, and (z) the Lessor shall convey title to
the Project to the Lessee pursuant to the documents described in paragraph (i)
of Section 29 hereof.

          SECTION 16.  CONDEMNATION AND DEDICATION OF THE PROJECT; EASEMENTS.

     (a)  If the use, occupancy or title to all or a substantial portion of the
Project or all or a substantial portion of the Premises, is taken, requisitioned
or sold in, by or on account of actual or threatened eminent domain proceedings
or other action by any Person or Governmental Authority having the power of
eminent domain (such events collectively referred to as a "TAKING"), then the
Lessee shall make the payment provided in, and the Initial Term, Extended Term
or Renewal Term shall terminate as provided in, paragraph (c) of Section 15
hereof. The portion of the proceeds from any award or sale made in connection
with such Taking attributable to the Lessor's interest in the Project shall be
retained by the Lessor and, upon the indefeasible payment by the Lessee of all
amounts referred to in respect of clause (B) of paragraph (c) of Section 15
hereof, such amount shall be paid to the Lessee. A Taking shall be deemed to
affect a "substantial portion" of the Project or the Premises if after such
Taking the remainder is not sufficient to permit operation of the Project on a
commercially feasible basis after taking into account the rental and other
monetary obligations of the Lessee hereunder and under the Project Contracts.

     (b)  If less than a substantial portion of the Project is subject to a
Taking, then this Lease shall continue in effect as to the portion of the
Project not taken and any net proceeds, so long as (i) no Potential Default,
Event of Default, Event of Loss or Termination Event has occurred and is
continuing, and (ii) the Lessor and Assignee shall determine that restoration of
the Project is consistent with prudent business practices and that sufficient
funds are available to complete such restoration, shall be paid to the Lessee
for the restoration of the Project in accordance with paragraph (j) of Section
10 hereof; PROVIDED that, if either of the conditions set forth in clauses (i)
or (ii) above are not satisfied, then the net proceeds shall be paid to the
Lessor and if and to the extent that such proceeds are not applied to (or paid
to the Lessee in reimbursement for) the restoration of the Project, the Adjusted
Acquisition Cost shall be reduced by the Lessor by the amount of such proceeds.
Thereupon, Exhibit D shall be revised to reflect such reduction in Adjusted
Acquisition Cost.

          SECTION 17.  SURRENDER OF THE PROJECT.

     (a)  Subject to the provisions of Sections 12, 13, 14, 15 and 19 hereof,
upon termination of the lease of the Project under this Lease, the Lessee shall
surrender the Project to the Lessor. The Project shall be surrendered in the
condition required by paragraph (b) of Section 9.

     (b)  Upon the surrender of the Project, the Lessee shall deliver to the
Lessor or its designee all logs, manuals, inspection data, books and records or
copies thereof and other

                                      -59-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

information, which are necessary to operate the Project and which are in
accordance with sound industry practice customarily retained (or that the Lessee
actually did retain) or are required by law to be retained with respect to
similar property and equipment, including, without limitation, all software and
manuals applicable to the Project and all design plans, know-how, records and
information used by the Lessee and the Operator during the prior 12 months of
operation of the Project.

          SECTION 18.  EVENTS OF DEFAULT

     Any of the following events of default shall constitute an "EVENT OF
DEFAULT" and shall give rise to the rights on the part of the Lessor described
in Section 19 hereof:

     (a)  Failure of the Lessee to pay amounts due to the Lessor at the time of
any scheduled sale or deemed sale of the Project hereunder or under paragraph
(c) of Section 15 hereof, failure of the Lessee to pay Basic Rent, Debt
Yield-Maintenance Premium or Modified Call Premium for more than five (5) days
after such payment is due pursuant to Section 7 hereof or failure of the Lessee
to pay any other amount payable by the Lessee hereunder for more than ten (10)
days after such payment is due; or

     (b)  Failure to maintain the insurance required by Section 10 hereof, or
default in the performance of the covenants contained in paragraphs (ii)(a),
(ii)(b), (ii)(c), (ii)(e), (ii)(f), (ii)(g), or (ii)(j) of Section 2, paragraph
(g) of Section 8, paragraph (n) of Section 10, Section 25 or paragraph (j) of
Section 29; or

     (c)  Default in the performance of any other obligation or covenant of the
Lessee pursuant to this Lease or the Lessee's Consent and (other than a default
arising from a failure to deliver notice of an Event of Default, Potential
Default, Event of Loss, Taking or Termination Event under clause (iii) of
paragraph (ii)(g) of Section 2 hereof, which shall not be subject to any grace
period), the continuance of such default for thirty (30) days after the earlier
of the date (i) the Lessee becomes aware of such default or (ii) written notice
of such default shall have been given to the Lessee by the Lessor or Assignee
specifying such default and requiring such default to be remedied; PROVIDED,
that if such default is of a nature that it is not capable of being cured by the
payment of money or cannot with due diligence be cured within such thirty (30)
day period, and if the Lessee shall have diligently commenced curing such
default and proceeds diligently and in good faith thereafter to complete curing
such default, then the time within which such default may be cured shall be
extended for such period (not to exceed ninety (90) days or the expiration date
of the Lease Term) as is necessary to cure such default; or

     (d)  The occurrence of any event or circumstance relating to Environmental
Matters (not otherwise covered under any other provision of this Section 18)
that results, directly or indirectly, in a Material Adverse Effect; or

     (e)  (1) Any representation or warranty made by the Lessee in this Lease
(other than the representations or warranties made in paragraphs (i)(d), (i)(j)
and (i)(p) of Section 2 hereof) or in the Lessee's Consent or which is contained
in any certificate, document or financial or other statement furnished under or
in connection with this Lease proves to be false or misleading on or as of the
date made or deemed made and results, directly or indirectly, in a Material

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Adverse Effect, or (2) any representation or warranty made by the Lessee in
paragraphs (i)(d), (i)(j) and (i)(p) of Section 2 hereof proves to be false,
misleading or inaccurate in any material respect on or as of the date made or
deemed made; or

     (f)  (i)    The Pledge Agreement ceases to be in full force and effect
prior to the termination thereof in accordance with its terms, (ii) the Lessee
defaults in the performance of any obligation or covenant contained in the
Pledge Agreement, any required notice of such default shall have been given, and
any applicable grace period shall have expired, or (iii) the representation
contained in the second sentence of paragraph (i)(r) of Section 2 shall at any
time become untrue; or

     (g)  The entry of a decree or order for relief in respect of the Lessee or
the Guarantor by a court having jurisdiction in the premises or the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Lessee or the Guarantor or of any substantial part of
the Lessee's or the Guarantor's property, or ordering the winding up or
liquidation of the Lessee's or the Guarantor's affairs, in an involuntary case
under the Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law and such
decree or order remains unstayed and in effect for sixty (60) consecutive days;
or the commencement against the Lessee or the Guarantor of an involuntary case
under the Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law, and the
continuance of any such case unstayed and in effect for a period of sixty (60)
consecutive days; or

     (h)  The Lessee's or the Guarantor's insolvency (however evidenced) or the
Lessee's or the Guarantor's admission of insolvency or bankruptcy, or the
commencement by the Lessee or the Guarantor of a voluntary case under the
Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law, or the
consent by the Lessee or the Guarantor to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Lessee or the Guarantor or of any substantial
part of the Lessee's or the Guarantor's property, or the making by the Lessee or
the Guarantor of an assignment for the benefit of creditors, or the failure of
the Lessee or the Guarantor generally to pay their debts as such debts become
due, or the taking of corporate action by the Lessee or the Guarantor in
furtherance of any such action; or

     (i)  (i)    The Guaranty ceases to be in full force and effect prior to the
termination thereof in accordance with its terms or the Guarantor asserts that
the Guaranty is not in full force and effect, or (ii) an Event of Default (as
defined in the Guaranty) shall occur under the Guaranty; or

     (j)  Any representation or warranty made by the Guarantor in the Guaranty
or in the Guarantor's Consent or any document contemplated hereby or thereby
proves to be false or misleading on or as of the date made or deemed made and
results, directly or indirectly, in a Material Adverse Effect; or

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     (k)  The Guarantor shall fail to own (directly or indirectly) beneficially
and of record a majority of the membership interests of the Lessee; or

     (l)  (i)    The CEI Note ceases to be in full force and effect prior to the
termination thereof in accordance with its terms, or (ii) the Guarantor shall
fail to perform or observe any agreement, obligation or covenant contained in
the CEI Note, any required notice of such default shall have been given, and any
grace period shall have expired; or

     (m)  A default or event of default by the Guarantor or any of its Material
Subsidiaries shall occur, the effect of which is that the holder or holders of
any Indebtedness of the Guarantor or any such Material Subsidiary having a then
outstanding principal balance in excess of $100,000,000, causes or declares such
Indebtedness of the Guarantor or any such Material Subsidiary to become due
prior to its stated maturity under the provisions of any agreement or agreements
pursuant to which such Indebtedness was created; or

     (n)  The Guarantor or any of its Material Subsidiaries shall default in any
payment of principal of or interest on any Indebtedness of the Guarantor or any
such Material Subsidiary having a then outstanding principal balance in excess
of $100,000,000, beyond the period of grace, if any, under the provisions of any
instrument or instruments or agreement or agreements pursuant to which such
Indebtedness was created; or

     (o)  Final judgment or judgments for the payment of money in excess of
$100,000,000 in the aggregate shall be rendered against the Guarantor or any of
its Material Subsidiaries by any court of competent jurisdiction and the same
shall remain undischarged for a period of thirty (30) days from the date such
payment is due, during which execution of such judgment or judgments shall not
be effectively stayed.

          SECTION 19.  RIGHTS UPON DEFAULT.

     Upon the occurrence and continuation of any Event of Default the Lessor may
do any one or more of the following (subject to the provisions of paragraph (b)
of Section 13 of this Lease):

          (i)    Terminate the lease of the Project hereunder;

          (ii)   Whether or not the lease of the Project is terminated, take
     immediate possession of the Project and remove any equipment or property of
     the Lessor in the possession of the Lessee, wherever situated, and for such
     purpose, enter upon the Premises without liability to the Lessee for so
     doing;

          (iii)  Whether or not any action has been taken under clause (i) or
     (ii) above, sell the Project (with or without the concurrence or request of
     the Lessee);

          (iv)   Hold, use, occupy, operate, repair, remove, lease or keep idle
     the Project as the Lessor in its sole discretion may determine, without any
     duty to mitigate damages with respect to any such action or inaction or
     with respect to any proceeds thereof; and

          (v)    Exercise any other right or remedy which may be available under
     applicable law and in general proceed by appropriate judicial proceedings,
     either at law or in equity, to enforce the terms hereof.

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

     Suit or suits for the recovery of any default in the payment of any sum due
hereunder or for damages may be brought by the Lessor from time to time at the
Lessor's election, and nothing herein contained shall be deemed to require the
Lessor to await the date whereon this Lease or the term hereof would have
expired by limitation had there been no such default by the Lessee or no such
termination or cancellation.

     The receipt of any payments under this Lease by the Lessor with knowledge
of any breach of this Lease by the Lessee or of any default by the Lessee in the
performance of any of the terms, covenants or conditions of this Lease, shall
not be deemed to be a waiver of any provision of this Lease.

     No receipt of moneys by the Lessor from the Lessee after the termination or
cancellation hereof in any lawful manner shall reinstate, continue or extend the
Initial Term, the Extended Term or the Renewal Term, or affect any notice
theretofore given to the Lessee, or operate as a waiver of the right of the
Lessor to enforce the payment of Basic Rent, any Debt Yield-Maintenance Premium,
Additional Rent or other charges payable hereunder, or operate as a waiver of
the right of the Lessor to recover possession of by proper suit, action,
proceedings or remedy; it being agreed that, after the service of notice to
terminate or cancel this Lease, and the expiration of the time therein
specified, if the default has not been cured in the meantime, or after the
commencement of any suit, action or summary proceedings or of any other remedy,
or after a final order, warrant or judgment for the possession of the Project,
the Lessor may demand, receive and collect any moneys payable hereunder, without
in any manner affecting such notice, proceedings, suit, action, order, warrant
or judgment. Acceptance of the keys to the Project, or any similar act, by the
Lessor, or any agent or employee of the Lessor, during the term hereof, shall
not be deemed to be an acceptance of a surrender of the Project unless the
Lessor and Assignee shall consent thereto in writing.

     After any Event of Default, the Lessee shall be liable for, and the Lessor
may recover from the Lessee, (i) all Basic Rent payable and the Variable
Component of Basic Rent accrued through the date of termination of this Lease,
(ii) any Additional Rent and Debt Yield-Maintenance Premium owing, (iii) all
amounts payable pursuant to Sections 11, 24 and 26 hereof, (iv) all losses,
damages, costs and expenses (including, without limitation, attorneys' fees and
expenses, commissions, filing fees and sales or transfer taxes and all costs and
expenses related to (1) the conduct of investigations, studies, sampling and/or
testing of the Premises and (2) the taking of any action, including, without
limitation, any remedial measures or removal with respect to the Premises, each
as required by Assignee pursuant to the terms of a Financing Arrangement)
sustained by the Lessor by reason of such Event of Default and the exercise of
the Lessor's remedies with respect thereto, including without limitation, in the
event of a sale by the Lessor of its interest in the Project pursuant to this
Section 19, all costs and expenses associated with such sale and (v) all other
amounts owing hereunder. The amounts payable in clauses (i) through (v) above
are hereinafter sometimes referred to as the "ACCRUED DEFAULT OBLIGATIONS".

     After an Event of Default, the Lessor may sell its interest in the Project
upon any terms that the Lessor deems satisfactory, free of any rights of the
Lessee or any Person claiming through or under the Lessee (including, without
limitation, any rights hereunder or under the Agreement for Lease or the Project
Contracts). In the event of any such sale, in addition to the Accrued Default
Obligations, the Lessor shall be entitled to recover from the Lessee, as

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

liquidated damages and not as a penalty, and subject to the second succeeding
sentence, an amount equal to the Adjusted Acquisition Cost. Proceeds of sale
received by the Lessor in excess of the Adjusted Acquisition Cost shall be
credited against the Accrued Default Obligations the Lessee is required to pay
under this Section 19. If such proceeds plus the Adjusted Acquisition Cost,
exceed the sum of (i) Accrued Default Obligations and (ii) the Adjusted
Acquisition Cost and (iii) any Unrecovered Liabilities and Judgments, and if the
Lessee has indefeasibly paid the Adjusted Acquisition Cost, the Accrued Default
Obligations plus all Unrecovered Liabilities and Judgments and all other amounts
required to be paid under this Section 19, such excess shall be paid by the
Lessor to the Lessee; PROVIDED, HOWEVER, that the Lessee shall remain liable
from such excess proceeds for any Unrecovered Liabilities and Judgments that
arise after the payment of such excess proceeds to the extent such Unrecovered
Liabilities and Judgments arise from or relate to acts or omissions occurring,
or circumstances or conditions created or existing at any time as of or prior to
the expiration or termination of this Lease. As an alternative to any such sale,
or if the Lessee converts the Project after an Event of Default, or if the
Project suffers an Event of Loss or Taking or is otherwise lost or destroyed at
the time of the Event of Default, in addition to the Accrued Default
Obligations, the Lessor may require the Lessee to pay to the Lessor, and the
Lessee shall pay to the Lessor, as liquidated damages and not as a penalty, an
amount equal to the Adjusted Acquisition Cost plus an additional amount equal to
two and one half percent (2 1/2%) of the Adjusted Acquisition Cost. If the
Lessor subsequently sells its interest in the Project, the proceeds of any such
sale (net of any unreimbursed costs or liabilities incurred by the Lessor or
Assignee with respect to the Project or Project Contracts after the termination
of the Lease, which are not included in the Accrued Default Obligations (after
taking into account any revenues received from the operation of the Project))
shall be distributed as provided in the third and fourth sentences of this
paragraph. In the event the Lessor receives indefeasible payment from the Lessee
of the Adjusted Acquisition Cost of the Project plus an additional amount equal
to two and one half percent (2 1/2%) of the Adjusted Acquisition Cost, and the
Accrued Default Obligations, the Lessor shall transfer all of the Lessor's
right, title and interest in and to the Project to the Lessee.

     In the event of a sale pursuant to this Section 19, upon indefeasible
receipt by the Lessor of all amounts payable hereunder, the Lessor shall
transfer all of the Lessor's right, title and interest in and to the Project to
a purchaser other than the Lessee or to the Lessee, as the case may be.

     In the event the Lessor is not paid an amount equal to the Adjusted
Acquisition Cost and an additional amount equal to two and one half percent
(2 1/2%) of the Adjusted Acquisition Cost, plus the Accrued Default Obligations,
then, in addition to the Lessor's other rights in this Section 19, the Lessee
shall upon the Lessor's request (i) assign to the Lessor (or to an assignee
designated by the Lessor or Assignee), at no cost, all right, title and interest
of the Lessee in, to and under all Governmental Actions and Intellectual
Property Rights needed for the equipping, maintenance, operation or use of the
Project and obtained and held by the Lessee at that time, (ii) assign to the
Lessor (or to a foreclosure purchaser designated by the Lessor or the Assignee),
at no cost, all right, title and interest of the Lessee in, to and under the
Project Contracts, and in the event any additional consent of any party to a
Project Contract is required as a precondition thereunder to an assignment to
any other third party assignee designated by the Lessor or Assignee, use its
best efforts to obtain any such required consent to such proposed
non-foreclosure assignment and assumption of the Project Contracts; and (iii)
assign to the

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                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Lessor, at no cost, all right, title and interest of the Lessee in, to and under
all service agreements in existence at the time of such sale and transferable by
the Lessee and any easements available to the Lessee and transferable by the
Lessee in connection with the equipping, maintenance, operation or use of the
Project. The Lessee acknowledges that it would be difficult to ascertain the
value to the Lessor of the Lessee's agreement to assign, transfer or have
reissued to the Lessor such Governmental Actions and Intellectual Property
Rights, to assign such Project Contracts (and, if necessary, to obtain such
consents to such assignment) and to assign to the Lessor such service agreements
and easements or to adequately compensate the Lessor by an award of damages for
the Lessee's failure to assign to the Lessor such Governmental Actions and
Intellectual Property Rights, to assign such Project Contracts (and, if
necessary, to obtain such consents to such assignment) and to assign to the
Lessor such service agreements and easements, and that therefore the Lessor
would not have an adequate remedy at law for breach by the Lessee of its
agreement hereunder to the Lessor. Accordingly, the Lessee acknowledges that the
Lessor shall be entitled to obtain specific performance of the Lessee's
obligation to assign to the Lessor such Governmental Actions and Intellectual
Property Rights, to obtain such consents to such assignment and to assign to the
Lessor the service agreements and easements. In the event the Lessee fails to
obtain any consents required in clause (ii) of the third preceding sentence, at
the request of the Lessor or such purchaser, as the case may be, the Lessee
shall agree to (A) at the expense of such purchaser or the Lessor, as the case
may be, continue to perform under and maintain in full force and effect the
Project Contracts and pay all sums received under the Project Contracts to such
third party or the Lessor, as the case may be, (B) at the expense of such third
party or the Lessor, as the case may be, and subject to the receipt of
indemnification reasonably acceptable to the Lessee, take all actions requested
by such third party or the Lessor, as the case may be, with respect to such
Project Contracts (including all actions with respect to the enforcement of the
Lessee's rights and remedies under such Project Contracts), and (C) not amend,
modify, supplement, waive a provision of, grant any consent under or terminate
any such Project Contract without the prior written consent of such third party
or the Lessor, as the case may be.

     No remedy referred to in this Section 19 is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to above
or otherwise available to the Lessor at law or in equity, and the exercise in
whole or in part by the Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by the Lessor of any or all such
other remedies.

     No waiver by the Lessor of any Event of Default hereunder shall in any way
be, or be construed to be, a waiver of any future or subsequent Event of
Default.

     With respect to the termination of this Lease as a result of an Event of
Default, the Lessee hereby waives service of any notice of intention to
re-enter. The Lessee hereby waives any and all rights to recover or regain
possession of the Project or to reinstate this Lease as permitted or provided by
or under any statute, law or decision now or hereafter in force and effect.

          SECTION 20.  SALE OR ASSIGNMENT BY LESSOR.

     (a)  The Lessor shall have the right to obtain equity and debt financing
for the acquisition and ownership of the Project by selling or assigning its
right, title and interest in any

                                      -65-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

or all amounts due from the Lessee or any third party under this Lease and
granting a security interest in this Lease and the Project to the Collateral
Trustee or any successor to the Collateral Trustee under a Financing
Arrangement, notice of the identity of which shall be given to the Lessee;
PROVIDED that, any sale or assignment by the Lessor shall be made consistent
with the terms of this Lease and shall be subject to the rights and interests of
the Lessee under this Lease and the Agreement for Lease.

     (b)  Any Assignee shall, after the occurrence and during the continuance of
any Event of Loss, Event of Default or Termination Event hereunder, except as
otherwise agreed by the Lessor and such Assignee, have all the rights, powers,
privileges and remedies of the Lessor hereunder, and the Lessee's obligations as
between itself and such Assignee hereunder shall not be subject to any claims or
defense that the Lessee may have against the Lessor. Upon written notice to the
Lessee of any such assignment, the Lessee shall thereafter make payments of
Basic Rent and the Variable Component of Basic Rent, any Debt Yield-Maintenance
Premium, Additional Rent and other sums due hereunder to Assignee, to the extent
specified in such notice, and such payments shall discharge the obligation of
the Lessee to the Lessor hereunder to the extent of such payments. Anything
contained herein to the contrary notwithstanding, no Assignee shall be obligated
to perform any duty, covenant or condition required to be performed by the
Lessor hereunder, and any such duty, covenant or condition shall be and remain
the sole obligation of the Lessor, unless and until Assignee has taken
possession of the Premises or the Project or otherwise foreclosed upon the
Lessor's interest therein or accepted a conveyance in lieu of foreclosure of the
Premises or the Project pursuant to a Financing Arrangement.

          SECTION 21.  INCOME TAXES.

     The Lessor agrees that it will not file any Federal, state or local income
tax returns or state or local sales tax returns during the Lease Term or any
Renewal Term with respect to the Project that are inconsistent with the
treatment of the Lessee as owner of the Project for Federal, state and local
income tax purposes and state and local sales tax purposes.

          SECTION 22.  NOTICES AND REQUESTS.

     All notices, offers, acceptances, approvals, waivers, requests, demands and
other communications hereunder or under any other instrument, certificate or
other document delivered in connection with the transactions described herein
shall be in writing, shall be addressed as provided below and shall be
considered as properly given (a) if delivered in person, (b) if sent by express
courier service (including, without limitation, Federal Express, Emery, DHL,
Airborne Express, and other similar express delivery services), (c) in the event
overnight delivery services are not readily available, if mailed through the
United States Postal Service, postage prepaid, registered or certified with
return receipt requested, or (d) if sent by telecopy and confirmed; PROVIDED
that, in the case of a notice by telecopy, the sender shall in addition confirm
such notice by writing sent in the manner specified in clause (a), (b) or (c) of
this Section 22. All notices shall be effective upon receipt by the addressee;
PROVIDED, HOWEVER, that, if any notice is tendered to an addressee and the
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender. For the purposes of notice, the addresses of the parties shall
be as set forth below; PROVIDED, HOWEVER, that any party shall have the right to

                                      -66-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

change its address for notice hereunder to any other location by giving written
notice to the other party in the manner set forth herein. The initial addresses
of the parties hereto are as follows:

            If to the Lessor:

            Hawkeye Funding, Limited Partnership
            c/o ML Leasing Equipment Corp.
            Strategic Asset Lease and Finance Group
            Four World Financial Center
            New York, New York 10080

            Attention:   Jean M. Tomaselli
            Telephone:   (212) 449-7925
            Telecopy:    (212) 449-2854

With a copy of all notices under this Section 22 to be simultaneously given,
delivered or served to Joseph Valenti at the following address:

            ML Leasing Equipment Corp.
            Controller's Office
            Two World Financial Center
            14th Floor
            New York, New York 10281

            If to the Lessee:

            Newington Energy, L.L.C.
            c/o Consolidated Edison Development, Inc.
            111 Broadway
            16th Floor
            New York, New York 10006

            Attention: President
            Telephone: (212) 393-9242
            Telecopy: (212) 393-9282

With a copy of all notices under this Section 22 to Assignee at such address as
Assignee may specify by written notice to the Lessor and the Lessee.

                                      -67-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          SECTION 23.  COVENANT OF QUIET ENJOYMENT.

          During the Lease Term or any Renewal Term hereunder and so long as no
Event of Default, Event of Loss, Taking or Termination Event shall have occurred
and be continuing, the Lessor recognizes the Lessee's right to quiet enjoyment
of the Project on the terms and conditions provided in this Lease without any
interference from the Lessor or anyone claiming through or under the Lessor.

          SECTION 24.  RIGHT TO PERFORM FOR LESSEE.

          (a)    If the Lessee fails to perform or comply with any of its
covenants or agreements contained in this Lease, and any period to cure such
failure has expired without the Lessee curing such failure, the Lessor may, upon
notice to the Lessee but without waiving or releasing any obligations or
default, itself perform or comply with such covenant or agreement, and the
amount of the reasonable expenses of the Lessor incurred in connection with such
performance or compliance shall be payable by the Lessee, not later than ten
(10) days after written notice by the Lessor.

          (b)    Without in any way limiting the obligations of the Lessee
hereunder, the Lessee hereby irrevocably appoints the Lessor as its agent and
attorney at the time at which the Lessee is obligated to deliver possession of
the Project to the Lessor, to demand and take possession of the Project in the
name and on behalf of the Lessee from whomsoever shall be at the time in
possession thereof.

          SECTION 25.  MERGER, CONSOLIDATION OR SALE OF ASSETS.

          The Lessee may consolidate with or merge into any other corporation or
sell all or substantially all of its assets to any Person; PROVIDED that,
following such consolidation, merger or sale of assets, (a) the Guarantor shall
own (directly or indirectly) beneficially and of record a majority of the
membership interests of the Lessee, and (b) no Event of Default, Event of Loss,
Taking or Termination Event shall exist under this Lease. The terms and
provisions of this Lease shall be binding upon and inure to the benefit of the
Lessee and its respective successors and assigns.

          SECTION 26.  EXPENSES.

          The Lessee shall pay all of the out-of-pocket costs and expenses
incurred by the Lessor and any Assignee in connection with this Lease,
including, without limitation, the reasonable fees and disbursements of counsel
to the Lessor and counsel to such Assignee. Notwithstanding anything contained
herein to the contrary, this Section 26 is not intended to increase the Lessee's
obligation to pay any tax under this Lease beyond those taxes for which the
Lessee is obligated to indemnify the Lessor or any other Indemnified Person
under the provisions of paragraph (b) of Section 11 hereof.

          SECTION 27.  PERMITTED CONTESTS.

          (a)    The Lessee shall not be required, nor shall the Lessor have the
right, to pay, discharge or remove any tax, assessment, levy, fee, rent, charge
or Lien, or to comply or

                                      -68-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

cause the Project to comply with any Legal Requirements applicable thereto or
the occupancy, use or operation thereof, so long as no Potential Default and no
Event of Default, Event of Loss, Taking or Termination Event exists under this
Lease, and, in the reasonable judgment of the Lessee's counsel, the Lessee shall
have reasonable grounds to contest the existence, amount, applicability or
validity thereof by appropriate proceedings, which proceedings in the reasonable
judgment of the Lessor Assignee (i) shall not involve any danger that the
Project or any portion thereof or any Basic Rent or any Additional Rent would be
subject to sale, forfeiture or loss, as a result of failure to comply therewith,
(ii) shall not affect the payment of any Basic Rent or any Additional Rent or
other sums due and payable hereunder or result in any such sums being payable to
any Person other than the Lessor or Assignee, (iii) will not subject either the
Lessor or any Assignee to any danger of civil liability for which the Lessor or
such Assignee is not adequately indemnified or subject the Lessor or any
Assignee to any danger of criminal liability, (iv) if involving taxes, shall
suspend the collection of taxes (unless the Lessee has provided a bond for the
full amount in dispute), and (v) shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which the Lessee or
the Project is subject and shall not constitute a default thereunder (the
"PERMITTED CONTEST"). The Lessee shall conduct all Permitted Contests in good
faith and with due diligence and shall promptly after the final determination
(including appeals) of any Permitted Contest (or, if earlier, upon any of the
above criteria no longer being satisfied) pay and discharge all amounts which
shall be determined to be payable therein. The Lessor shall cooperate in good
faith with the Lessee with respect to all Permitted Contests conducted by the
Lessee pursuant to this Section 27.

          (b)    In the event the Lessor or Assignee deems, in its reasonable
discretion, that its interests under this Lease or in the Project are not
adequately protected in connection with a Permitted Contest brought by the
Lessee as permitted under this Section 27, the Lessee shall give such reasonable
security as may be demanded by the Lessor or Assignee to ensure payment of such
tax, assessment, levy, fee, rent, charge or Lien and compliance with Legal
Requirements and to prevent any sale or forfeiture of the Project or any portion
thereof, any Basic Rent or any Additional Rent by reason of such nonpayment or
noncompliance. The Lessee hereby agrees that the Lessor may assign such security
provided by the Lessee to Assignee.

          (c)    At least ten (10) days prior to the commencement of any
Permitted Contest, the Lessee shall notify the Lessor in writing thereof if the
amount in contest exceeds $100,000, and shall describe such proceeding in
reasonable detail. In the event that a taxing authority or subdivision thereof
proposes an additional assessment or levy of any tax for which the Lessee is
obligated to reimburse the Lessor under this Lease, or in the event that the
Lessor is notified of the commencement of an audit or similar proceeding which
could result in such an additional assessment, then the Lessor shall in a timely
manner notify the Lessee in writing of such proposed levy or proceeding.

          SECTION 28.  INTENTIONALLY OMITTED.

          SECTION 29.  MISCELLANEOUS.

          (a)    All agreements, indemnities, representations and warranties,
and the obligation to pay Basic Rent and the Variable Component of Basic Rent,
any Debt Yield-Maintenance Premium, Additional Rent and other amounts contained
in this Lease shall survive until the expiration or other termination of this
Lease, provided that (i) any obligations under this

                                      -69-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

Lease accrued at the time of or related to periods prior to such expiration or
other termination (including, without limitation, any obligation to pay
Unrecovered Liabilities and Judgments) shall survive such expiration or other
termination, and (ii) any obligation under this Lease which is expressly
provided to be performed after or to survive the expiration or termination of
this Lease shall survive the expiration or other termination hereof.

          (b)    This Lease and the instruments, documents or agreements
referred to herein constitute the entire agreement between the parties and no
representations, warranties, promises, guarantees or agreements, oral or
written, express or implied, have been made by any party hereto with respect to
this Lease or the Project, except as provided herein or therein.

          (c)    This Lease may not be amended, modified or terminated, nor may
any obligation hereunder be waived orally, and no such amendment, modification,
termination or waiver shall be effective for any purpose unless it is in
writing, signed by the party against whom enforcement thereof is sought. A
waiver on one occasion shall not be construed to be a waiver with respect to any
other occasion.

          (d)    The captions in this Lease are for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of the
provisions hereof. Any provision of this Lease which is prohibited by law or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and the parties hereto shall negotiate in good
faith appropriate modifications to reflect such changes as may be required by
law, and, as nearly as possible, to produce the same economic, financial and tax
effects as the provision which is prohibited or unenforceable; and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee and the Lessor hereby waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect. THIS LEASE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW
YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY
THE LAW OF THE STATE OF NEW YORK, THIS LEASE, AND THE RIGHTS AND DUTIES OF THE
LESSEE AND THE LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW)
IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. THE LESSEE HEREBY IRREVOCABLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE
OF NEW YORK IN THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS LEASE OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE LESSEE
HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN

                                      -70-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER, OR THAT THIS LEASE OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT.
THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE LESSOR
OR ANY ASSIGNEE FROM OBTAINING JURISDICTION OVER THE LESSEE IN ANY COURT
OTHERWISE HAVING JURISDICTION. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
LESSEE AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION
WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE LESSEE
AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED
MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS LEASE OR ANY METHOD AUTHORIZED
BY THE LAWS OF NEW YORK. THE LESSOR AND THE LESSEE EXPRESSLY WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS LEASE OR
THE TRANSACTIONS CONTEMPLATED HEREBY. THE LESSOR AND THE LESSEE ACKNOWLEDGE THAT
THE PROVISIONS OF THIS PARAGRAPH (D) OF SECTION 29 HAVE BEEN BARGAINED FOR AND
THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

          (e)    In connection with any sale of the Project pursuant to Section
12, 13, 14, 15 or 19 of this Lease, when the Lessor transfers title, such
transfer shall be on an as-is, non-installment sale basis, without warranty by,
or recourse to, the Lessor, but free of any Lessor Lien.

          (f)    In connection with the sale or purchase of the Project pursuant
to Section 12, 13, 14, 15 or 19 of this Lease, the Lessee or the Guarantor shall
pay or the Lessee shall cause the purchaser of the Project to pay, in addition
to the purchase price, all transfer taxes, transfer gains taxes, mortgage
recording tax, if any, recording and filing fees and all other similar taxes,
fees, expenses and closing costs (including reasonable attorneys' fees) in
connection with the conveyance of the Project to the Lessee, the Guarantor or
any purchaser. Notwithstanding anything contained herein to the contrary, this
paragraph (f) is not intended to increase the Lessee's obligation to pay any tax
under this Lease beyond those taxes for which the Lessee is obligated to
indemnify the Lessor or any other Indemnified Person under the provisions of
paragraph (b) of Section 11 hereof.

          (g)    At all times during the term of this Lease, the Lessor's
capitalization shall be such that at least three percent (3%) of its
capitalization in accordance with GAAP (including interest required to be
capitalized in accordance with GAAP on the principal outstanding on any
Financing Arrangement) consists of cash contributions from the Lessor's general
partner and limited partners.

          (h)    Each time that the Adjusted Acquisition Cost is increased or
decreased pursuant to the terms of this Lease (other than a decrease in
connection with the amortization of the Acquisition Cost of the Project as
contemplated by this Lease), the Lessee and the Lessor shall promptly revise
Exhibit D hereto to reflect such increase or decrease.

                                      -71-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          (i)    In connection with the purchase of the Project by the Lessee,
the Guarantor or any third party pursuant to the provisions of this Lease, the
Lessor shall deliver to the Lessee, the Guarantor or such third party, as the
case may be, a bill of sale and deed conveying to the Lessee, the Guarantor or
such third party, as the case may be, and the Lessee, the Guarantor or such
third party, as the case may be, shall accept a conveyance of, the Lessor's
interest in the Premises and the Project, and, if applicable, any Project
Contract, such conveyance to be without warranty by, or recourse to, the Lessor,
but free of any Lessor Lien (PROVIDED that the purchase price paid by the Lessee
to the Lessor, exclusive of the other amounts payable hereunder in connection
with such purchase, shall equal the Adjusted Acquisition Cost).

          (j)    In the event of any Event of Default, the Lessee shall, to the
extent required by the Lessor or Assignee, exercise all commercially reasonable
efforts (i) to provide the Lessor (or a designated assignee of the Lessor or
Assignee) with all easements, manuals and other matters and services to be
provided by the Operator under the Project Contracts necessary to enable the
Project to operate on commercially reasonable terms, (ii) to provide the Lessor
(or a designated assignee of the Lessor or Assignee) with any Project Contracts
and Intellectual Property Rights not assigned to the Lessor (or a designated
assignee of the Lessor or Assignee) pursuant to the applicable terms hereof that
are necessary to enable the Project to operate on commercially reasonable terms,
(iii) to provide the Lessor (or a designated assignee of the Lessor or Assignee)
with any permits, licenses or other Governmental Actions (to the extent not
already provided to such party by the Lessee or Guarantor) that are necessary to
enable the Project to operate on commercially reasonable terms in connection
with its operation as an EWG or a "qualifying cogeneration facility" under PURPA
and its delivery of electricity, including, without limitation, all permits,
licenses or other Governmental Actions required to enable such party (PROVIDED
that such party is not a "public-utility company", as such term is defined in
Section 2(a)(5) of the 1935 Act, or otherwise subject to regulation as a public
utility by any relevant governmental body or similar entity under the laws of
any state or locality) to operate the Project on commercially reasonable terms
as an EWG or a "qualifying cogeneration facility" under PURPA in connection with
the sale of electricity to third parties, and (iv) to negotiate in good faith
with the Lessor (or a designated assignee of the Lessor or Assignee), or
exercise all commercially reasonable efforts to locate a third party reasonably
acceptable to the Lessor and Assignee who is capable of operating the Project
for the Lessor (or a designated assignee of the Lessor or Assignee), to operate
the Project for the Lessor (or such designated assignee of the Lessor or
Assignee), for fair market value compensation for such services. The Lessee's
obligations contained in this paragraph (j) shall survive the expiration or
other termination of this Lease until the Lessor receives payment of (1) all
amounts payable pursuant to this Lease and the Agreement for Lease, (2) all
losses, damages, costs and expenses (including, without limitation, attorneys'
fees and expenses, commissions, filing fees and sales or transfer taxes)
sustained by the Lessor, (3) all amounts owing under the Financing Arrangements
and (4) any unreimbursed costs incurred by the Lessor or Assignee with respect
to the Project or the Project Contracts after the term of this Lease, net of any
revenues received from the operation of the Project.

          SECTION 30.  NO RECOURSE.

          The Lessor's obligations hereunder are intended to be the obligations
of the limited partnership and of the corporation which is the general partner
thereof only and no recourse for the payment of any amount due under this Lease,
any Project Contract or any other agreement contemplated hereby, or for any
claim based thereon or otherwise in respect thereof,

                                      -72-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

shall be had against any limited partner of the Lessor or any incorporator,
shareholder, officer, director or Affiliate, as such, past, present or future of
such corporate general partner or of any corporate limited partner or of any
successor corporation to such corporate general partner or any corporate limited
partner of the Lessor, or against any direct or indirect parent corporation of
such corporate general partner or of any limited partner of the Lessor or any
other subsidiary or Affiliate of any such direct or indirect parent corporation
or any incorporator, shareholder, officer or director, as such, past, present or
future, of any such parent or other subsidiary or Affiliate. Nothing contained
in this Section 30 shall be construed to limit the exercise or enforcement, in
accordance with the terms of this Lease, the Project Contracts and any other
documents referred to herein, of rights and remedies against the limited
partnership or the corporate general partner of the Lessor or the assets of the
limited partnership or the corporate general partner of the Lessor.

          SECTION 31.  NO MERGER OF ESTATES.

          There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in the Project by reason of the fact that the
same person acquires or holds, directly or indirectly, this Lease or the
leasehold estate hereby created or any interest herein or in such leasehold
estate as well as the fee estate in the Project or any interest in such fee
estate.

          SECTION 32.  INDUSTRIAL CORRIDOR ROAD.

          (e)    The Lessor and the Lessee acknowledge that a portion of the
Premises is expected to be released (the "RELEASE PARCEL") in connection with
constructing a segment of the Industrial Corridor Road and that the Town of
Newington, New Hampshire and the Lessee have not reached a definitive agreement
as to the exact location, length or construction requirements of the Industrial
Corridor Road. Notwithstanding anything to the contrary contained herein, it is
the intention of the Lessor and the Lessee, and the Lessor and the Lessee hereby
agree, that the provisions hereof regarding construction, completion and
operation of the Project shall not apply to the construction, completion and
operation of any portion of the Industrial Corridor Road; PROVIDED, HOWEVER,
that notwithstanding subsection 8.25 of the Agreement for Lease (A) upon
Substantial Completion (as defined in the Agreement for Lease), the Lessee shall
be in compliance with all terms, conditions and requirements of the Town of
Newington, New Hampshire and all other Governmental Authorities with respect to
the construction, completion and operation of the Industrial Corridor Road,
except where the failure to comply will not result, directly or indirectly, in a
Material Adverse Effect; and (B) no act or omission by the Lessee in connection
with the Release Parcel prior to the time of its release from the Premises shall
result in any Lien on the Premises (other than Permitted Liens).

          (b)    The Lessor and the Lessee further acknowledge and agree that
any remedial actions taken by the Lessor, its successors or assigns, may be
subject to the Lessee's obligations to, and the rights of, the Town of
Newington, New Hampshire and other Governmental Authorities in connection with
the Industrial Corridor Road. The Lessee agrees to construct, maintain and
repair the Industrial Corridor Road in compliance with the Lessee's obligations
to the Town of Newington, New Hampshire and any other applicable Governmental
Authority relating thereto, except where the failure to comply will not result,
directly or indirectly, in a Material Adverse Effect.

                                      -73-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

          IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
to be executed and delivered as of the day and year first above written.

                                   HAWKEYE FUNDING, LIMITED PARTNERSHIP

                                   By Hawkeye Funding, Inc.,
                                      its General Partner

                                   By:
                                       --------------------------------
                                        Name:
                                        Title:

                                   NEWINGTON ENERGY, L.L.C.

                                   By CED/SCS Newington, LLC,
                                      its sole member

                                   By:
                                       --------------------------------
                                        Name:
                                        Title:

                                      -74-


                                                         THIS LEASE AGREEMENT IS
                                                    CONFIDENTIAL AND PROPRIETARY

                                    EXHIBIT A

                   LEGAL DESCRIPTION OF PREMISES AND EASEMENTS

                                       A-1


                                    EXHIBIT B

                            LIST OF PROJECT CONTRACTS

(a)  The Operation and Maintenance Agreement, dated as of December 20, 1999,
     between Newington Energy, L.L.C. and General Electric International, Inc.

(b)  The Guaranty, dated as of November 15, 2000, from General Electric Company
     to Newington Energy, L.L.C, guaranteeing the obligations of General
     Electric International, Inc. under the O&M Agreement.

(c)  The Engineer, Procure and Construct Contract, dated as of May 24, 2000,
     between Duke/Fluor Daniel and Hawkeye Funding, Limited Partnership.

(d)  The Guaranty, dated as of May 24, 2000, by Fluor Corporation to Hawkeye
     Funding, Limited Partnership, guaranteeing the obligations of Duke/Fluor
     Daniel under the EPC Contract.

(e)  The Guaranty, dated as of May 24, 2000, by Duke Capital Corporation to
     Hawkeye Funding, Limited Partnership, guaranteeing the obligations of
     Duke/Fluor Daniel under the EPC Contract.

                                       B-1


                                    EXHIBIT C

                         LIST OF PROJECT AUTHORIZATIONS



       PERMIT GROUPING                      PERMIT/APPROVAL                           PARTICIPATING REGULATORY AGENCY(IES)
                                                                                 
FEDERAL/NH STATE          Air Operating Permit                                           NHDES-Air Resources Division
                                                                                         US EPA Region I

                          National Pollutant Discharge Elimination System (NPDES)        NHDES-Water Division
                                                                                         US EPA Region I

                          Wetlands Permit                                                NHDES-Wetlands
                                                                                         Town of Newington
                                                                                             Conservation Commission
                                                                                         US Army Corps of Engineers

                          Section 401 Water Quality Certification                        NHDES - Water Division
                                                                                         US EPA Region I
                                                                                         US Army Corps of Engineers

                          Stack Height Approval                                          Federal Aviation Administration

                          Fuel Use Act                                                   US Department of Energy

NH STATE                  Certificate of Site and Facility                               Energy Facility Site Evaluation Cmte

                          Significant Alteration of Terrain                              NHDES-Water Division

                          Rivers Management/Shoreline Protection                         NHDES-Water Division

                          Coastal Zone Management (CZM) Program                          Office of State Planning

                          Historic Resources Review                                      State Historical Preservation Ofc.

                          Natural Heritage Inventory Program                             Dept of Resources & Economic Devel.

                          Hazardous Waste Generator Registration                         NHDES-Waste Management Div.

                          Above-Ground Storage Tank Application                          NHDES-Waste Management Div.

                          Public Utility Crossing Another Utility                        Public Utilities Commission

                          Public Utility in or Across Railroad Right-of-Way              Public Utilities Commission

MUNICIPAL/LOCAL           Municipal Water Supply                                         City of Portsmouth

                          Wastewater Connection/Discharge Permit                         City of Portsmouth

CONSTRUCTION-             Building Permits                                             Local Governmental Authority
   RELATED PROJECT        Mechanical Permits                                           Local Governmental Authority
   AUTHORIZATIONS         Electrical Permits                                           Local Governmental Authority
                          Plumbing Permits                                             Local Governmental Authority
                          Construction Release / Inspection                            Local Governmental Authority
                          Fire Protection Permit                                       Local Governmental Authority

                          Engineering Licenses                                         State of New Hampshire


                                       C-1


                                    EXHIBIT D

                           SEMI-ANNUAL RENT COMPONENT

                                       D-1


                                    EXHIBIT E

                                PLEDGE AGREEMENT

                                       E-1


                                    EXHIBIT F

                                    EASEMENTS

1.   EASEMENTS FOR TRANSMISSION LINE ROUTE OPTION 2:

     1.1    CE Nuclear Power, LLC. Executed Option Agreement to acquire
     Transmission Line Easement Route Option 2 on CE Nuclear Power, LLC property
     in place.

     1.2    A.A.& M., Inc. Executed Option Agreement to acquire Transmission
     Line Easement Route Option 2 on A.A.& M., Inc. property in place. Notice of
     exercise given and acknowledged. Closing set for January 15, 2001.

     1.3    TyCom Integrated Cable Systems, Inc. Executed Option Agreement to
     acquire Transmission Line Easement Route Option 2 and Back-up Underground
     Transmission Line Easement on TyCom Integrated Cable Systems, Inc. property
     in place.

     1.4    Boston & Maine Railroad. Executed License Agreement in place.

     1.5    Public Service Company of New Hampshire, Inc. Agreement to acquire
     Transmission Line Easement Route Option 2 on Newington Station property of
     Public Service Company of New Hampshire, Inc. not yet finalized.

     1.6    Town of Newington Sewer Commission. Executed easement and consent
     for placement of Transmission Line Easement Route Option 2 on property of
     TyCom Integrated Cable Systems, Inc. and property of Town of Newington in
     place.

2.   WATER INTAKE AND DISCHARGE:

     2.1    Sea 3, Inc. Executed Waterline and Pumping Station Easement in
     place.

     2.2    Sprague Energy Corp. Waterline Easement not yet finalized.

3.   ICR ROAD:

     3.1    CE Nuclear Power, LLC. Executed Option Agreement to acquire land for
     ICR Road on CE Nuclear Power, LLC property, in place.

     3.2    A.A.& M., Inc. Executed Option Agreement to acquire land for ICR
     Road on A.A.& M., Inc. property in place. Notice of exercise given and
     acknowledged. Closing set for January 15, 2001.

     3.3    TyCom Integrated Cable Systems, Inc. Executed Option Agreement to
     acquire land for ICR Road on TyCom Integrated Cable Systems, Inc. property,
     in place.

                                       F-1


     3.4    Public Service Company of New Hampshire, Inc. Executed Access
     Agreement in place for entry on land of Public Service Company of New
     Hampshire, Inc. to construct ICR Road. Agreement to convey title not yet
     finalized.

4.   MISCELLANEOUS PROPERTY MATTERS:

     4.1    Northeast Medical Properties, Inc. Executed Construction Parking
     Lease with Northeast Medical Properties, Inc., in place.

     4.2    Sprague Energy Corp. Construction Parking and Laydown Agreement not
     yet finalized.

                                       F-2


                                    EXHIBIT G

                                    CEI NOTE

                                       G-1


                                  SCHEDULE 2(f)

                       SEC PUBLIC FILINGS OF THE GUARANTOR



                                                                EXHIBIT 10.1.9.3

                                                                  EXECUTION COPY


                                 AMENDMENT No. 1

                            Dated as of April 2, 2002

                                       To

                                 LEASE AGREEMENT

                                     between

                      HAWKEYE FUNDING, LIMITED PARTNERSHIP,

                                    as Lessor

                                       and

                            NEWINGTON ENERGY, L.L.C.,


                                    as Lessee


This Amendment No. 1 has been manually executed in 40 counterparts, numbered
consecutively from 1 through 40, of which this is No. ___. To the extent, if
any, that this Amendment No. 1 constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any jurisdiction), no
security interest in this Amendment No. 1 may be created or perfected through
the transfer or possession of any counterpart other than the original
counterpart which shall be the counterpart identified as counterpart No. 1.



        This Amendment No. 1 dated as of April 2, 2002 to Lease Agreement
("AMENDMENT NO. 1"), between HAWKEYE FUNDING, LIMITED PARTNERSHIP, a Delaware
limited partnership ("LESSOR"), and NEWINGTON ENERGY, L.L.C., a Delaware limited
liability company ("LESSEE"), amending the Original Lease referred to below.

        WHEREAS, Lessor and Lessee have heretofore entered into a Lease
Agreement dated as of November 14, 2000 (the "ORIGINAL LEASE"); and

        WHEREAS, Lessor and Lessee wish to amend the Original Lease as
hereinafter provided (the Original Lease, as amended hereby and as may hereafter
be further amended, modified, supplemented or restated from time to time, the
"LEASE");

        NOW, THEREFORE, in consideration of the premises and in order to induce
Lessor to amend the Original Lease, the parties hereto agree as follows:

SECTION 1.   DEFINITIONS.  Capitalized terms used but not defined herein shall
have the meanings assigned to such terms in the Original Lease.

SECTION 2.   AMENDMENTS.  The Original Lease is hereby amended as follows:

     2.1  Paragraph (c) of Section 12 of the Original Lease is amended by
          deleting such paragraph and inserting the following in its place:

               "(c) In the event the Lessee exercises its right to terminate the
          lease of the Project pursuant to this Section 12 on the last day of
          the last month of the Extended Term or on any Basic Rent Payment Date
          during any Renewal Term or in the event a termination of the lease of
          the Project occurs pursuant to paragraph (a) of Section 14 hereof or
          the Lessee exercises its option under paragraph (e) of Section 13 to
          arrange for the Project to be sold and the date on which such
          termination occurs or such option is exercised is on or before the
          last day of the last month of the Extended Term or during any Renewal
          Term and the Lessee chooses to effect a sale pursuant to this
          Section 12:

               (i)    if the Cash Proceeds are greater than the Adjusted
                      Acquisition Cost, the Lessor shall pay to the Lessee the
                      amount by which such Cash Proceeds exceed the Adjusted
                      Acquisition Cost;

               (ii)   if the Cash Proceeds are equal to or less than the
                      Adjusted Acquisition Cost, but greater than or equal to
                      the percentage of the Adjusted Acquisition Cost described
                      under the heading "Column I" on Exhibit H hereto and for
                      the periods described therein, the Lessee shall pay to the
                      Lessor an amount equal to (A) the Adjusted Acquisition
                      Cost less (B) the Cash Proceeds; and

               (iii)  if the Cash Proceeds are less than the percentage of the
                      Adjusted Acquisition Cost described under the heading
                      "Column I" on Exhibit H hereto and for the periods
                      described therein (or if there are no Cash Proceeds), the
                      Lessee shall pay to the Lessor an amount equal to the sum

                                       -1-


                      of (A) the percentage of the Adjusted Acquisition Cost
                      described under the heading "Column II" on Exhibit H
                      hereto and for the periods described therein and (B) the
                      amount, if any, by which the residual value of the Project
                      has been reduced by wear and tear in excess of that
                      attributable to normal and proper use (the amount of such
                      excess wear and tear to be such amount as the Lessor and
                      the Lessee agree, or if no agreement is reached, the
                      amount determined pursuant to the Appraisal Procedure)."

     2.2  Exhibit H to the Original Lease is amended by deleting such Exhibit
          and inserting the following Exhibit H to read in its entirety in the
          form attached hereto and made a part hereof as Annex I.

SECTION 3.   REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents
and warrants as follows:

     3.1  The execution, delivery and performance by Lessee of this Amendment
          No. 1 are within Lessee's power and authority, have been duly
          authorized by all necessary corporate action and do not contravene
          Lessee's certificate of formation or the operating agreement, any law,
          rule or regulation or any contractual restriction binding on or
          affecting Lessee.

     3.2  The representations and warranties of Lessee contained in the Original
          Lease, after giving effect to this Amendment No. 1, are and remain
          true and correct in all material respects on and as of the date of
          this Amendment No. 1 with the same effect as though such
          representations and warranties had been made on and as of such date,
          except to the extent such representations and warranties expressly
          relate specifically to an earlier date.

SECTION 4.   MISCELLANEOUS.

     4.1  Upon the effectiveness of Section 2 hereof: (a) each reference in the
          Lease to "this Agreement", "hereunder", "hereof" or words of like
          import referring to the Lease shall mean and be a reference to the
          Lease as amended hereby, and (b) each reference in any other related
          agreements to the "Lease", "thereunder", "thereof" or words of like
          import referring to the Lease, shall mean and be a reference to the
          Lease as amended hereby.

     4.2  Except as specifically amended above, the Lease shall continue to be
          in full force and effect and is hereby in all respects ratified and
          confirmed.

     4.3  THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
          WITH THE LAWS OF THE STATE OF NEW YORK.

     4.4  This Amendment No. 1 may be executed in any number of counterparts and
          by different parties hereto in separate counterparts, each of which
          when so executed and delivered shall be deemed to be an original and
          all of which taken together shall constitute but one and the same
          instrument.

                            [SIGNATURE PAGE FOLLOWS]

                                       -2-


        IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed as of the date first above written.


                         HAWKEYE FUNDING, LIMITED PARTNERSHIP

                         By Hawkeye Funding, Inc.,
                            its General Partner


                         By:
                            ----------------------------------------------------
                               Name:
                               Title:


                         NEWINGTON ENERGY, L.L.C.


                         By:
                            ----------------------------------------------------
                               Name:  Michael Madia
                               Title: Vice President and Chief Operating Officer

                                       -3-


                                                                         ANNEX I

                                    EXHIBIT H

                            SECTION 12(C) PERCENTAGES



                 DATES             COLUMN I        COLUMN II
- -------------------------          --------        ---------
                                               
07/01/2010  -  12/29/2010           10.50%           89.50%
12/30/2010  -  06/29/2011           11.00%           89.00%
06/30/2011  -  12/29/2011           11.51%           88.49%
12/30/2011  -  06/29/2012           12.06%           87.94%
06/30/2012  -  12/29/2012           12.63%           87.37%
12/30/2012  -  06/29/2013           13.23%           86.77%
06/30/2013  -  12/29/2013           13.86%           86.14%
12/30/2013  -  06/29/2014           14.52%           85.48%
06/30/2014  -  12/29/2014           15.21%           84.79%
12/30/2014  -  06/29/2015           15.94%           84.06%
06/30/2015  -  12/29/2015           16.70%           83.30%
12/30/2015  -  06/29/2016           17.51%           82.49%
06/30/2016  -  12/29/2016           18.35%           81.65%
12/30/2016  -  06/29/2017           19.24%           80.76%
06/30/2017  -  12/29/2017           20.17%           79.83%
12/30/2017  -  06/29/2018           21.15%           78.85%
06/30/2018  -  12/29/2018           22.18%           77.82%
12/30/2018  -  06/29/2019           23.27%           76.73%
06/30/2019  -  12/29/2019           24.41%           75.59%
12/30/2019  -  06/29/2020           25.62%           74.38%
06/30/2020  -  12/29/2020           26.88%           73.12%
12/30/2020  -  06/29/2021           28.22%           71.78%
06/30/2021  -  12/29/2021           29.63%           70.37%
12/30/2021  -  06/29/2022           31.12%           68.88%
06/30/2022                          33.13%           66.87%




                                       -5-



                            CONSOLIDATED EDISON, INC.

                        RATIO OF EARNINGS TO FIXED CHARGES        EXHIBIT 12.1.1
                                TWELVE MONTHS ENDED
                             (Thousands of Dollars)




                                                     DECEMBER        DECEMBER        DECEMBER        DECEMBER        DECEMBER
                                                       1998            1999            2000            2001            2002
                                                    --------------  --------------  --------------  --------------  ---------------
                                                                                                     

EARNINGS
    Net Income for Common Stock                          $712,742        $700,615        $582,835        $682,242         $646,036
    Preferred Dividends                                    17,007          13,593          13,593          13,593           12,458
    Income Tax                                            405,410         372,825         307,168         442,631          376,417
                                                    --------------  --------------  --------------  --------------  ---------------

             Total Earnings Before Income Tax           1,135,159       1,087,033         903,596       1,138,466        1,034,911

FIXED CHARGES*                                            345,513         357,178         431,217         457,554          460,279
                                                    --------------  --------------  --------------  --------------  ---------------
             Total Earnings Before Income Tax
                and Fixed Charges                      $1,480,672      $1,444,211      $1,334,813      $1,596,020       $1,495,190
                                                    ==============  ==============  ==============  ==============  ===============



    * Fixed Charges

    Interest on Long-Term Debt                           $294,894        $305,879        $351,410        $384,422         $373,060
    Amortization of Debt Discount, Premium and Expense     13,777          13,514          12,584          12,526           12,264
    Interest on Component of Rentals                       18,442          17,720          17,697          18,783           13,971
    Other Interest                                         18,400          20,065          49,526          41,823           60,984
                                                    --------------  --------------  --------------  --------------  ---------------

             Total Fixed Charges                         $345,513        $357,178        $431,217        $457,554         $460,279
                                                    ==============  ==============  ==============  ==============  ===============


    Ratio of Earnings to Fixed Charges                       4.29            4.04            3.10            3.49             3.25



                            CONSOLIDATED EDISON, INC.

                                 COMBINED RATIO                   EXHIBIT 12.1.2
                                 PERIODS ENDING
                             (Thousands of Dollars)




                                                          DECEMBER     DECEMBER     DECEMBER      DECEMBER      DECEMBER
                                                            1998         1999         2000          2001          2002
                                                         -----------  -----------  ------------  ------------  -------------
                                                                                                

EARNINGS
    Net Income for Common Stock                            $712,742     $700,615      $582,835      $682,242       $646,036
    Preferred Dividends                                      17,007       13,593        13,593        13,593         12,458
    Income Tax                                              405,410      372,825       307,168       442,631        376,417
                                                         -----------  -----------  ------------  ------------  -------------

       Total Earnings Before Income Tax                   1,135,159    1,087,033       903,596     1,138,466      1,034,911

FIXED CHARGES*                                              345,513      357,178       431,217       457,554        460,279
                                                         -----------  -----------  ------------  ------------  -------------
       Total Earnings Before Income Tax
         and Fixed Charges                               $1,480,672   $1,444,211    $1,334,813    $1,596,020     $1,495,190
                                                         ===========  ===========  ============  ============  =============



    * Fixed Charges

    Interest on Long-Term Debt                             $294,894     $305,879      $351,410      $384,422       $373,060
    Amortization of Debt Discount, Premium and Expense       13,777       13,514        12,584        12,526         12,264
    Interest on Component of Rentals                         18,442       17,720        17,697        18,783         13,971
    Other Interest                                           18,400       20,065        49,526        41,823         60,984
                                                         -----------  -----------  ------------  ------------  -------------

       Total Fixed Charges                                 $345,513     $357,178      $431,217      $457,554       $460,279

PREFERRED STOCK DIVIDEND REQUIREMENTS                        26,573       20,595        20,595        22,284         19,166
                                                         -----------  -----------  ------------  ------------  -------------

       Total Fixed Charges + Pref Stock Div Requirements   $372,086     $377,773      $451,813      $479,838       $479,445
                                                         ===========  ===========  ============  ============  =============

    Ratio of Earnings to Fixed Charges                         3.98         3.82          2.95          3.33           3.12



                                                                    EXHIBIT 21.1

                            CONSOLIDATED EDISON, INC.

                                  SUBSIDIARIES

1. Consolidated Edison Company of New York, Inc .("Con Edison of New York"), a
New York corporation, all of the common stock of which is owned by Consolidated
Edison, Inc. ("Con Edison").

2. Orange and Rockland Utilities, Inc.("O&R"), a New York corporation,
wholly-owned by Con Edison, and O&R's subsidiaries: Rockland Electric Company, a
New Jersey corporation, and Pike County Light & Power Company, a Pennsylvania
corporation, each of which is wholly-owned by O&R.

Neither Con Edison, Con Edison of New York nor O&R have any significant
subsidiaries other than as indicated above. Pursuant to Item 601(b) (21) of
Regulation S-K, the names of subsidiaries, which considered in the aggregate as
a single subsidiary, would not constitute a "significant subsidiary" (as defined
under Rule 1-02(w) of Regulation S-X) as of December 31, 2002 have been omitted.

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in: (i) the Registration Statement on Form S-3 (No. 333-84156) relating to the Con Edison Automatic Dividend Reinvestment and Cash Payment Plan; (ii) the Registration Statement on Form S-8 (No. 333-04463-99) relating to the Con Edison 1996 Stock Option Plan; (iii) the Registration Statement on Form S-8 (No. 333-86820) relating to The Consolidated Edison Stock Purchase Plan; and (iv) the Registration Statements on Form S-3 (Nos. 333-72264 and 333-102005) relating to debt and equity securities of Con Edison of our report dated February 20, 2003 relating to the financial statements and financial statement schedules of Consolidated Edison, Inc. which appears in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, NY February 27, 2003

EXHIBIT 24.1 POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th day of February, 2003. /s/ Vincent A. Calarco Vincent A. Calarco

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th day of February, 2003. /s/ George Campbell, Jr. George Campbell, Jr.

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 18th day of February, 2003. /s/ Gordon J. Davis Gordon J. Davis

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 2003. /s/ Joan S. Freilich Joan S. Freilich

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 21st day of February, 2003. /s/ Ellen V. Futter Ellen V. Futter

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 19th day of February, 2003. /s/ Sally Hernandez-Pinero Sally Hernandez-Pinero

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 18th day of February, 2003. /s/ Peter W. Likins Peter W. Likins

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 2003. /s/ Eugene R. McGrath Eugene R. McGrath

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 18th day of February, 2003. /s/ Richard A. Voell Richard A. Voell

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 2003. /s/ Stephen R. Volk Stephen R. Volk

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 2003. /s/ Edward J. Rasmussen Edward J. Rasmussen

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 21st day of February, 2003. /s/ George Strayton George Strayton

POWER OF ATTORNEY WHEREAS Consolidated Edison ("Con Edison"), Consolidated Edison Company of New York, Inc. ("Con Edison of New York") and Orange and Rockland Utilities, Inc. ("O&R") each intends to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended (the "Act"), its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Form 10-K") with any and all exhibits and other documents having relation thereto, as prescribed by the Securities and Exchange Commission pursuant to the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. NOW, THEREFORE, KNOW ALL BY THESE PRESENTS that the undersigned, in his or her capacity as a director and/or officer, as the case may be, of one or more of Con Edison, Con Edison of New York and O&R, as the case may be, does hereby constitute and appoint Joan S. Freilich, Edward J. Rasmussen and Peter A. Irwin, and each of them severally, his or her true and lawful attorneys-in-fact, with power to act with or without the others and with full power of substitution and resubstitution, to execute in his or her name, place and stead, the Form 10-K for the company or companies as to which the undersigned serves in such capacity, and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform, in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and confirming all that said attorneys-in-fact or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this instrument this 27th day of February, 2003. /s/ John D. McMahon John D. McMahon



                                                                  EXHIBIT 99.1.1

   Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, Eugene R. McGrath, the Chief Executive Officer of Consolidated Edison,
Inc. (the "Company") certify that the Company's Annual Report on Form 10-K
for the year ended December 31, 2002, which this statement accompanies, (the
"Form 10-K") fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                                   /s/ Eugene R. McGrath
                                                   ---------------------
                                                   Eugene R. McGrath


Dated: February 27, 2003



                                                                  EXHIBIT 99.1.2

   Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, Joan S. Freilich, the Chief Financial Officer of Consolidated Edison, Inc.
(the "Company") certify that the Company's Annual Report on Form 10-K for the
year ended December 31, 2002, which this statement accompanies, (the "Form
10-K") fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                                     /s/ Joan S. Freilich
                                                     ----------------------
                                                     Joan S. Freilich


Dated: February 27, 2003



                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
                                                                    EXHIBIT 12.2
                       RATIO OF EARNINGS TO FIXED CHARGES
                               TWELVE MONTHS ENDED
                             (Thousands of Dollars)




                                                        DECEMBER     DECEMBER     DECEMBER     DECEMBER     DECEMBER
                                                          1998         1999         2000         2001         2002
                                                       -----------  -----------  -----------  -----------  -----------
                                                                                            

EARNINGS
    Net Income                                           $745,140     $711,843     $583,715     $663,061     $617,840
    Income Tax                                            414,235      366,081      289,926      427,168      341,758
                                                       -----------  -----------  -----------  -----------  -----------

             Total Earnings Before Income Tax           1,159,375    1,077,924      873,641    1,090,229      959,598

FIXED CHARGES*                                            345,513      340,344      392,347      409,588      408,580
                                                       -----------  -----------  -----------  -----------  -----------
             Total Earnings Before Income Tax
                and Fixed Charges                      $1,504,888   $1,418,268   $1,265,988   $1,499,817   $1,368,178
                                                       ===========  ===========  ===========  ===========  ===========



    * Fixed Charges

    Interest on Long-Term Debt                           $294,894     $291,747     $318,842     $347,260     $332,585
    Amortization of Debt Discount, Premium and Expense     13,777       13,514       12,584       12,527       12,264
    Interest on Component of Rentals                       18,442       17,720       17,697       17,478       12,373
    Other Interest                                         18,400       17,363       43,224       32,323       51,358
                                                       -----------  -----------  -----------  -----------  -----------

             Total Fixed Charges                         $345,513     $340,344     $392,347     $409,588     $408,580
                                                       ===========  ===========  ===========  ===========  ===========


    Ratio of Earnings to Fixed Charges                       4.36         4.17         3.23         3.66         3.35

EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-101227) of Consolidated Edison Company of New York, Inc. of our report dated February 20, 2003 relating to the financial statements and financial statement schedule of Consolidated Edison Company of New York, Inc. which appears in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, NY February 27, 2003



                                                                  EXHIBIT 99.2.1

   Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, Eugene R. McGrath, the Chief Executive Officer of Consolidated Edison
Company of New York, Inc. (the "Company") certify that the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, which this
statement accompanies, (the "Form 10-K") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)) and that the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.

                                                     /s/ Eugene R. McGrath
                                                     ----------------------
                                                     Eugene R. McGrath


Dated: February 27, 2003



                                                                  EXHIBIT 99.2.2

   Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, Joan S. Freilich, the Chief Financial Officer of Consolidated Edison
Company of New York, Inc. (the "Company") certify that the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, which this
statement accompanies, (the "Form 10-K") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78o(d)) and that the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.

                                                      /s/ Joan S. Freilich
                                                      ----------------------
                                                      Joan S. Freilich


Dated: February 27, 2003



                                                                 EXHIBIT 4.3.1.1

================================================================================


                       ORANGE AND ROCKLAND UTILITIES, INC.


                                       AND


                            THE CHASE MANHATTAN BANK,
                                     TRUSTEE


                                    INDENTURE

                            DATED AS OF JUNE 15, 2000


                          PROVIDING FOR THE ISSUANCE OF
                                 DEBT SECURITIES


================================================================================



                             CROSS REFERENCE SHEET*

                                     Between

                   Provisions of Trust Indenture Act of 1939,
                                   As Amended.

                                       and

                   Indenture dated as of June 15, 2000 between
                       Orange and Rockland Utilities, Inc.
                          and The Chase Manhattan Bank,
                                     Trustee

     SECTION OF ACT                                SECTION OF INDENTURE
     --------------                                --------------------
     310 (a) (1) and (2)                           4.04 and 7.08
     310 (a) (3) and (4)                           Not Applicable
     310 (b)                                       7.07 and 7.09(b)
     310 (c)                                       Not Applicable
     311 (a) and (b)                          7.12
     311 (c)                                       Not Applicable
     312 (a)                                       5.01 and 5.02 (a)
     312 (b) and (c)                          5.02 (b) and (c)
     313 (a) (1), (2), (3), (5), (6) and (7)       5.04 (a)
     313 (a) (6)                                   Not Applicable
     313 (b) (1)                                   Not Applicable
     313 (b) (2)                                   5.04 (b)
     313 (c)                                       5.04 (c)
     313 (d)                                       5.04 (d)
     314 (a)                                       5.03
     314 (b)                                       Not Applicable
     314 (c) (1) and (2)                           15.06
     314 (c) (3)                                   Not Applicable
     314 (d)                                       Not Applicable
     314 (e)                                       15.06
     314 (f)                                       Not Applicable
     315 (a), (c) and (d)                          7.01
     315 (b)                                       6.07
     315 (e)                                       6.08
     316 (a) (1)                                   6.06
     316 (a) (2)                                   Omitted
     316 (a) last paragraph                   8.04
     316 (b)                                       6.04
     317 (a)                                       6.02
     317 (b)                                       4.05 and 7.05
     318 (a)                                       15.07


* This Cross Reference Sheet is not part of the Indenture.



                                      - i -

                                    TABLE OF CONTENTS*



                                                                                      Page
                                                                                      ----
                                                                                   
PARTIES..............................................................................    1

RECITALS.............................................................................    1

                                        ARTICLE ONE

                                        DEFINITIONS

SECTION 1.01.     Certain Terms Defined..............................................    1

          Board of Directors.........................................................    1
          Board Resolution...........................................................    2
          Company....................................................................    2
          Company Order..............................................................    2
          Corporation................................................................    2
          Depositary.................................................................    2
          Event of Default...........................................................    2
          Global Security............................................................    2
          Indenture..................................................................    3
          Interest...................................................................    3
          Interest Payment Date......................................................    3
          Officers' Certificate......................................................    3
          Opinion of Counsel.........................................................    3
          Original Issue Discount Security...........................................    3
          Outstanding................................................................    3
          Person.....................................................................    4
          Principal Office of the Company............................................    4
          Record Date................................................................    4
          Registered Holder..........................................................    4
          Responsible Officer........................................................    4
          Securityholder.............................................................    5
          Security Register..........................................................    5
          Successor..................................................................    5
          Trustee....................................................................    5
          Trust Indenture Act of 1939................................................    5
          Vice President.............................................................    5




* The Table of Contents is not part of the Indenture.



                                     - ii -



                                                                                      Page
                                                                                      ----
                                                                                  
                                        ARTICLE TWO

                        ISSUE, DESCRIPTION, EXECUTION, EXCHANGE AND
                          REGISTRATION OF TRANSFER OF SECURITIES

SECTION 2.01.     Authentication, Delivery and Dating................................    5
SECTION 2.02.     Forms Generally....................................................    7
SECTION 2.03.     Amount; Terms of Series............................................    8
SECTION 2.04.     Execution..........................................................   10
SECTION 2.05.     Exchange, Registration and Registration of Transfer................   10
SECTION 2.06.     Temporary Securities...............................................   12
SECTION 2.07.     Mutilated, Destroyed, Lost and Stolen Securities...................   12
SECTION 2.08.     Cancellation of Surrendered Securities; Destruction Thereof........   13
SECTION 2.09.     Extension of Interest Payment Period...............................   13

                                       ARTICLE THREE

                        REDEMPTION OF SECURITIES AND SINKING FUNDS

SECTION 3.01.     Applicability of Right of Redemption...............................   14
SECTION 3.02.     Election to Redeem; Notice of Redemption; Partial Redemption.......   14
SECTION 3.03.     Payment of Securities Called for Redemption........................   15
SECTION 3.04.     Applicability of Sinking Fund......................................   15
SECTION 3.05.     Satisfaction of Mandatory Sinking Fund Payments with Securities....   16
SECTION 3.06.     Redemption of Securities for Sinking Funds.........................   16

                                       ARTICLE FOUR

                            PARTICULAR COVENANTS OF THE COMPANY

SECTION 4.01.     Payment of Principal, Premium, if any, and Interest................   17
SECTION 4.02.     Office or Agency for Certain Purposes..............................   17
SECTION 4.03.     Maintenance of Corporate Existence.................................   17
SECTION 4.04.     Appointments to Fill Vacancies in Trustee's Office.................   17
SECTION 4.05.     Provisions as to Paying Agent......................................   17
SECTION 4.06.     Annual Officers' Certificate to Trustee............................   18
SECTION 4.07.     Reports to Be Furnished Securityholders............................   18
SECTION 4.08.     Restriction on Secured Indebtedness for Borrowed Money.............   19
SECTION 4.09.     Further Assurances.................................................   19

                                       ARTICLE FIVE

           SECURITYHOLDERS' LISTS, COMMUNICATIONS TO SECURITYHOLDERS,
                   AND REPORTS BY THE COMPANY AND THE TRUSTEE

SECTION 5.01.     Company to Furnish Trustee Information
                    as to Names and Addresses of Securityholders.....................   19
SECTION 5.02.     Preservation of Information;





                                                                                  
                    Communications to Securityholders................................   20




                                     - iii -



                                                                                      Page
                                                                                      ----
                                                                                  
SECTION 5.03.     Reports by Company.................................................   20
SECTION 5.04.     Reports by Trustee.................................................   20

                                        ARTICLE SIX

                                REMEDIES OF THE TRUSTEE AND
                            SECURITYHOLDERS ON EVENT OF DEFAULT

SECTION 6.01.     Events of Default Defined; Acceleration
                    of Maturity; Waiver of Default...................................   21
SECTION 6.02.     Collection of Indebtedness by Trustee;
                    Trustee May Prove Debt...........................................   23
SECTION 6.03.     Application of Proceeds............................................   24
SECTION 6.04.     Limitations on Suits by Securityholders............................   25
SECTION 6.05.     Powers and Remedies Cumulative; Delay or
                    Omission Not Waiver..............................................   25
SECTION 6.06.     Control by Securityholders; Waiver of Default......................   25
SECTION 6.07.     Trustee to Give Notice of Defaults Known to It,
                    but May Withhold in Certain Circumstances........................   26
SECTION 6.08.     Right of Court to Require Filing of Undertaking to Pay Costs.......   26

                                       ARTICLE SEVEN

                                  CONCERNING THE TRUSTEE

SECTION 7.01.     Duties and Responsibilities of Trustee.............................   27
SECTION 7.02.     Certain Rights of Trustee..........................................   28
SECTION 7.03.     Trustee Not Responsible for Recitals, etc..........................   29
SECTION 7.04.     Trustee and Others May Hold Securities.............................   29
SECTION 7.05.     Moneys Held by Trustee or Paying Agent.............................   29
SECTION 7.06.     Compensation of Trustee and Its Lien...............................   29
SECTION 7.07.     Disqualification; Conflicting Interests............................   30
SECTION 7.08.     Persons Eligible for Appointment as Trustee........................   30
SECTION 7.09.     Resignation and Removal of Trustee; Appointment of Successor.......   31
SECTION 7.10.     Acceptance of Appointment by Successor Trustee.....................   32
SECTION 7.11.     Merger, Conversion or Consolidation of Trustee.....................   32
SECTION 7.12.     Preferential Collection of Claims Against Company..................   33

                                       ARTICLE EIGHT

                              CONCERNING THE SECURITYHOLDERS

SECTION 8.01.     Evidence of Action Taken by Securityholders........................   33
SECTION 8.02.     Proof of Execution of Instruments and of Holding of Securities.....   33
SECTION 8.03      Registered Holders of Securities May Be Treated As Owners..........   34
SECTION 8.04.     Securities Owned by Company Deemed Not Outstanding.................   34
SECTION 8.05.     Right of Revocation of Action Taken................................   35




                                     - iv -



                                                                                      Page
                                                                                      ----
                                                                                  
                                       ARTICLE NINE

                                 SECURITYHOLDERS' MEETINGS

SECTION 9.01.     Purposes for Which Securityholders' Meetings May Be Called.........   35
SECTION 9.02.     Call of Meetings by Trustee........................................   35
SECTION 9.03.     Company and Securityholders May Call Meeting.......................   36
SECTION 9.04.     Persons Entitled to Vote at Meeting................................   36
SECTION 9.05.     Determination of Voting Rights; Conduct and Adjournment of
                    Meeting..........................................................   36
SECTION 9.06.     Counting Vote and Recording Action of Meeting......................   37

                                        ARTICLE TEN

                                  SUPPLEMENTAL INDENTURES

SECTION 10.01.    Supplemental Indentures Without Consent of Securityholders.........   37
SECTION 10.02.    Supplemental Indentures With Consent of Securityholders............   39
SECTION 10.03.    Effect of Supplemental Indentures..................................   40
SECTION 10.04.    Notation on Securities in Respect of Supplemental Indentures.......   40
SECTION 10.05.    Opinion of Counsel to Be Given Trustee.............................   40

                                      ARTICLE ELEVEN

                              CONSOLIDATION, MERGER AND SALE

SECTION 11.01.    Company May Consolidate or Merge, etc..............................   40
SECTION 11.02.    Conditions to Consolidation or Merger, etc.........................   40
SECTION 11.03.    Documents and Opinion to Be Furnished to the Trustee...............   41

                                      ARTICLE TWELVE

                         SATISFACTION AND DISCHARGE OF INDENTURE;
                               DEFEASANCE; UNCLAIMED MONEYS

SECTION 12.01.    Satisfaction and Discharge of Indenture............................   42
SECTION 12.02.    Defeasance.........................................................   42
SECTION 12.03.    Application by Trustee of Funds Deposited for Payment
                    of Securities....................................................   42
SECTION 12.04.    Repayment of Moneys Held by Paying Agent...........................   43
SECTION 12.05.    Return of Unclaimed Moneys.........................................   43

                                     ARTICLE THIRTEEN

                         IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                                  OFFICERS AND DIRECTORS

SECTION 13.01.    Personal Immunity from Liability of Incorporators,
                    Stockholders, etc................................................   43




                                      - v -



                                                                                      Page
                                                                                      ----
                                                                                  

                                     ARTICLE FOURTEEN

                                       SUBORDINATION

SECTION 14.01.    Securities Subordinated to Senior Debt.............................   43
SECTION 14.02.    Events of Subordination............................................   44
SECTION 14.03.    Subrogation........................................................   45
SECTION 14.04.    Obligation of Company Unconditional................................   45
SECTION 14.05.    Payments on Subordinated Securities Permitted......................   46
SECTION 14.06.    Effectuation of Subordination by Trustee...........................   46
SECTION 14.07.    Knowledge of Trustee...............................................   46
SECTION 14.08.    Trustee's Relation to Senior Indebtedness..........................   47
SECTION 14.09.    Rights of Holders of Senior Indebtedness Not Impaired..............   47

                                      ARTICLE FIFTEEN

                                 MISCELLANEOUS PROVISIONS

SECTION 15.01.    Successors.........................................................   47
SECTION 15.02.    Benefits of Indenture Restricted to Parties and Securityholders....   47
SECTION 15.03.    Payments Due on Sundays and Holidays...............................   48
SECTION 15.04.    Notices and Demands on Company and Trustee.........................   48
SECTION 15.05.    Law of New York to Govern..........................................   48
SECTION 15.06.    Officers' Certificates and Opinions of Counsel; Statements
                    to Be Contained Therein..........................................   48
SECTION 15.07.    Conflict of any Provision of Indenture with Trust
                    Indenture Act of 1939............................................   49
SECTION 15.08.    Counterparts.......................................................   49
SECTION 15.09.    Severability.......................................................   49


TESTIMONIUM..........................................................................   50
SIGNATURES AND SEALS.................................................................   50
ACKNOWLEDGMENTS......................................................................   51




          THIS INDENTURE, dated as of June 15, 2000, between ORANGE AND ROCKLAND
UTILITIES, INC., a corporation organized and existing under the laws of the
State of New York (herein called the "Company"), and THE CHASE MANHATTAN BANK, a
banking corporation organized and existing under the laws of the State of New
York (herein called the "Trustee"):

          WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance in one or more series from time to
time of its unsecured debentures, notes or other evidences of indebtedness
(hereinafter called the "Securities") and to provide the general terms and
conditions upon which the Securities are to be authenticated, issued and
delivered;

          WHEREAS, the Trustee has power to enter into this Indenture and to
accept and execute the trusts herein created; and

          WHEREAS, the Company represents that all acts and things necessary to
make the Securities, when executed by the Company and authenticated and
delivered by the Trustee as in this Indenture provided, and duly issued by the
Company, the valid, binding and legal obligations of the Company will, at the
time of such execution, authentication and delivery, have been done and
performed; that all acts and things necessary to constitute these presents a
valid indenture and agreement according to its terms have been done and
performed; that the execution of this Indenture by the Company has in all
respects been duly authorized; and that the issue hereunder of the Securities
will, at the time of the issue thereof, have in all respects been duly
authorized; and the Company, in the exercise of each and every legal right and
power in it vested, executes this Indenture and proposes to make, execute, issue
and deliver the Securities;

          NOW, THEREFORE:

          In consideration of the premises, of the purchase and acceptance of
the Securities by the holders thereof and of the sum of $1 duly paid by the
Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee, for the equal
and proportionate benefit of the respective holders from time to time of the
Securities or of any series thereof, as follows:

                                   ARTICLE ONE

                                   DEFINITIONS

          SECTION 1.01. CERTAIN TERMS DEFINED. The following terms (except as
herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture which are defined (either directly or by reference) in
the Trust Indenture Act of 1939 (except as herein otherwise expressly provided
or unless the context otherwise requires) shall have the meanings so assigned to
such terms.

BOARD OF DIRECTORS:

          The term "Board of Directors" shall mean the Board of Directors of the
Company or any duly authorized committee of such Board.



BOARD RESOLUTION:

          The term "Board Resolution" means a copy of a resolution or
resolutions certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.

COMPANY:

          The term "Company" shall mean the person named as the Company in the
first paragraph of this instrument until a successor corporation shall have
become such pursuant to Article Eleven of this Indenture, and thereafter
"Company" shall mean such successor corporation.

COMPANY ORDER:

          The term "Company Order" shall mean the written order, request or
instruction of the Company signed on behalf of the Company by its Chairman of
the Board, Vice Chairman, President or a Vice President and by its Treasurer or
an Assistant Treasurer or its Secretary or an Assistant Secretary.

CORPORATION:

          The term "corporation" shall mean any corporation, voluntary
association, joint stock company, business trust or other similar organization.

DEPOSITARY:

          The term "Depositary" shall mean, with respect to the Securities of
any series issuable or issued in whole or in part in the form of one or more
Global Securities, the person designated as Depositary by the Company pursuant
to Section 2.03 until a successor Depositary shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Depositary" shall
mean or include each person who is then a Depositary hereunder, and if at any
time there is more than one such person, "Depositary" as used with respect to
the Securities of any such series shall mean the Depositary with respect to the
Securities of that series.

EVENT OF DEFAULT:

          The term "Event of Default" shall mean any event specified in Section
6.01, continued for the period of time, if any, and after the giving of the
notice, if any, therein designated.

GLOBAL SECURITY:

          The term "Global Security" shall mean a Security evidencing all or
part of a series of Securities issued to a Depositary for such series in
accordance with Section 2.01.



                                      - 3 -

INDENTURE:

          The term "Indenture" shall mean this instrument as originally executed
or as it may from time to time be supplemented and amended by one or more
indentures supplemental hereto pursuant to Article Ten hereof and shall include
the form and terms of particular series of Securities established as
contemplated in Section 2.03.

INTEREST:

          The term "interest", when used with respect to an Original Issue
Discount Security which by its terms bears interest only after maturity, shall
mean interest payable after maturity.

INTEREST PAYMENT DATE:

          The term "interest payment date" when used with respect to any
Security or any instalment of interest thereon shall mean the date specified in
such Security as the fixed date on which such instalment of interest is due and
payable.

OFFICERS' CERTIFICATE:

          The term "Officers' Certificate" shall mean a certificate signed by
the Chairman of the Board, Vice Chairman, President or any Vice President and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company.

OPINION OF COUNSEL:

          The term "Opinion of Counsel" shall mean an opinion in writing signed
by legal counsel, who may be an employee of or of counsel to the Company.

ORIGINAL ISSUE DISCOUNT SECURITY:

          The term "Original Issue Discount Security" shall mean any Security
that provides for an amount less than the principal thereof to be due and
payable upon a declaration of acceleration of the maturity thereof pursuant to
Section 6.01.

OUTSTANDING:

          The term "outstanding", when used with reference to Securities, shall,
subject to the provisions of Section 8.04, mean, as of any particular time, all
Securities theretofore authenticated and delivered by the Trustee under this
Indenture, except:

          (a)  Securities theretofore cancelled by the Trustee or delivered to
     the Trustee for cancellation;

          (b)  Securities or portions thereof for the payment or redemption of
     which moneys, or as provided in Section 12.02 hereof, direct obligations of
     the United States of America, in the necessary amount shall have been
     deposited in trust with the Trustee or



                                      - 4 -

     with any paying agent (other than the Company) or shall have been set aside
     and segregated in trust by the Company (if the Company shall act as its own
     paying agent), provided that if such Securities are to be redeemed prior to
     the maturity thereof, notice of such redemption shall have been given as in
     Article Three provided, or provision satisfactory to the Trustee shall have
     been made for giving such notice); and

          (c)  Securities which have been paid pursuant to Section 2.07 or in
     exchange for or in lieu of which other Securities shall have been
     authenticated and delivered pursuant to Section 2.07;

provided, however, that in determining whether the holders of the requisite
principal amount of Outstanding Securities have taken any action, given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or whether a quorum is present at a meeting of Securityholders, the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding shall be the amount of the principal thereof that would be due and
payable as of the date of such determination upon acceleration of the maturity
thereof pursuant to Section 6.01.

PERSON:

          The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.

PRINCIPAL OFFICE OF THE COMPANY:

          The term "principal office of the Company" shall mean the principal
office of the Company as shall be specified from time to time in a Company Order
delivered to the Trustee. Any such Company Order may specify a principal office
of the Company for one or more purposes under this Indenture and such Company
Order or one or more other Company Orders may specify one or more other
principal offices of the Company for one or more other purposes under this
Indenture.

RECORD DATE:

          The term "record date" shall mean, with respect to any interest
payable on any Security on any interest payment date, the close of business on
the date specified in such Security or, in the case of defaulted interest, the
close of business on any subsequent record date established as provided in
Section 2.02 (in each case whether or not such day is a business day).

REGISTERED HOLDER:

          The term "registered holder", "Securityholder", "holder" or other
similar term shall mean the person or persons in whose name or names a
particular Security shall be registered upon the Security Register.

RESPONSIBLE OFFICER:

          The term "responsible officer", when used with respect to the Trustee,
shall mean any officer of the Trustee assigned by the Trustee to administer its
corporate trust matters.



                                      - 5 -

SECURITYHOLDER:

          The term "Securityholder" shall have the meaning specified under the
term "registered holder".

SECURITY REGISTER:

          The term "Security Register" shall have the meaning specified in
Section 2.05.

SUCCESSOR:

          The term "Successor" shall have the meaning specified in Section
11.02.

TRUSTEE:

          The term "Trustee" shall mean the person named as Trustee in the first
paragraph of this instrument and, subject to the provisions of Article Seven of
this Indenture, shall also include its successors and assigns, and if at any
time there is more than one trustee, "Trustee" as used with respect to the
Securities of any series shall mean the trustee with respect to Securities of
that series.

TRUST INDENTURE ACT OF 1939:

          The term "Trust Indenture Act of 1939" shall mean the Trust Indenture
Act of 1939 as in force at the date as of which this instrument was executed,
except as provided in Section 10.02; PROVIDED, HOWEVER, that in the event the
Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act"
means, to the extent required by any such amendment, the Trust Indenture Act of
1939 as so amended.

VICE PRESIDENT:

          The term "Vice President", when used with respect to the Company,
shall mean any Vice President, any Senior Vice President, any Executive Vice
President and any Senior Executive Vice President of the Company.

                                   ARTICLE TWO

                   ISSUE, DESCRIPTION, EXECUTION, EXCHANGE AND
                     REGISTRATION OF TRANSFER OF SECURITIES

          SECTION 2.01. AUTHENTICATION, DELIVERY AND DATING. At any time and
from time to time after the execution and delivery of this instrument, the
Company may deliver Securities of any series executed by the Company to the
Trustee for authentication. The Trustee shall thereupon authenticate and deliver
such Securities upon receipt of, and pursuant to, a Company Order, without any
further action by the Company. In authenticating such Securities, and accepting
the additional responsibilities under this Indenture in relation to such
Securities,



                                      - 6 -

the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon:

          (a)  a Board Resolution relating thereto and, if applicable, an
     appropriate record of any action taken pursuant to such resolution,
     certified by the Secretary or an Assistant Secretary of the Company;

          (b)  an executed supplemental indenture, if any;

          (c)  an Officers' Certificate, dated the date such Officers'
     Certificate is delivered to the Trustee, prepared in accordance with
     Section 15.06; and

          (d)  an Opinion of Counsel prepared in accordance with Section 15.06,
     which shall also state:

               (1)  that the form and terms of such Securities have been
          established by or pursuant to one or more Board Resolutions, by a
          supplemental indenture as permitted by Section 10.01(e), or by both
          such resolution or resolutions and such supplemental indenture, in
          conformity with the provisions of this Indenture;

               (2)  that the supplemental indenture, if any, when executed and
          delivered by the Company and the Trustee, will constitute a valid and
          legally binding obligation of the Company; and

               (3)  that such Securities, when authenticated and delivered by
          the Trustee and issued by the Company in the manner and subject to any
          conditions specified in such Opinion of Counsel, will constitute valid
          and legally binding obligations of the Company, enforceable in
          accordance with their terms, subject, as to enforcement, to
          bankruptcy, insolvency, reorganization and other laws of general
          applicability relating to or affecting the enforcement of creditors'
          rights and to general equity principles.

          The Trustee shall have the right to decline to authenticate and
deliver any Securities under this Section if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.

          If the Company shall establish pursuant to Section 2.03 that the
Securities of a series are to be issued in whole or in part in the form of one
or more Global Securities, then the Company shall execute and the Trustee upon
receipt of, and pursuant to, a Company Order, shall, in accordance with this
Section, authenticate and deliver one or more Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate principal
amount of the Outstanding Securities of such series to be represented by one or
more Global Securities, (ii) shall be registered in the name of the Depositary
for such Global Security or Global Securities or the nominee of such Depositary,
and (iii) shall be delivered by the Trustee to such Depositary or pursuant to
such Depositary's instruction.

          Each Depositary designated pursuant to Section 2.03 for a Global
Security must, at the time of its designation and at all times while it serves
as Depositary, be a clearing agency



                                      - 7 -

registered under the Securities Exchange Act of 1934, as amended, and any other
applicable statute or regulation.

          Each Security shall be dated the date of its authentication.

          Notwithstanding the provisions of this Section and Section 2.03, if
all Securities of a series are not to be originally issued at one time, it shall
not be necessary to deliver the Officers' Certificate otherwise required
pursuant to Section 2.03 or the Company Order, Board Resolution, Officers'
Certificate and Opinion of Counsel otherwise required pursuant to this Section
at or prior to the time of authentication of each Security of such series if
such documents are delivered at or prior to the authentication upon original
issuance of the first Security of such series to be issued. After any such first
delivery, any separate request by the Company that the Trustee authenticate
Securities of such series for original issue will be deemed to be a certificate
by the Company that all conditions precedent provided for in this Indenture
relating to the authentication and delivery of such Securities continue to have
been compiled with.

          SECTION 2.02. FORMS GENERALLY. The Securities of each series shall be
issuable in registered form without coupons and shall be in substantially the
form as shall be established by or pursuant to one or more Board Resolutions or
in one or more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as the officers of the Company
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage. The
Securities shall be issued, except as otherwise provided with respect to any
series of Securities pursuant to Section 2.03, in the denomination of $1,000 and
any larger denomination which is an integral multiple of $1,000 approved by the
Company, such approval to be evidenced by the execution thereof.

          The person in whose name any Security is registered at the close of
business on any record date with respect to any interest payment date shall be
entitled to receive the interest payable on such interest payment date,
notwithstanding the cancellation of such Security upon any transfer or exchange
subsequent to such record date and prior to such interest payment date, unless
such Security is redeemed on a date fixed for redemption after such record date
and prior to such interest payment date; provided, however, that if and to the
extent the Company shall fail to pay on any interest payment date the interest
due on such date, such defaulted interest shall be paid to the persons in whose
names outstanding Securities are registered at the close of business on the
tenth day preceding the date of payment of such defaulted interest or, at the
election of the Company, to the persons in whose names outstanding Securities
are registered on a subsequent record date established by notice given by mail
by or on behalf of the Company to the holders of such Securities not less than
10 days preceding such subsequent record date, which subsequent record date
shall precede by at least 10 days the date of payment of such defaulted
interest. Such notice shall be given to the persons in whose names such
outstanding Securities are registered at the close of business on the fifth
business day next preceding the date of the mailing of such notice.



                                      - 8 -

          Except as otherwise provided with respect to any series of Securities
pursuant to Section 2.03, interest on the Securities of each series shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.

          The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on a steel engraved border or
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.

          The Trustee's certificate of authentication on all Securities shall be
in substantially the following form:

               This is one of the Securities of the series designated herein
          issued under the Indenture described herein.


                                       THE CHASE MANHATTAN BANK,
                                         as Trustee


                                       By
                                                    Authorized Officer

          SECTION 2.03. AMOUNT; TERMS OF SERIES. The aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is
not limited.

          The Securities may be issued in one or more series. There shall be
established by or pursuant to one or more Board Resolutions, and set forth in an
Officers' Certificate, or established in one or more indentures supplemental
hereto, prior to the issuance of Securities of any series:

          (a)  the title of the Securities of the series (which shall
     distinguish the Securities of the series from the Securities of all other
     series, except to the extent that additional Securities of an existing
     series are being issued);

          (b)  any limit upon the aggregate principal amount of the Securities
     of the series which may be outstanding under this Indenture (except as
     otherwise provided in Section 2.07);

          (c)  the date or dates on which the principal of and premium, if any,
     on the Securities of the series is payable;

          (d)  the rate or rates at which the Securities of the series shall
     bear interest, if any, or the method by which such rate or rates shall be
     determined, the date or dates from which such interest shall accrue, or the
     method by which such date or dates shall be determined, the interest
     payment dates on which any such interest shall be payable and the record
     dates for the determination of holders to whom interest of any interest
     payment



                                      - 9 -

     date is payable and the basis of computation of interest (if other than as
     provided in Section 2.02);

          (e)  if the amount of payments of the principal of, premium, if any,
     or interest, if any, on the Securities of the series may be determined with
     reference to an index, formula, or other method, the manner in which such
     amounts shall be determined;

          (f)  the place or places where the principal of, premium, if any, and
     interest on Securities of the series shall be payable;

          (g)  the price or prices at which, the period or periods within which
     and the terms and conditions upon which Securities of the series may be
     redeemed, in whole or in part, at the option of the Company;

          (h)  the obligation, if any, of the Company to redeem, purchase or
     repay Securities of the series pursuant to any sinking fund or analogous
     provisions or at the option of a holder thereof and the price or prices at
     which, the period or periods within which and the terms and conditions upon
     which Securities of the series shall be redeemed, purchased or repaid, in
     whole or in part, pursuant to such obligation;

          (i)  whether the Securities of the series shall be issued in whole or
     in part in the form of one or more Global Securities and, in such case, the
     Depositary for such Global Security or Global Securities;

          (j)  if other than the principal amount thereof, the portion of the
     principal amount of any Securities which shall be payable upon declaration
     of acceleration of maturity thereof pursuant to Section 6.01;

          (k)  if other than denomination of $1,000 or any integral multiple
     thereof, the denominations in which Securities of the series shall be
     issuable;

          (l)  if the provisions of Section 12.02 are to apply to the Securities
     of the series, a statement indicating the same;

          (m)  if the provisions of Section 2.09 are to apply to the Securities
     of the series, the terms upon which the Company may elect to not pay
     interest on an interest payment date;

          (n)  if the provisions of Article Fourteen are to apply to the
     Securities of the series, a statement indicating the same; and

          (o)  any other terms of the Securities of the series, including
     additional covenants of the Company and specific deletions in the Events of
     Default applicable to the series from those set forth in Section 6.01
     (which terms shall not be inconsistent with the provisions of this
     Indenture or adversely affect the rights of the holders of any other series
     of Securities then outstanding).

          All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided by or pursuant
to any such Board



                                     - 10 -

Resolution, and set forth in such Officers' Certificate, or in any such
indenture supplemental hereto.

          SECTION 2.04. EXECUTION. The Securities shall be signed on behalf of
the Company by the Chairman or President or any Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Company, under its corporate seal. Such signatures may be manual or
facsimile signatures of the present or any future such authorized officers and
may be imprinted or otherwise reproduced on the Securities. The seal of the
Company may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Securities.

          Only such Securities as shall bear thereon a certificate of
authentication substantially in the form hereinbefore recited, executed by the
Trustee, shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee upon any Security
executed by the Company shall be conclusive evidence that the Security so
authenticated has been duly authenticated and delivered hereunder.

          In case any officer of the Company who shall have signed any of the
Securities either manually or by facsimile signature shall cease to be such
officer before the Securities so signed shall have been authenticated and
delivered by the Trustee, or disposed of by the Company, such Securities
nevertheless may be authenticated and delivered or disposed of as though the
person who signed such Securities had not ceased to be such officer of the
Company; and any Security may be signed on behalf of the Company by such person
as, at the actual date of the execution of such Security, shall be the proper
officers of the Company, although at the date of the execution of this Indenture
any such person was not such officer.

          SECTION 2.05. EXCHANGE, REGISTRATION AND REGISTRATION OF TRANSFER. The
Company shall keep, at the office or agency to be maintained by the Company in
accordance with Section 4.02, a register or registers (herein sometimes referred
to collectively as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of each series of the Securities and for the registration of transfers of
Securities of each series as in this Article provided. The Security Register
shall be in written form or convertible into written form without unreasonable
delay, and shall be open for inspection by the Trustee at all reasonable times.
Subject to the provisions of the last paragraph of this Section 2.05, upon
surrender for registration of transfer of any Security of any series at the
office or agency maintained in accordance with Section 4.02, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of the same
series and of like tenor, or any authorized denominations and of a like
aggregate principal amount and maturity.

          At the option of the holder thereof, Securities of any series (except
a Global Security) may be exchanged for other Securities of the same series and
of like tenor, of any authorized denominations and of a like aggregate principal
amount and maturity, upon surrender of the Securities to be exchanged at the
office or agency maintained in accordance with Section 4.02. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the holder making
the exchange is entitled to receive.



                                     - 11 -

          Notwithstanding any other provision of this Section, unless and until
it is exchanged in whole or in part for Securities in definitive form, a Global
Security representing all or a portion of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor Depositary.

          If at any time the Depositary for the Securities of a series notifies
the Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 2.01, the Company shall
appoint a successor Depositary with respect to the Securities of such series. If
a successor Depositary for the Securities of such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Company's election pursuant to Section 2.03(i) shall
no longer be effective with respect to the Securities of such series and the
Company will execute, and the Trustee, upon receipt of, and pursuant to a
Company Order will authenticate and deliver Securities of such series in
definitive form in an aggregate principal amount equal to the principal amount
of the Global Security or Global Securities representing such series in exchange
for such Global Security or Global Securities.

          The Company may at any time in its sole discretion determine that the
Securities of any series issued in the form of one or more Global Securities
shall no longer be represented by such Global Security or Global Securities. In
such event the Company will execute, and the Trustee, upon receipt of, and
pursuant to, a Company Order will authenticate and deliver Securities of such
series in definitive form and in aggregate principal amount equal to the
principal amount of the Global Security or Global Securities representing such
series in exchange for such Global Security or Global Securities.

          If specified by the Company pursuant to Section 2.03 with respect to a
series of Securities, the Depositary for such series of Securities may surrender
a Global Security for such series of Securities in exchange in whole or in part
for Securities of such series in definitive form on such terms as are acceptable
to the Company and such Depositary. Thereupon, the Company shall execute, and
the Trustee shall authenticate and deliver, without service charge,

               (i)  to each person specified by such Depositary a new Security
          or Securities of the same series, in definitive form, of any
          authorized denomination as requested by such person in aggregate
          principal amount equal to and in exchange for such person's beneficial
          interest in the Global Security; and

               (ii) to such Depositary a new Global Security in a denomination
          equal to the difference, if any, between the principal amount of the
          surrendered Global Security and the aggregate principal amount of
          Securities delivered to holders thereof pursuant to the immediately
          preceding clause (i) of this Section.

          Upon exchange of a Global Security for Securities in definitive form,
such Global Security shall be cancelled by the Trustee. Securities issued in
exchange for a Global Security pursuant to this Section shall be registered in
such names and in such authorized denominations



                                     - 12 -

as the Depositary for such Global Security shall instruct the Trustee. The
Trustee shall deliver such Securities to the persons in whose names such
Securities are so registered.

          All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration or transfer or exchange.

          All Securities presented or surrendered for registration of transfer,
exchange or payment shall (if so required by the Company or the Trustee) be duly
endorsed by, or be accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Company and the Trustee, duly executed by
the registered holder or by his attorney duly authorized in writing.

          No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.

          The Company shall not be required (a) to issue, register the transfer
of or exchange Securities of any series for a period of 15 days next preceding
any selection of Securities of such series to be redeemed, or (b) to register
the transfer of or exchange any Security or portion thereof called or selected
for redemption.

          SECTION 2.06. TEMPORARY SECURITIES. Pending the preparation of
definitive Securities of any series, the Company may execute and the Trustee
shall authenticate and deliver temporary Securities of such series (printed,
lithographed or typewritten) of any authorized denomination, and substantially
in the form of the definitive Securities of such series, but with such omission,
insertions and variations as may be appropriate for temporary Securities, all as
may be determined by the Company. Temporary Securities may be issued without a
recital of specific redemption prices and may contain such reference to any
provisions of this Indenture as may be appropriate. Every temporary Security
shall be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Securities of such series. Without unnecessary delay the Company will execute
and will furnish definitive Securities of each series and thereupon any or all
temporary Securities of such series may be surrendered in exchange therefor, at
the principal office of the Company, and, subject to Section 2.05 hereof, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
for such temporary Securities an equal aggregate principal amount of definitive
Securities of such series of authorized denominations. Until so exchanged, the
temporary Securities shall be entitled to the same benefits under this
Indenture, and shall be subject to the same provisions hereof (except as
provided in this Section), as definitive Securities of such series authenticated
and delivered hereunder.

          SECTION 2.07. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. In
case any temporary or definitive Security shall become mutilated or be
destroyed, lost or stolen, the Company in the case of a mutilated Security
shall, and in the case of a destroyed, lost or stolen Security in its discretion
may, execute, and upon the Company's request the Trustee shall authenticate and
deliver, a new Security of the same series and bearing a number not
contemporaneously outstanding, in exchange and in substitution for the mutilated
Security, or in lieu of and in substitution for the Security so destroyed, lost
or stolen. The applicant for a



                                     - 13 -

substitute Security shall first furnish to the Company and to the Trustee such
security or indemnity as may be required by them to save each of them harmless,
and, in every case of destruction, loss or theft, the applicant shall also first
furnish to the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Security and of the ownership thereof. The
Trustee may authenticate any such substitute Security and deliver the same upon
the written request or authorization of the Company. Upon the issue of any
substitute Security, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses connected therewith. If any Security that has
become, or is about to become, due and payable is mutilated, or is destroyed,
lost or stolen, the Company may, instead of issuing a substitute Security, pay
or authorize the payment of the same (without surrender thereof except in the
case of a mutilated Security) if the applicant for such payment shall furnish to
the Company and to the Trustee such security or indemnity as they may require to
save each of them harmless, and, in case of destruction, loss or theft, evidence
to the satisfaction of the Company and the Trustee of the destruction, loss or
theft of such Security and of the ownership thereof.

          Every substitute Security issued pursuant to this Section shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Security shall be found at any time, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of the same series duly issued hereunder. All
Securities shall be held and owned upon the express condition that the foregoing
provisions are exclusive with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities, and shall preclude any and all
other rights or remedies, notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.

          SECTION 2.08. CANCELLATION OF SURRENDERED SECURITIES; DESTRUCTION
THEREOF. All Securities surrendered for the purpose of payment, redemption,
exchange or registration of transfer or for credit against any sinking fund
payment, shall, if surrendered to the Company or any paying agent, promptly be
delivered to the Trustee for cancellation, or, if surrendered to the Trustee,
shall be cancelled by it, and no Securities shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. Upon
the request of the Company, the Trustee shall deliver to the Company cancelled
Securities held by the Trustee, or, in the absence of such request, the Trustee
may destroy the same and deliver a certificate of such destruction to the
Company. If the Company shall acquire any of the Securities, however, such
acquisition shall not operate as a satisfaction of the indebtedness represented
by such Securities unless and until the same are surrendered to the Trustee for
cancellation.

          SECTION 2.09. EXTENSION OF INTEREST PAYMENT PERIOD. With respect to
Securities of any series as to which, pursuant to Section 2.03(m), it has been
established that this Section 2.09 applies, subject to such terms as may be
established pursuant to Section 2.03(m), the Company may at any time and from
time to time, so long as the Company is not in default in the payment of
interest on such Securities as and when the same shall become due and payable,
elect to not pay interest on an interest payment date, and such election shall
not be an Event of Default with respect to the Securities of any series.



                                     - 14 -

                                  ARTICLE THREE

                   REDEMPTION OF SECURITIES AND SINKING FUNDS

          SECTION 3.01. APPLICABILITY OF RIGHT OF REDEMPTION. Redemption of
Securities (other than pursuant to a sinking fund or analogous provision)
permitted by the terms of any series of Securities shall be made in accordance
with such terms and Sections 3.02 and 3.03; provided, however, that if any such
terms of a series of Securities shall conflict with any provision of this
Article, the terms of such series shall govern.

          SECTION 3.02. ELECTION TO REDEEM; NOTICE OF REDEMPTION; PARTIAL
REDEMPTION. The election of the Company to redeem any Securities of any series
shall be evidenced by or pursuant to a Board Resolution. In case the Company
shall desire to exercise such right to redeem all, or, as the case may be, any
part of the Securities of any series in accordance with the right reserved so to
do, it shall give notice of such redemption to holders of the Securities to be
redeemed as hereinafter in this Section provided.

          Notice of redemption to the holders of Securities to be redeemed as a
whole or in part shall be given by mailing of a notice of such redemption not
less than 30 nor more than 60 days prior to the date fixed for redemption to the
registered holders of Securities to be redeemed in whole or in part at their
last addresses as they shall appear upon the Security Register. Such mailing
shall be by first-class mail postage prepaid. The notice if mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the registered holder receives the notice. In any case, the failure to
give such notice by mail, or any defect in such notice, to the registered holder
of any Security designated for redemption in whole or in part shall not affect
the validity of the proceedings for redemption of any other Security.

          Each such notice of redemption shall specify the date fixed for
redemption and the price at which Securities are to be redeemed, shall state
that the conditions precedent to such redemption, if any, have occurred and
describe the same, and shall state that payment of the redemption price of the
Securities to be redeemed, together with accrued interest thereon to the date
fixed for redemption (except that if such redemption date is an interest payment
date, the interest due on such date with respect to a particular Security shall
be payable to the holder of such Security on the record date for such interest
payment date), will be made at the office or agency to be maintained by the
Company in accordance with Section 4.02 upon presentation and surrender of such
Securities and that from and after said date interest thereon will cease to
accrue. If less than all the Securities of a series are to be redeemed, the
notice to each registered holder of Securities to be redeemed shall identify
such registered holder's Securities to be redeemed as a whole or in part. In
case any Security is to be redeemed in part only (which part shall be $1.00 or a
multiple of $1.00), the notice which relates to such Securities shall state the
portion of the principal amount to be redeemed, and that on and after the
redemption date, upon surrender or such Security, a new Security or Securities
of the same series in principal amount equal to the unredeemed portion thereof
will be issued. No Security of a denomination of $1,000 principal amount may be
redeemed in part.

          To the extent that the Securities of any series have different terms,
the Company shall designate the Securities to be redeemed if less than all of
the series is to be redeemed. If less than all the Securities of a series having
the same terms are to be redeemed, the Company



                                     - 15 -

shall give the Trustee, not less than 45 days (or such lesser number of days as
the Trustee shall approve) prior to the date fixed by the Company for the
redemption of Securities, written notice of the aggregate amount of the
Securities to be redeemed, and thereupon the Trustee shall select, in such
manner as in its sole discretion it shall deem appropriate and fair, the
Securities of such series or portions thereof to be redeemed, and shall
thereafter promptly notify the Company and any paying agent in writing of the
Securities of such series of portions thereof to be redeemed.

          Any notice of redemption to be mailed by the Company pursuant to this
Section may be mailed, at the Company's direction, by the Trustee in the name
and at the expense of the Company.

          SECTION 3.03. PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If notice
of redemption shall have been given in the manner provided in Section 3.02, the
Securities or portions of Securities specified in such notice shall become due
and payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued thereon to the date fixed for
redemption (except that if such redemption date is an interest payment date the
interest due on such date shall be payable to the holder of such Security on the
record date for such interest payment date), and on and after such date of
redemption (unless the Company shall default in the payment of such Securities
or portions thereof at the redemption price, together with interest accrued
thereon to the date fixed for redemption) interest on the Securities or portions
of Securities so called for redemption shall cease to accrue, and such
Securities and portions of Securities shall be deemed not to be outstanding
hereunder and shall not be entitled to any benefit under this Indenture except
to receive payment of the redemption price, together with accrued interest
thereon to the date fixed for redemption. On presentation and surrender of such
Securities on or after said date at said place of payment in said notice
specified, the said Securities or specified portions thereof shall be paid and
redeemed by the Company at the applicable redemption price, together (subject to
the right of the holder on the record date if such redemption date is an
interest payment date) with interest accrued thereon to the date fixed for
redemption.

          Upon presentation and surrender of any Security which is to be
redeemed in part only, the Company shall execute and the Trustee shall
authenticate and deliver to the holder thereof, at the expense of the Company, a
new Security or Securities of the same series of authorized denominations in
principal amount equal to the unredeemed portion of the Security so surrendered.

          SECTION 3.04. APPLICABILITY OF SINKING FUND. Redemption of Securities
permitted or required pursuant to a sinking fund for the retirement of
Securities of a series by the terms of such series of Securities shall be made
in accordance with such terms of such series of Securities and this Article;
provided, however, that if any such terms of a series of Securities shall
conflict with any provision of this Article, the terms of such series shall
govern.

          The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for the
by terms of Securities of any series is herein referred to as an "optional
sinking fund payment." If provided for by the terms of Securities of any series,
the cash amount of any mandatory sinking fund payment may be subject to
reduction as provided in Section 3.05.



                                     - 16 -

          SECTION 3.05. SATISFACTION OF MANDATORY SINKING FUND PAYMENTS WITH
SECURITIES. Subject to Section 3.06, in lieu of making all or any part of any
mandatory sinking fund payment with respect to any Securities of a series in
cash, the Company may at its option (a) deliver to the Trustee Securities of
that series theretofore purchased or otherwise acquired by the Company, or (b)
receive credit for the principal amount of Securities of that series which have
been previously delivered to the Trustee by the Company or redeemed either at
the election of the Company pursuant to the terms of such Securities or through
the application of permitted optional sinking fund payments pursuant to the
terms of such Securities; provided that such Securities have not been previously
so credited. Such Securities shall be received and credited for such purpose by
the Trustee at the redemption price specified in such Securities for redemption
through operation of the sinking fund and the cash amount of such mandatory
sinking fund payment shall be reduced accordingly.

          SECTION 3.06. REDEMPTION OF SECURITIES FOR SINKING FUNDS. Not less
than 60 days prior to each sinking fund payment date for any series of
Securities, the Company will deliver to the Trustee a Company Order specifying
the amount of the next ensuing sinking fund payment for that series pursuant to
the terms of that series, the portion thereof, if any, which is to be satisfied
by payment of cash and the portion thereof, if any, which is to be satisfied
through delivery and/or crediting of Securities of that series pursuant to
Section 3.05 (which Securities will, if not previously delivered, accompany such
Company Order) and whether the Company intends to exercise its right to make a
permitted optional sinking fund payment with respect to such series. Such
Company Order shall be irrevocable, and upon its delivery the Company shall be
obligated to make the cash payment or payments therein referred to, if any,
prior to such sinking fund payment date. In the case of the failure of the
Company to deliver such Company Order, the sinking fund payment due with respect
to the next sinking fund payment date for that series of Securities shall be
paid entirely in cash and shall be sufficient to redeem the principal amount of
such Securities subject to a mandatory sinking fund payment without the option
to deliver or credit Securities as provided in Section 3.05 and without the
right to make any optional sinking fund payment with respect to such series.

          Any sinking fund payment or payments (mandatory or optional) made in
cash, plus any unused balance of any preceding sinking fund payments made in
cash, which shall equal or exceed $100,000 (or a lesser sum if the Company shall
so request) with respect to the Securities of any particular series shall be
applied by the Trustee, a paying agent or the Company, if it acts as its own
paying agent, on the sinking fund payment date next following the date of such
payment to the redemption of such Securities at the redemption price specified
in such Securities for operation of the sinking fund, together with accrued
interest to the sinking fund payment date. Any sinking fund moneys not so
applied or allocated to the redemption of Securities shall be added to the next
cash sinking fund payment received by the Trustee, such paying agent or the
Company for such series and, together with such payment, shall be applied in
accordance with the provisions of this Section. Any and all sinking fund moneys
with respect to the Securities of any particular series held by the Trustee,
such paying agent or the Company on the last sinking fund payment date with
respect to Securities of such series and not held for the payment or redemption
of particular Securities shall be applied by the Trustee, such paying agent or
the Company, together with other moneys, if necessary, to be deposited
sufficient for the purpose, to the payment of principal of such Securities at
maturity.

          Not more than 60 days and not less than 45 days prior to each sinking
fund payment date the Trustee shall select the Securities to be redeemed upon
such sinking fund



                                     - 17 -

payment date in accordance with Section 3.02. The Company shall cause notice of
the redemption thereof to be given not less than 30 nor more than 60 days prior
to the sinking fund payment date in the manner provided in Section 3.02, except
that the notice of redemption shall also state that the Securities of such
series are being redeemed by operation of the sinking fund and the sinking fund
payment date. Such notice having been duly given, the redemption of such
Securities shall be made on the sinking fund payment date upon the terms and in
the manner stated in Section 3.03.

                                  ARTICLE FOUR

                       PARTICULAR COVENANTS OF THE COMPANY

          SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. The
Company covenants and agrees for the benefit of each series of Securities that
it will duly and punctually pay or cause to be paid the principal of and
premium, if any, and interest, if any, on each of the Securities of that series
at the times and places and in the manner provided herein and in the Securities
of that series.

          SECTION 4.02. OFFICE OR AGENCY FOR CERTAIN PURPOSES. The Company will
maintain an office or agency (or offices or agencies) where the Securities may
be presented for registration of transfer and exchange as in this Indenture
provided, and where notices and demands to or upon the Company in respect of the
Securities or of this Indenture may be served and where the Securities may be
presented for payment. The principal office of the Company shall be such office
or agency unless the Company shall maintain some other office or agency for such
purposes and shall give the Trustee and the registered holders of the Securities
written notice of the location thereof.

          SECTION 4.03. MAINTENANCE OF CORPORATE EXISTENCE. The Company will
preserve its corporate existence, but this covenant shall not require the
Company to continue its corporate existence in the event of a consolidation or
merger of the Company in accordance with the provisions of Article Eleven hereof
as a result of which the Company shall lose its corporate identity, or in the
event of a sale or conveyance of the property of the Company as an entirety or
substantially as an entirety in accordance with the provisions of said Article
Eleven.

          SECTION 4.04. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 7.09, a Trustee, so that there
shall at all times be a Trustee hereunder.

          SECTION 4.05. PROVISIONS AS TO PAYING AGENT. (a) If the Company shall
act as its own paying agent with respect to any series of Securities, it will,
on or before each due date of the principal of or premium, if any, or interest,
if any, on the Securities of that series, set aside, segregate and hold in trust
for the benefit of the holders of such Securities or of the Trustee, as the case
may be, a sum sufficient to pay such principal or premium, if any, or interest
so becoming due and will notify the Trustee of any failure to take such action
and of any failure by the Company (or by any other obligor on the Securities of
that series) to make any payment of the



                                     - 18 -

principal of or premium, if any, or interest on the Securities of such series
when the same shall be due and payable.

          (b)  Whenever the Company shall have one or more paying agents, other
than the Company, for any series of Securities, it will, on or before each due
date of the principal of or premium, if any, or interest, if any, on any
Securities of that series, deposit with a paying agent a sum sufficient to pay
the principal and premium, if any, or interest so becoming due, such sum to be
held in trust for the benefit of the holders of such Securities, and (unless
such paying agent is the Trustee) the Company will notify the Trustee of such
action or the failure to take such action.

          (c)  If the Company shall appoint a paying agent other than the
Trustee or the Company with respect to any series of Securities, it will cause
such paying agent to execute and deliver to the Trustee an instrument in which
such agent shall agree with the Trustee, subject to this Section that such agent
will:

               (1)  hold all sums held by it as such agent for the payment of
     the principal of or premium, if any, or interest on the Securities of such
     series (whether such sums have been paid to it by the Company or by any
     other obligor on the Securities of such series) in trust for the benefit of
     the holders of the Securities of such series or of the Trustee, as the case
     may be;

               (2)  give the Trustee notice of any default by the Company (or by
     any other obligor on the Securities of such series) in the making of any
     payment of the principal of or premium, if any, or interest on the
     Securities of such series when the same shall be due and payable; and

               (3)  at any time during the continuance of any such default, upon
     the written request of the Trustee, forthwith pay to the Trustee all sums
     so held in trust by such paying agent.

          (d)  Anything in this Section to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it, or by any paying agent hereunder, as
required by this Section, such sums to be held by the Trustee upon the trusts
herein contained.

          (e)  Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section is subject to
Sections 12.04 and 12.05.

          SECTION 4.06. ANNUAL OFFICERS' CERTIFICATE TO TRUSTEE. The Company
will deliver to the Trustee prior to November 1 in each year, an Officers'
Certificate stating that in the course of the performance by the signers of
their duties as officers of the Company they would normally obtain knowledge of
any default by the Company in the performance of any covenants contained in
Sections 4.03 and 11.02, stating whether or not they have obtained knowledge of
any such default and, if so, specifying each such default of which the signers
have knowledge and the nature thereof.

          SECTION 4.07. REPORTS TO BE FURNISHED SECURITYHOLDERS. The Company
will transmit or cause to be transmitted to the Securityholders, as soon as
practicable after the mailing



                                     - 19 -

of such material to its stockholders, copies of all annual financial reports
distributed to its stockholders generally. Reports pursuant to this Section
shall be transmitted by mail to all registered holders of Securities, as the
names and addresses of such holders appear upon the Security Register.

          SECTION 4.08. RESTRICTION ON SECURED INDEBTEDNESS FOR BORROWED MONEY.
For so long as any securities issued under the Indenture, dated as of March 1,
1990, between the Company and The Bank of New York, as trustee, as supplemented
and amended, are entitled to the benefit of Section 4.07 thereunder, the Company
will not (a) issue any bonds under its First Mortgage, dated as of May 1, 1928,
as supplemented and amended (the "First Mortgage"), except to replace any
mutilated, destroyed, lost or stolen bonds or coupons or to effect exchanges and
transfers of outstanding bonds, or (b) create, issue, incur or assume any other
indebtedness for borrowed money secured by a mortgage or other lien on, or
security interest in, any property or properties of the Issuer (other than (i)
the properties expressly excepted from the lien of the First Mortgage, and (ii)
any property that is acquired by the Company, whether pursuant to merger,
consolidation or otherwise, subject to a mortgage, lien or security interest,
and any additions, improvements and betterments thereto to the extent that the
governing instrument provides that the same are covered by said mortgage, lien
or security interest). For the purposes of this Section 4.08, (1) the terms
"property" and "properties" include, without limitation, every form of property
interest, real, personal or mixed, tangible or intangible, and (2) the term
"indebtedness for borrowed money" means indebtedness evidenced by a bond, note
or other comparable written obligation representing borrowed money, and does
not, in any event, include any lease or installment sale agreement (or any
obligation in the nature of or having the characteristics of a lease or
installment sale agreement), whether or not capitalized for financial reporting
or any other purpose.

          In case any properties are subjected to a mortgage, lien or security
interest in contravention of the foregoing provisions of this Section 4.08, the
Company will make or cause to be made provision whereby the Securities will be
secured equally and ratably with all other obligations secured by such mortgage,
lien or security interest, and in any such case the Securities shall have the
benefit, to the full extent permitted under applicable law, of an equitable lien
on such properties.

          SECTION 4.09. FURTHER ASSURANCES. From time to time whenever
reasonably demanded by the Trustee, the Company will make, execute and deliver
or cause to be made, executed and delivered any and all such further and other
instruments and assurances as may be reasonably necessary or proper to carry out
the intention or facilitate the performance of the terms of this Indenture.

                                  ARTICLE FIVE

  SECURITYHOLDERS' LISTS, COMMUNICATIONS TO SECURITYHOLDERS, AND REPORTS BY THE
                             COMPANY AND THE TRUSTEE

          SECTION 5.01. COMPANY TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND
ADDRESSES OF SECURITYHOLDERS. The Company shall furnish or cause to be furnished
to the Trustee:



                                     - 20 -

          (a)  on June 15 and December 15 in each year (beginning with December
15, 2000), a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of each series of Securities as of a date not
more than 15 days prior to the time such list is furnished, and

          (b)  at such other times as the Trustee may request in writing within
30 days after receipt by the Company of any such request, a list of similar form
and content as of a date not more than 15 days prior to the time such list is
furnished, provided that, if and so long as the Trustee is the sole Security
registrar, no such list need be furnished.

          SECTION 5.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
SECURITYHOLDERS. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the holders of each series of
Securities received by it in the capacity of Security registrar and the names
and addresses of holders of each series of Securities contained in the most
recent list furnished to it under Section 5.01. The Trustee may destroy any such
list upon receipt of a new list so furnished.

          (b)  The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and privileges of the Trustee, shall be
as provided by the Trust Indenture Act of 1939.

          (c)  Each and every holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent or other agent of either of them shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Securities made pursuant to the Trust Indenture
Act of 1939, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made pursuant to the Trust Indenture Act of 1939.

          SECTION 5.03. REPORTS BY COMPANY. The Company shall file with the
Trustee and the Securities and Exchange Commission, and transmit to
Securityholders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act of
1939 at the times and in the manner provided pursuant to such Act; PROVIDED that
any such information, documents or reports required to be filed with said
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, shall be filed with the Trustee within 15 days after the same
is so required to be filed with said Commission. Delivery of any information,
documents and reports by the Company to the Trustee pursuant to the provisions
of this Section 5.03 is for informational purposes only and the Trustee's
receipt of same shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).

          SECTION 5.04. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to
Securityholders such reports concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act of 1939 at the
times and in the manner provided pursuant thereto. If required by Section 313(a)
of the Trust Indenture Act of 1939, the Trustee shall, within sixty days after
each October 15 following the execution and delivery of this



                                     - 21 -

instrument deliver to Securityholders a brief report, dated as of such October
15, which complies with the provisions of such Section 313(a).

          (b)  A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with each stock
exchange upon which any Securities are listed and also with the Securities and
Exchange Commission. If the Company lists the Securities of any series on any
stock exchange, it will promptly so notify the Trustee.

                                   ARTICLE SIX

         REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT

          SECTION 6.01. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY;
WAIVER OF DEFAULT. In case one or more of the following shall have occurred and
be continuing with respect to the Securities of any series, it shall be an event
of default of such series (unless it is specifically deleted in a supplemental
indenture or Board Resolution under which such series of Securities is issued or
has been modified in any such supplemental indenture), that is to say:

          (a)  default in the payment of any instalment of interest upon any
     Security of such series as and when the same shall become due and payable,
     and continuance of such default for a period of 30 days; or

          (b)  default in the payment of the principal of or premium, if any, on
     any Security of such series as and when the same shall become due and
     payable either at maturity, upon redemption, by declaration or otherwise;
     or

          (c)  failure on the part of the Company duly to observe or perform any
     other of the covenants or agreements on the part of the Company contained
     in the Securities of such series or in this Indenture (other than a
     covenant or agreement which has been expressly included in the Securities
     or in this Indenture solely for the benefit of a series of Securities other
     than that series) for a period of 60 days after the date on which written
     notice of such failure, requiring the Company to remedy the same and
     stating that such notice is a "Notice of Default" hereunder, shall have
     been given to the Company by the Trustee, or to the Company and the Trustee
     by the holders of a least 25% in aggregate principal amount of the
     Securities of such series at the time outstanding; or

          (d)  if a decree or order for relief shall be entered by a court of
     competent jurisdiction in respect of the Company in an involuntary case
     under any applicable bankruptcy, insolvency or other similar law nor or
     hereafter in effect, or appointing a receiver, liquidator, assignee,
     custodian, trustee, sequestrator (or similar official) of the Company or of
     a major part of its property, or ordering the winding up or liquidation of
     the Company's affairs, and such decree or order shall remain unstayed and
     in effect for a period of 60 consecutive days; or

          (e)  if the Company shall commence a voluntary case under any
     applicable bankruptcy, insolvency or other similar law nor or hereafter in
     effect, or the Company shall consent to the entry by order of a court of
     competent jurisdiction of a decree or order



                                     - 22 -

     in respect of the Company in an involuntary case or proceeding under any
     applicable bankruptcy, insolvency or other similar law nor or hereafter in
     effect or to the commencement of any bankruptcy or insolvency proceeding
     against the Company; or

          (f)  if the Company shall make an assignment for the benefit of its
     creditors, or shall admit in writing its inability to pay its debts
     generally as they become due, or shall consent to the appointment of a
     receiver or liquidator or trustee or assignee in bankruptcy or insolvency
     of it or of a major part of its property; or

          (g)  the occurrence of any other Event of Default with respect to
     Securities of such series as provided in a supplemental indenture
     applicable to such series of Securities pursuant to Section 10.01(d);

then and in each and every such case, unless the principal of the Securities of
such series shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Securities of
such series then outstanding hereunder, by notice in writing to the Company (and
to the Trustee if given by Securityholders), may declare the principal of all
the Securities of such series to be due and payable immediately, and upon any
such declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities of such series contained to the
contrary notwithstanding. This provision, however, is subject to the condition
that if, at any time after the principal of the Securities of such series shall
have been so declared due and payable, and before any sale of property under any
judgment or decree for the payment of the moneys due shall have been obtained or
entered as hereinafter provided, the Company shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured instalments of interest upon all the
Securities of such series and the principal of and premium, if any, on any and
all Securities of such series which shall have become due otherwise than by
declaration (with interest on overdue instalments of interest, to the extent
legally enforceable under applicable law, and on such principal of and premium,
if any, on each Security of such series at the rate borne by such Security to
the date of such payment or deposit) and the expenses of the Trustee, and
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
any and all defaults under this Indenture, other than the nonpayment of
principal on Securities of such series which shall have become due by
declaration, shall have been remedied -- then, and in every such case the
holders of a majority in aggregate principal amount of the Securities of such
series then outstanding, by written notice to the Company and to the Trustee,
may on behalf of the holders of all of the Securities of such series waive all
defaults and rescind and annul such declaration and its consequences; but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent default, or shall impair any right consequent thereon.

          In case the Trustee shall have proceeded to enforce any right under
this Indenture for the holders of Securities of any series and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been determined adversely to the
Trustee, then and in every such case the Company, the Trustee and the holders of
the Securities of such series shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Company, the Trustee and the holders of the Securities of such series shall
continue as though no such proceedings had been taken.



                                     - 23 -

          The Company and the Trustee may, to the extent provided in
Section 10.01, enter into one or more indentures supplemental hereto with
respect to any series of the Securities which may provide for additional,
different or fewer Events of Default with respect to such series of Securities.

          SECTION 6.02. COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE
DEBT. The Company covenants that (1) in case default shall be made in the
payment of any installment of interest on any of the Securities, as and when the
same shall become due and payable, and such default shall have continued for a
period of 30 days, or (2) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities when and as the same
shall have become due and payable, whether upon maturity of the Securities or
upon redemption or upon declaration or otherwise -- then, upon demand of the
Trustee, the Company will pay to the Trustee, for the benefit of holders of such
Securities, the whole amount that then shall have become due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, of each such Security and (to the
extent legally enforceable under applicable law) upon installments of interest,
at the rate borne by such Security; and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including a reasonable compensation to the Trustee, its agents, attorneys and
counsel, and any expenses or liabilities incurred by the Trustee hereunder other
than through its negligence or bad faith.

          In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity against the Company or other obligor on such Securities for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceeding to judgment or final decree, and may enforce any such judgment or
final decree against the Company or such other obligor upon such Securities and
collect in the manner provided by law out of the property of the Company or such
other obligor upon such Securities, wherever situated, the moneys adjudged or
decreed to be payable.

          In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor upon the Securities of
any series under Title 11 of the United States Code or any other applicable
Federal or state bankruptcy, insolvency or other similar law relative to the
Company or such other obligor, its creditors or its property, or in case a
receiver or trustee shall have been appointed for its property or in case of any
other judicial proceedings relative to the Company or other obligor upon the
Securities of any series, its creditors or its property, the Trustee,
irrespective of whether the principal of the Securities of any series shall then
be due and payable as therein expressed, upon redemption or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to this Section, shall be entitled and empowered, by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the whole
amount of principal, premium, if any, and interest owing and unpaid in respect
of the Securities of any series, and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and of
the Securityholders of any series allowed in any judicial proceeding relative to
the Company or other obligor upon the Securities of any series, its creditors,
or its property, and to collect and receive any moneys or other property payable
or deliverable on any such claims, and to distribute the same after the
deduction of its charges and expenses; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of the Securityholders
to make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such



                                     - 24 -

payments directly to the Securityholders, to pay to the Trustee any amount due
it for compensation and expenses, including counsel fees incurred by it up to
the date of such distribution.

          All rights of action and of asserting claims under this Indenture, or
under any of the Securities of any series, may be enforced by the Trustee
without the possession of any of the Securities of such series, or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Securities of such series. In any proceedings brought by the
Trustee (and also any proceedings involving the interpretation of any provision
of this Indenture to which the Trustee shall be a party), the Trustee shall be
held to represent all the holders of the Securities of a series, and it shall
not be necessary to make any holders of the Securities of such series parties to
any such proceedings.

          In case of an Event of Default hereunder with respect to Securities of
a particular series, the Trustee may, but unless first requested so to do by the
holders of at least a majority in aggregate principal amount of the Securities
of such series at the time outstanding and furnished with reasonable indemnity
against all costs, expenses and liabilities shall not (subject to the provisions
of Section 7.01) be under any obligation to, proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceedings in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of the holder of any Security any plan of reorganization,
arrangement, adjustment or composition affecting the Securities of any series or
the rights of any holder thereof, or to authorize the Trustee to vote in respect
of the claim of any holder of any Security in any such proceeding.

          SECTION 6.03. APPLICATION OF PROCEEDS. Any moneys collected by the
Trustee with respect to a series of Securities pursuant to Section 6.02 shall be
applied in the order following, at the date or dates fixed by the Trustee for
the distribution of such moneys:

          FIRST: To the payment of all costs and expenses in connection with the
     collection of such moneys, and all amounts payable to the Trustee under
     Section 7.06;

          SECOND: To the payment of the entire amounts then due and unpaid upon
     the Securities in respect of which or for the benefit of which such moneys
     shall have been collected, without any preference or priority, ratably
     according to the amounts due and payable upon such Securities upon
     presentation of the several Securities and notation of such payment
     thereon, if partly paid, and upon surrender thereof, if fully paid.

Any surplus then remaining shall be paid to the Company or to such other person
as shall be entitled to receive it.



                                     - 25 -

          SECTION 6.04. LIMITATIONS ON SUITS BY SECURITYHOLDERS. No holder of
any Security of any series shall have any right by virtue or by availing of any
provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
such holder previously shall have given to the Trustee written notice of default
and of the continuance thereof with respect to the Securities of that series,
and unless also the holders of not less than 25% in aggregate principal amount
of the Securities of that series then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity, shall have failed to institute any
such action, suit or proceeding and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 6.06, it being
understood and intended, and being expressly covenanted by the holder of every
Security of such series with every other holder of Securities of such series and
the Trustee, that no one or more holders of Securities of such series shall have
any right in any manner whatever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of the holders of any
other of such Securities or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Securities of such series. For the protection
and enforcement of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.

          Notwithstanding any other provision of this Indenture, however, the
right of any holder of any Security to receive payment of the principal of and
premium, if any, and interest on such Security, on or after the respective due
dates expressed in such Security, or to institute suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such holder.

          SECTION 6.05. POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER. All powers and remedies given by this Article to the Trustee or to the
holders of Securities of any series shall, to the extent permitted by law and
subject to Section 6.04, be deemed cumulative and not exclusive of any thereof
or of any other powers and remedies available to the Trustee or such
Securityholders by judicial proceedings or otherwise, to enforce the performance
or observance of the covenants and agreements contained in this indenture, and
no delay or omission of the Trustee or of any holder of the Securities of any
series to exercise any right or power accruing upon any default occurring and
continuing as aforesaid, shall impair any such right or power, or shall be
construed to be a waiver of any such default or an acquiescence therein; and,
subject to Section 6.04, every power and remedy given by this Article or by law
to the Trustee or to such Securityholders may be exercised from time to time,
and as often as shall be deemed expedient by the Trustee or by such
Securityholders.

          SECTION 6.06. CONTROL BY SECURITYHOLDERS; WAIVER OF DEFAULT. The
holders of a majority in aggregate principal amount of the Securities of any
series at the time outstanding shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee with respect to
Securities of such series; provided, however, that such direction shall not be
otherwise than in accordance with law and the provisions of this Indenture; and
provided further, that nothing in this Indenture shall impair the right of the
Trustee to take any action deemed proper by



                                     - 26 -

the Trustee and which is not inconsistent with such direction by such
Securityholders. The holders of at least a majority in aggregate principal
amount of the Securities of any series at the time outstanding may on behalf of
the holders of all of the Securities of such series waive any past default
hereunder with respect to the Securities of such series and its consequences,
except a default in the payment of the principal of or premium, if any, or
interest on any of the Securities of such series. In the case of any such
waiver, the Company, the Trustee and the holders of the Securities of such
series shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.

          SECTION 6.07. TRUSTEE TO GIVE NOTICE OF DEFAULTS KNOWN TO IT, BUT MAY
WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall, within 90 days after the
occurrence of a default with respect to the Securities of any series, give to
the Securityholders of such series, in the manner and to the extent required to
do so by the Trust Indenture Act of 1939, notice of all defaults known to the
Trustee, unless such defaults shall have been cured before the giving of such
notice (the term "defaults" for the purposes of this Section being hereby
defined to be the events specified in Sections 6.01(a), (b), (c), (d), (e), (f)
and (g) with respect to Securities of such series not including periods of
grace, if any, provided for therein and irrespective of the giving of them
written notice specified in subparagraph (c) of Section 6.01); provided,
however, that in case of any default of the character specified in subparagraph
(c) of Section 6.01 no such notice shall be given until at least sixty (60) days
after the occurrence thereof; and provided further, that, except in the case of
default in the payment of the principal of or premium, if any, or interest on
any of the Securities of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or responsible officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Securityholders of such series.

          SECTION 6.08. RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO PAY
COSTS. All parties to this Indenture agree, and each holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Securityholder, or group of Securityholders, holding in the
aggregate more than 10% in principal amount of the Securities of any series
outstanding, or to any suit instituted by any Securityholder of any series for
the enforcement of the payment of the principal of or premium, if any, or
interest on any Security of such series, on or after the due dates expressed in
such Security.

                                  ARTICLE SEVEN

                             CONCERNING THE TRUSTEE



                                     - 27 -

          SECTION 7.01. DUTIES AND RESPONSIBILITIES OF TRUSTEE. With respect to
the holders of any series of Securities issued hereunder, the Trustee, prior to
the occurrence of an Event of Default with respect to the Securities of that
series and after the curing or waiving of all Events of Default which may have
occurred with respect to such series, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the Trustee.
In case an Event of Default with respect to Securities of any series has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in it by this Indenture with respect to such series
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own affairs.

          No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:

          (a)  prior to the occurrence of an Event of Default with respect to
     the Securities of any series and after the curing or waiving of all such
     Events of Default with respect to such series which may have occurred:

               (1)  the duties and obligations of the Trustee with respect to
          the Securities of that series shall be determined solely by the
          express provisions of this Indenture, and the Trustee shall not be
          liable except for the performance of such duties and obligations as
          are specifically set forth in this Indenture, and no implied covenants
          or obligations shall be read into this Indenture against the Trustee;
          and

               (2)  in the absence of bad faith on the part of the Trustee, the
          Trustee may conclusively rely, as to the truth of the statements and
          the correctness of the opinions expressed therein, upon any
          certificates or opinions furnished to the Trustee and conforming to
          the requirements of this Indenture; but in the case of any such
          certificates or opinions which by any provision hereof are
          specifically required to be furnished to the Trustee, the Trustee
          shall be under a duty to examine the same to determine whether or not
          they conform to the requirements of this Indenture;

          (b)  the Trustee shall not be liable for any error of judgment made in
     good faith by a responsible officer or officers of the Trustee, unless it
     shall be proved that the Trustee was negligent in ascertaining the
     pertinent facts; and

          (c)  the Trustee shall not be liable with respect to any action taken
     or omitted to be taken by it in good faith in accordance with the direction
     of the registered holders given as provided in Section 6.06 relating to the
     time, method and place of conducting any proceeding for any remedy
     available to the Trustee, or exercising any trust or power conferred upon
     the Trustee, under this Indenture.

          None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers if there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it.



                                     - 28 -

          SECTION 7.02. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided
in Section 7.01:

          (a)  the Trustee may rely and shall be protected in acting, or
     refraining from acting, upon any resolution, certificate, statement,
     instrument, opinion, report, notice, request, direction, consent, order,
     bond, debenture Security, other evidence of indebtedness or other paper or
     document believed by it to be genuine and to have been signed or presented
     by the proper party or parties;

          (b)  any request, direction, order or demand of the Company mentioned
     herein shall be sufficiently evidenced to the Trustee by a Company Order
     (unless other evidence in respect thereof be herein specifically
     prescribed); and any resolution of the Board of Directors shall be
     sufficiently evidenced to the Trustee by a Board Resolution;

          (c)  the Trustee may consult with counsel and the advice of such
     counsel or any Opinion of Counsel shall be full and complete authorization
     and protection in respect of any action taken, suffered or omitted by it
     hereunder in good faith and in reliance thereon;

          (d)  the Trustee shall be under no obligation to exercise any of the
     rights or powers vested in it by this Indenture at the request, order or
     direction of any of the Securityholders, pursuant to the provisions of this
     Indenture, unless such Securityholders shall have offered to the Trustee
     reasonable security or indemnity against the costs, expenses and
     liabilities which may be incurred by the Trustee in complying with such
     request, order or direction;

          (e)  whenever in the administration of the provisions of this
     Indenture the Trustee shall deem it necessary or desirable that a matter be
     proved or established prior to taking, suffering or omitting any action
     hereunder, such matter (unless other evidence in respect thereof be herein
     specifically prescribed) may, in the absence of bad faith on the part of
     the Trustee, be deemed to be conclusively proved and established by an
     Officers' Certificate delivered to the Trustee and such certificate, in the
     absence of bad faith on the part of the Trustee, shall be full warrant to
     the Trustee for any action taken, suffered or omitted by it under the
     provisions of this Indenture in good faith and in reliance thereon;

          (f)  the Trustee shall not be bound to make any investigation into the
     facts or matters stated in any resolution, certificate, statement,
     instrument, opinion, report, notice, request, direction, consent, order,
     approval, appraisal, bond, debenture Securityholder, other evidence of
     indebtedness or other paper or document, but the Trustee, in its
     discretion, may make such inquiry or investigation into such facts or
     matters as it may see fit, and, if the Trustee shall determine to make such
     inquiry or investigation, it shall be entitled to examine the books,
     records and premises of the Company, personally or by agent or attorney;

          (g)  the Trustee may execute any of the trusts or powers hereunder or
     perform any duties hereunder either directly or by or through agents or
     attorneys, and the Trustee shall not be responsible for any misconduct or
     negligence on the part of any agent or attorney appointed by it with due
     care hereunder;



                                     - 29 -

          (h)  the Trustee shall not be charged with knowledge of any Event of
     Default with respect to the Securities of any series for which it is acting
     as Trustee unless either (1) a Responsible Officer of the Trustee shall
     have actual knowledge of the Event of Default or (2) written notice of such
     Event of Default shall have been given to the Trustee by the Company, any
     other obligor on such Securities or by any holder of such Securities; and

          (i)  the rights, privileges, protections, immunities and benefits
     given to the Trustee hereunder, including, without limitation, its rights
     to compensation, reimbursement and indemnification under Section 7.06, are
     hereby extended and also made applicable to, and shall be enforceable by,
     the Trustee in each of its other capacities hereunder.

          SECTION 7.03. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC. The recitals
contained herein and in the Securities, except the Trustee's certificate of
authentication and the representation as to the power of the Trustee to enter
into this Indenture and accept and execute the trusts hereby created, shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of any of the Securities or of the proceeds of such Securities.

          SECTION 7.04. TRUSTEE AND OTHERS MAY HOLD SECURITIES. Subject to
Sections 7.07 and 7.12, the Trustee or any paying agent or Security registrar or
any other agent of the Company or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company or other obligor on the Securities with the same rights it
would have if it were not Trustee, paying agent, Security registrar or such
other agent.

          SECTION 7.05. MONEYS HELD BY TRUSTEE OR PAYING AGENT. Subject to
Sections 12.04 and 12.05, all moneys received by the Trustee or any paying agent
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but any paying agent that is a bank need
not segregate such moneys from other funds except to the extent required by law
and shall not be invested. Neither the Trustee nor any paying agent shall be
under any liability for interest on any moneys received by it hereunder except
such as it may agree with the Company to pay thereon. So long as no Event of
Default with respect to Securities of any series, other than an Event of Default
under subparagraph (c) of Section 6.01, shall have occurred and be continuing,
all interest allowed on any such moneys shall be paid from time to time upon the
written order of the Company, signed by its President, or any Vice President or
its Treasurer or an Assistant Treasurer.

          SECTION 7.06. COMPENSATION OF TRUSTEE AND ITS LIEN. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and, except as herein otherwise expressly provided, the Company will pay
or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such



                                     - 30 -

expense, disbursement or advance as may arise from its negligence or bad faith.
If any property other than cash shall at any time be subject to the lien of this
Indenture, the Trustee, if and to the extent authorized by a receivership or
bankruptcy court of competent jurisdiction or by the supplemental instrument
subjecting such property to such lien, shall be entitled to make advances for
the purpose of preserving such property or of discharging tax liens or other
prior liens or encumbrances thereon. The Company also covenants and agrees to
indemnify the Trustee for, and to hold it harmless against, any loss, liability
or expense incurred without negligence or bad faith on the part of the Trustee,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses of defending itself
against any claim or liability in the premises. The obligations of the Company
under this Section shall constitute additional indebtedness hereunder. Such
additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Securities. "Trustee" for purposes of this Section shall include (i) the Trustee
in each of its other capacities hereunder and (ii) any predecessor Trustee;
provided, however, that the negligence, willful misconduct or bad faith of any
Trustee hereunder shall not affect the rights of any other Trustee hereunder.

          When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 6.01, the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
bankruptcy law.

          The provisions of this Section 7.06 shall survive the termination for
any reason of this Indenture.

          SECTION 7.07. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee
shall have or acquire any conflicting interest within the meaning of the Trust
Indenture Act of 1939, it shall either eliminate such conflicting interest or
resign to the extent, in the manner and with the effect, and subject to the
conditions, provided in the Trust Indenture Act of 1939 and this Indenture. To
the extent permitted by such Act, the Trustee shall not be deemed to have a
conflicting interest by virtue of being a trustee (i) under this Indenture with
respect to Securities of more than one series. Nothing herein shall prevent the
Trustee from filing with the Securities and Exchange Commission the application
referred to in the second to last paragraph of Section 310(b) of the Trust
Indenture Act of 1939.

          SECTION 7.08. PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The Trustee
hereunder shall at all times be a corporation organized and doing business under
the laws of the United States or any State or territory thereof or of the
District of Columbia authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, subject
to supervision or examination by Federal, state, territorial, or District of
Columbia authority. If such corporation publishes reports of condition at least
annually, pursuant to law or the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 7.09.



                                     - 31 -

          SECTION 7.09. RESIGNATION AND REMOVAL OF TRUSTEE; APPOINTMENT OF
SUCCESSOR. (a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign with respect to any one or more or all series of Securities
by giving written notice to the Company and by mailing notice of such
resignation, to the holders of Securities of that or those series at their last
addresses as they shall appear on the Security Register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee or
trustees with respect to the applicable series by written instrument executed by
order of the Board of Directors, one copy of which instrument shall be delivered
to the resigning trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed with respect to a particular series and
have accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide holder of a Security or Securities of the applicable
series for at least 6 months may, subject to Section 6.08, on behalf of himself
and all others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon after such notice, if any, as
it may deem proper and prescribe, appoint a successor trustee.

          (b)  If at any time:

               (1)  the Trustee shall fail to comply with Section 7.07(a) after
          written request therefor by the Company or by any Securityholder who
          has been a bona fide holder of a Security or Securities for at least 6
          months, or

               (2)  the Trustee shall cease to be eligible under Section 7.08
          and shall fail to resign after written request therefor by the Company
          or by any such Securityholder, or

               (3)  the Trustee shall become incapable of acting, or shall be
          adjudged bankrupt or insolvent, or a receiver of the Trustee or of its
          property shall be appointed, or any public officer shall take charge
          or control of the Trustee or of its property or affairs for the
          purpose of rehabilitation, conservation or liquidation;

then, in any such case, the Company may remove the Trustee with respect to the
applicable series of Securities, and appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors of the
Company, one copy of which instrument shall be delivered to the trustee so
removed and one copy to the successor trustee, or, subject to Section 6.08, any
Securityholder who has been a bona fide holder of a Security or Securities of
any such series for at least 6 months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor trustee with respect to such
series. Such court may thereupon after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor trustee with
respect to such series.

          (c)  The holders of a majority in aggregate principal amount of the
Securities of any series at the time outstanding may at any time remove the
Trustee with respect to that series and appoint with respect to such series a
successor trustee by delivering to the trustee so removed, to the successor
trustee so appointed and to the Company, the evidence provided for in Section
8.01 of the action taken by the Securityholders.



                                     - 32 -

          (d)  Any resignation or removal of the Trustee and any appointment of
a successor trustee pursuant to this Section shall become effective upon
acceptance of appointment by the successor trustee as provided in Section 7.10.

          SECTION 7.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any
successor trustee appointed under Section 7.09 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee with respect to any or all
applicable series an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts, duties and
obligations with respect to such series of its predecessor hereunder, with like
effect as if originally named as trustee herein; but, nevertheless, on the
written request of the Company or of the successor trustee, the trustee ceasing
to act shall, upon payment of any amounts then due it pursuant to the provisions
of Section 7.06, execute and deliver an instrument transferring to such
successor trustee all the rights, powers and trusts with respect to such series
of the trustee so ceasing to act. Upon request of any such successor trustee,
the Company shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon
all property or funds held or collected by such trustee to secure any amounts
then due it pursuant to Section 7.06.

          In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
predecessor Trustee and each successor Trustee with respect to the Securities of
any applicable series shall execute and deliver an indenture supplemental hereto
which shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
Trustee with respect to the Securities of any series as to which the predecessor
Trustee is not retiring shall continue to be vested in the predecessor Trustee,
and shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee.

          No successor Trustee with respect to any series of Securities shall
accept appointment as provided in this Section unless at the time of such
acceptance such successor Trustee shall with respect to such series be qualified
under Section 7.07 and eligible under Section 7.08.

          Upon acceptance of appointment by a successor Trustee with respect to
the Securities of any series, the Company shall mail notice of the succession of
such Trustee hereunder to the holders of Securities of such series at their last
addresses as they shall appear on the Security Register. If the Company fails to
mail such notice within 10 days after acceptance of appointment by the successor
Trustee, the successor Trustee shall cause such notice to be mailed at the
expense of the Company.

          SECTION 7.11. MERGER, CONVERSION OR CONSOLIDATION OF TRUSTEE. Any
person into which the Trustee may be merged or converted or with which it may be
consolidated, or any person resulting from any merger, conversion or
consolidation to which the Trustee shall be a



                                     - 33 -

party, or any person succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such person shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto.

          SECTION 7.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If
the Trustee shall be or become a creditor of the Company or any other obligor
upon the Securities (other than by reason of a relationship described in Section
311(b) of the Trust Indenture Act of 1939), the Trustee shall be subject to any
and all applicable provisions of the Trust Indenture Act of 1939 regarding the
collection of claims against the Company or such other obligor. For purposes of
Section 311(b) of the Trust Indenture Act of 1939:

               (a)  The term "cash transaction" shall mean any transaction in
     which full payment for goods or securities sold is made within 7 days after
     delivery of the goods or securities in currency or in checks or other
     orders drawn upon banks or bankers and payable upon demand.

               (b)  The term "self-liquidating paper" shall mean any draft, bill
     of exchange, acceptance or obligation which is made, drawn, negotiated or
     incurred by the Company for the purpose of financing the purchase,
     processing, manufacture, shipment, storage or sale of goods, wares or
     merchandise and which is secured by documents evidencing title to,
     possession of, or a lien upon, the goods, wares or merchandise or the
     receivables or proceeds arising from the sale of the goods, wares or
     merchandise previously constituting the security, provided the security is
     received by the Trustee simultaneously with the creation of the creditor
     relationship with the Company arising from the making, drawing, negotiating
     or incurring of the draft, bill of exchange, acceptance or obligation.

                                  ARTICLE EIGHT

                         CONCERNING THE SECURITYHOLDERS

          SECTION 8.01. EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Whenever in
this Indenture it is provided that the holders of a specified percentage or a
majority in aggregate principal amount of the Securities or of any series of
Securities may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action)
the fact that at the time of taking any such action the holders of such
specified percentage or majority have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Securityholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Securities voting in favor thereof at any meeting
of Securityholders duly called and held in accordance with the provisions of
Article Nine, or (c) by a combination of such instrument or instruments and any
such record of such a meeting of Securityholders.

          SECTION 8.02. PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF
SECURITIES. Subject to the provisions of Sections 7.01, 7.02 and 9.05, proof of
the execution of



                                     - 34 -

any instrument by a Securityholder or his agent or proxy and proof of the
holding by any person of any of the Securities shall be sufficient if made in
the following manner:

          The fact and date of the execution by any such person of any
instrument may be proved by the certificate of any notary public or other
officer authorized to take acknowledgments of deeds to be recorded in any State
within the United States, that the person executing such instrument acknowledged
to him the execution thereof, or by an affidavit of a witness to such execution
sworn to before any such notary or other such officer. Where such execution is
by an officer of a corporation or association or a member of a partnership on
behalf of such corporation, association or partnership, such certificate or
affidavit shall also constitute sufficient proof of his authority. The fact and
the date of the execution of any such instrument may also be proved in any other
manner which the Trustee may deem sufficient.

          The ownership of Securities may be proved by the Security Register or
by a certificate of the Security registrar.

          The Trustee may require such additional proof, if any, of any material
referred to in this Section as it shall deem necessary.

          The record of any Securityholders' meeting shall be proved as provided
in Section 9.06.

          SECTION 8.03. REGISTERED HOLDERS OF SECURITIES MAY BE TREATED AS
OWNERS. The Company, the Trustee, any paying agent, and any Security registrar
may deem and treat the person in whose name any Security shall be registered
upon the Security Register as the absolute owner of such Security (whether or
not such Security shall be overdue and notwithstanding any notice of ownership
or writing thereon made by anyone other than the Security registrar) for the
purpose of receiving payment thereof or on account thereof and of interest
thereon as herein provided and for all other purposes, and neither the Company
nor the Trustee nor any paying agent nor any Security registrar shall be
affected by any notice to the contrary. All such payments so made to any such
registered holder for the time being, or upon his order, shall be valid, and, to
the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.

          SECTION 8.04. SECURITIES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In
determining whether the holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver, only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section, if the pledgee shall
establish to the satisfaction of the Trustee that the pledgee has the right to
vote such Securities and that the pledgee is not a person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. Subject to the provisions of Section 7.01, in
case of a dispute as to such right, any decision by the Trustee, taken upon the
advice of counsel, shall be full protection to the Trustee.



                                     - 35 -

          SECTION 8.05. RIGHT OF REVOCATION OF ACTION TAKEN. At any time prior
to (but not after) the evidencing to the Trustee, as provided in Section 8.01,
of the taking of any action by the holders of the percentage in aggregate
principal amount of the Securities or of any series of Securities specified in
this Indenture in connection with such action, any holder of a Security the
serial number of which is shown by the evidence to be included in the Securities
the holders of which have consented to such action may, by filing written notice
with the Trustee at its principal office and upon proof of holding as provided
in Section 8.02, revoke such action so far as concerns such Security. Except as
aforesaid, any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security, and of any Security issued in exchange therefor or in place
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Security or any Security issued in exchange therefor or in place
thereof. Any action taken by the holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action shall be conclusively binding upon the Company, the Trustee and
the holders of all the Securities.

                                  ARTICLE NINE

                            SECURITYHOLDERS' MEETINGS

          SECTION 9.01. PURPOSES FOR WHICH SECURITYHOLDERS' MEETINGS MAY BE
CALLED. A meeting of Securityholders may be called at any time and from time to
time pursuant to this Article for any of the following purposes:

               (1)  to give any notice to the Company or to the Trustee, or to
     give any directions to the Trustee, or to waive or to consent to the
     waiving of any default hereunder and its consequences, or to take any other
     action authorized to be taken by Securityholders pursuant to Article Six;

               (2)  to remove the Trustee and appoint a successor trustee
     pursuant to Article Seven;

               (3)  to consent to the execution of an indenture or indentures
     supplemental hereto pursuant to Section 10.02; or

               (4)  to take any other action authorized to be taken by or on
     behalf of the holders of any specified aggregate principal amount of the
     Securities under any other provision of this Indenture or under applicable
     law.

          SECTION 9.02. CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time
call a meeting of Securityholders of any series to be held at any such time and
at such place in the Borough of Manhattan, The City of New York, as the Trustee
shall determine. Notice of every meeting of Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed by the Trustee, first-class postage
prepaid, not less than 20 nor more than 180 days prior to the date fixed for the
meeting, to the holders of Securities of such series at their last addresses as
they shall appear upon the Security Register.



                                     - 36 -

          SECTION 9.03. COMPANY AND SECURITYHOLDERS MAY CALL MEETING. In case
the Company, pursuant to a resolution of its Board of Directors, or the holders
of at least 10% in aggregate principal amount of the Securities of any series
then outstanding, shall have requested the Trustee to call a meeting of
Securityholders of such series, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have made the mailing of the notice of such meeting within 20 days after receipt
of such request, then the Company or the holders of such Securities in the
amount above specified may determine the time and the place in said Borough of
Manhattan for such meeting and may call such meeting to take any action
authorized in Section 9.01, by mailing notice thereof as provided in Section
9.02.

          SECTION 9.04. PERSONS ENTITLED TO VOTE AT MEETING. To be entitled to
vote at any meeting of Securityholders of a series a person shall be (a) a
registered holder of one or more Securities of such series or (b) a person
appointed by an instrument in writing as proxy for the holder or holders of such
Securities by a registered holder of one or more such Securities. The only
persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.

          SECTION 9.05. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT
OF MEETING. Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Securityholders, in regard to proof of the holding of Securities and of the
appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 8.02 or other proof.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 8.02 and the
appointment of any proxy shall be proved in the manner specified in said Section
8.02 or by having the signature of the person executing the proxy witnessed or
guaranteed by any bank, banker, trust company or firm satisfactory to the
Trustee.

          The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 9.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Securities represented at the meeting and entitled to
vote.

          Subject to the provisions of Section 8.04, at any meeting any
Securityholder of a series or proxy shall be entitled to one vote for each
$1,000 principal amount of Securities of such series held or represented by him
(in the case of Original Issue Discount Securities, such principal amount is the
amount that would be due and payable upon the acceleration of the maturity
thereof pursuant to Section 6.01) provided, however, that no vote shall be cast
or counted at any meeting in respect of any Security challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman of the meeting shall have no right to vote other than by virtue of
Securities of such series held by him or instruments in writing as aforesaid
duly designating him as the person to vote on behalf of other Securityholders of
such



                                     - 37 -

series. Any meeting of Securityholders duly called pursuant to Section 9.02 or
9.03 may be adjourned from time to time, and the meeting may be held as so
adjourned without further notice.

          At any meeting, the presence of persons holding or representing
Securities in an aggregate principal amount sufficient to take action upon the
business for the transaction of which such meeting was called shall be necessary
to constitute a quorum; but, if less than a quorum be present, the persons
holding or representing a majority of the Securities represented at the meeting
may adjourn such meeting with the same effect, for all intents and purposes, as
though a quorum had been present.

          SECTION 9.06. COUNTING VOTE AND RECORDING ACTION OF MEETING. The vote
upon any resolution submitted to any meeting of Securityholders of a series
shall be by written ballots on which shall be subscribed the signatures of the
holders of Securities of such series or of their representatives by proxy and
the serial number or numbers of the Securities of such series held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Securityholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Sections 9.02 and 9.03. The record shall show
the serial numbers of the Securities voting in favor of or against any
resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

          Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

                                   ARTICLE TEN

                             SUPPLEMENTAL INDENTURES

          SECTION 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
SECURITYHOLDERS. The Company, when authorized by a resolution of its Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act of 1939 as it shall be in force at the
date of execution of such indenture or indentures) for one or more of the
following purposes:

               (a)  to evidence the succession of another corporation to the
     Company, or successive successions, and the assumption by the Successor of
     the covenants, agreements and obligations of the Company pursuant to
     Article Eleven;



                                     - 38 -

               (b)  to add to the covenants and agreements of the Company such
     further covenants, agreements, restrictions or conditions for the
     protection of the holders of the Securities of all or any series as its
     Board of Directors and the Trustee shall consider to be for the protection
     of the holders of Securities of such series (and if such covenants,
     agreements, restrictions or conditions are to be for the benefit of less
     than all series of Securities, stating that such covenants, agreements,
     restrictions or conditions are expressly being included for the benefit of
     such series), and to make the occurrence, or the occurrence and
     continuance, of a default in any of such additional covenants, agreements,
     restrictions or conditions a default or an Event of Default permitting the
     enforcement of all or any of the several remedies provided in this
     Indenture as herein set forth; provided, however, that in respect of any
     such additional covenant, agreement, restriction or condition such
     supplemental indenture may provide for a particular period of grace after
     default (which period may be shorter or longer than that allowed in the
     case of other defaults) or may provide for an immediate enforcement upon
     such default or may limit the remedies available to the Trustee upon such
     default or may limit the right of the holders of Securities to waive such
     default;

               (c)  to add, delete or modify any Events of Default with respect
     to all or any series of the Securities, the form and terms of which are
     being established pursuant to such supplemental indenture as permitted in
     Sections 2.01, 2.02 and 2.03 (and, if any such event of default is
     applicable to fewer than all such series of the Securities, specifying the
     series to which such event of default is applicable), and to specify the
     rights and remedies of the Trustee and the holders of such Securities in
     connection therewith;

               (d)  to prohibit the authentication and delivery of additional
     series of Securities, to cure any ambiguity or to correct or supplement any
     provision contained herein or in any supplemental indenture which may be
     defective or inconsistent with any other provisions contained herein or in
     any supplemental indenture, or to make such other provisions in regard to
     matters or questions arising under this Indenture as shall not be
     inconsistent with the provisions of this Indenture or any supplemental
     indenture and shall not adversely affect the interests of the holders of
     the Securities;

               (e)  to establish the form and terms of the Securities of any
     series as permitted in Sections 2.01, 2.02 and 2.03, or to authorize the
     issuance of additional Securities of a series previously authorized or to
     add to the conditions, limitations or restrictions on the authorized
     amount, terms of purposes of issue, authentication or delivery of the
     Securities of any series, as herein set forth, or other conditions,
     limitations or restrictions thereafter to be observed; and

               (f)  to evidence and provide for the acceptance of appointment
     hereunder by a successor trustee with respect to the Securities of one or
     more series and to add to or change any of the provisions of this Indenture
     as shall be necessary to provide for or facilitate the administration of
     the trusts hereunder by more than one trustee, pursuant to the requirements
     of Section 7.10.

          The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained but the Trustee shall
not be obligated to enter into any such


                                     - 39 -

supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

          Any supplemental indenture authorized by the provisions of this
Section shall be executed by the Company and the Trustee and shall not require
the consent of the holders of any of the Securities at the time outstanding,
notwithstanding Section 10.02.

          SECTION 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS. With the consent (evidenced as provided in Section 8.01) of the
holders of not less than a majority in aggregate principal amount of the
Securities of any series at the time outstanding, the Company, when authorized
by a resolution of its Board of Directors, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental hereto (which
shall conform to the provisions of the Trust Indenture Act of 1939 as it shall
be in force at the date of execution of such indenture or indentures) for the
purpose, with respect to Securities of such series, of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Indenture
or of any supplemental indenture or of modifying in any manner the rights of the
holders of the Securities of such series; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity, or the earlier
optional date of maturity, if any, of any Security, or reduce the principal
amount thereof or the premium thereon, if any, or reduce the rate or extend the
time of payment of interest thereon, or make the principal thereof or premium,
if any, or interest thereon payable in any coin or currency other than that
provided in such Security without the consent of the holder of each Security so
affected, or (ii) reduce the principal amount of Securities of any series, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Securities of such series then
outstanding.

          Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of the Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion but shall not be obligated to enter into
such supplemental indenture.

          A supplemental indenture which changes or eliminates any provision of
this Indenture or of any series of Securities which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of holders of Securities of such series with respect to such
provision, shall be deemed not to affect the rights under this Indenture of the
holders of Securities of any other series.

          It shall not be necessary for the consent of the Securityholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

          Promptly after the execution by the Company and the Trustee of any
supplemental indenture under this Section, the Company shall mail a notice,
setting forth in general terms the substance of such supplemental indenture, to
the holders of Securities at their last addresses as they shall appear on the
Security Register. Any failure of the Company to mail such notice, or



                                     - 40 -

any defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.

          SECTION 10.03. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution
of any supplemental indenture pursuant to the provisions of this Article, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

          SECTION 10.04. NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL
INDENTURES. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article or after any
action taken at a Securityholders' meeting pursuant to the provisions of Article
Nine may, and if required by the Trustee shall, bear a notation in form approved
by the Trustee as to any matter provided for in such supplemental indenture or
as to any such action. If the Company and the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Company and the Trustee, to any modification of this Indenture contained in any
such supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Securities of such series then
outstanding.

          SECTION 10.05. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee,
subject to Sections 7.01 and 7.02, may receive an Opinion of Counsel as
conclusive evidence that any such supplemental indenture is authorized by the
terms of this Indenture and that it is proper for the Trustee under the
provisions of this Article to join in the execution thereof.

                                 ARTICLE ELEVEN

                         CONSOLIDATION, MERGER AND SALE

          SECTION 11.01. COMPANY MAY CONSOLIDATE OR MERGE, ETC. Subject to the
provisions of Section 11.02, nothing contained in this Indenture shall prevent
any consolidation of the Company with or the merger of the Company into any
other corporation, or any merger of any other corporation into the Company, or
successive consolidations or mergers to which the Company or its successor or
successors shall be a party or parties, or shall prevent any sale, transfer or
lease of the properties of the Company as an entirety or substantially as an
entirety to any other corporation lawfully entitled to acquire the same.

          SECTION 11.02. CONDITIONS TO CONSOLIDATION OR MERGER, ETC. The Company
covenants and agrees that it will not consolidate with or merge into any other
corporation, or sell, transfer or lease its properties as an entirety or
substantially as an entirety to any person unless, and the Company covenants and
agrees that any such consolidation, merger, sale, transfer or lease shall be
upon the conditions that (i) the successor corporation formed by or surviving
any such consolidation or merger or the person to which such sale, transfer or
lease shall have been made ("the Successor") shall be a corporation organized
and existing under the laws of the



                                     - 41 -

United States of America or a state thereof, (ii) the due and punctual payment
of the principal of and premium, if any, and interest on the Securities
according to their tenor, and the due and punctual performance and observance of
all the terms, covenants and conditions of this Indenture, the Securities and
all indentures supplemental hereto to be performed or observed by the Company
shall, by an indenture supplemental hereto, executed and delivered to the
Trustee, be expressly assumed by the Successor, as fully and effectually as if
such Successor had been an original party hereto, and (iii) immediately after
such merger, consolidation, sale, transfer or lease, no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing.

          The Successor, other than a Successor by reason of a lease of the
Company's properties, upon executing such indenture supplemental hereto, in form
satisfactory to the Trustee, shall succeed to and be substituted for the Company
with the same effect as if it had been an original party hereto, thus relieving
the Company of all liabilities hereunder and under the Securities, and the
Successor shall possess and from time to time may exercise each and every power
hereunder of the Company, and may execute and deliver Securities hereunder,
either in the name of the Company or the Successor, and any act or proceeding
required by this Indenture to be done or performed by any board or officer of
the Company may be done or performed with like force and effect by the like
board or officer of the Successor.

          SECTION 11.03. DOCUMENTS AND OPINION TO BE FURNISHED TO THE TRUSTEE.
The Company covenants and agrees that if it shall consolidate with or merge into
any other corporation or if it shall sell, transfer or lease its properties, as
an entirety or substantially as an entirety, the Company will promptly furnish
to the Trustee:

               (1)  A certificate signed by the President or a Vice President
     and by the Treasurer or an Assistant Treasurer or the Secretary or an
     Assistant Secretary of the Successor stating that the covenants of the
     Company contained in Section 11.02 have been complied with;

               (2)  An executed counterpart of any instrument or instruments
     executed by the Company or the Successor in the performance of such
     covenants; and

               (3)  An Opinion of Counsel stating that in the opinion of such
     counsel such covenants have been complied with and that any instrument or
     instruments executed by the Company or the Successor in the performance of
     such covenants comply with the requirements of such covenants.

          Each certificate, instrument and opinion furnished to the Trustee
pursuant to the provisions of this Section shall conform to the requirements of
Section 15.06.

          Subject to the provisions of Sections 7.01 and 7.02, the Trustee may
receive an Opinion of Counsel conforming to the requirements of Section 15.06 as
conclusive evidence that any such consolidation, merger, sale, transfer or
lease, any such assumption and any such supplemental indenture or other
instrument or instruments comply with the provisions of this Article.



                                     - 42 -

                                 ARTICLE TWELVE

                    SATISFACTION AND DISCHARGE OF INDENTURE;
                          DEFEASANCE; UNCLAIMED MONEYS

          SECTION 12.01. SATISFACTION AND DISCHARGE OF INDENTURE. If (a) the
Company shall deliver to the Trustee for cancellation all outstanding
Securities, or (b) all outstanding Securities not delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice of
redemption and the Company shall deposit with the Trustee as trust funds the
entire amount sufficient to pay at maturity or upon redemption all such
Securities not delivered to the Trustee for cancellation, including principal
and premium, if any, and interest due or to become due to such date of maturity
or redemption, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect, and the Trustee, on demand of the Company and at
the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture. The Company agrees
to reimburse the Trustee for any costs or expenses thereafter reasonably and
properly incurred by the Trustee without negligence or bad faith in connection
with this Indenture or the Securities.

          SECTION 12.02. DEFEASANCE. Provided that the same has been duly
authorized with respect to Securities of a particular series pursuant to Section
2.03(1), if, at any time after the date hereof, the Company shall deposit with
the Trustee, in trust for the benefit of the holders thereof, (i) funds
sufficient to pay, or (ii) such amount of direct noncallable obligations of, or
noncallable obligations the payment of principal of and interest on which is
fully guaranteed by, the United States of America, or to the payment of which
obligations or guarantees the full faith and credit of the United States of
America is pledged, as will, or will together with the income thereon without
consideration of any reinvestment thereof, be sufficient to pay all sums due for
principal of, premium, if any, and interest on the Securities of such series, as
they shall become due from time to time, and shall pay all costs, charges and
expenses incurred or to be incurred by the Trustee in relation thereto or in
carrying out the provisions of this Indenture, this Indenture shall cease to be
of further effect with respect to Securities of such series (except as to (i)
rights of registration of transfer, substitution and exchange of Securities of
such series, (ii) rights of holders to receive payments of, principal of,
premium, if any, and interest on the Securities of such series as they shall
become due from time to time and other rights, duties and obligations of
Securityholders as beneficiaries hereof with respect to the amounts so deposited
with the Trustee, and (iii) the rights, obligations and immunities of the
Trustee hereunder (for which purposes the Securities of such series shall be
deemed outstanding)), and the Trustee, on the written request of the Company,
accompanied by the Officers' Certificate and Opinion of Counsel required by
Section 15.06, shall execute and deliver to the Company such instruments as
shall be requisite to evidence the satisfaction thereof with respect to
Securities of such series.

          SECTION 12.03. APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT
OF SECURITIES. All moneys deposited with the Trustee pursuant to Sections 12.01
and 12.02, or received by the Trustee in respect of obligations deposited with
the Trustee pursuant to Section 12.02 shall be held in trust and applied by it
to the payment, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the particular



                                     - 43 -

Securities, for the payment of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon for principal, premium, if
any, and interest.

          SECTION 12.04. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture all moneys then held by
any paying agent, other than the Trustee, under this Indenture shall, upon and
in accordance with demand of the Company, be paid to the Trustee and thereupon
such paying agent shall be released from all further liability with respect to
such moneys.

          SECTION 12.05. RETURN OF UNCLAIMED MONEYS. Any moneys deposited with
the Trustee or any paying agent not applied but remaining unclaimed by the
holders of Securities for 2 years after the date upon which the principal of and
premium, if any, or interest on such Securities shall have become due and
payable shall be repaid to the Company by the Trustee or such paying agent on
written demand; and the holder of any of the Securities entitled to receive such
payment shall thereafter look only to the Company for the payment thereof and
all liability of the Trustee or any such paying agent with respect to such
moneys shall thereupon cease. In the absence of any such Company Order, the
Trustee or any such paying agent shall from time to time deliver such unclaimed
funds to, or as directed by, the pertinent escheat authority, as identified by
the Trustee or such paying agent in its sole discretion, pursuant to and in
accordance with applicable unclaimed property laws, rules or regulations. Any
such delivery shall be in accordance with the customary practices and procedures
of the Trustee or such paying agent and the escheat authority and, upon any such
delivery, all liability of the Trustee and such paying agent with respect to
such unclaimed funds shall thereupon cease.

                                ARTICLE THIRTEEN

         IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

          SECTION 13.01. PERSONAL IMMUNITY FROM LIABILITY OF INCORPORATORS,
STOCKHOLDERS, ETC. No recourse under or upon any obligation, covenant or
agreement of this Indenture or any indenture supplemental hereto, or of any
Security, or for any claim based thereon or otherwise in respect thereof, shall
be had against any incorporator or against any past, present or future
stockholder, officer or member of the Board of Directors, as such, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability and any and all such claims being hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Securities.

                                ARTICLE FOURTEEN

                                  SUBORDINATION

          SECTION 14.01. SECURITIES SUBORDINATED TO SENIOR DEBT. With respect to
Securities of any series as to which, pursuant to Section 2.03(n), it has been
established that this



                                     - 44 -

Article Fourteen applies (herein called the "Subordinated Securities"), the
Company covenants and agrees, and each holder of Subordinated Securities, by his
acceptance thereof, likewise covenants and agrees, that the indebtedness
represented by the Subordinated Securities and the payment of the principal of,
premium, if any, and interest on each and all of the Subordinated Securities are
hereby expressly subordinate and junior to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of all
Senior Indebtedness. "Senior Indebtedness" means all indebtedness of the Company
for the repayment of money borrowed (whether or not represented by bonds,
debentures, notes or other securities) other than the indebtedness evidenced by
the Subordinated Securities and any indebtedness subordinated to, or
subordinated on parity with, the Subordinated Securities. "Senior Indebtedness"
does not include customer deposits or other amounts securing obligations of
others to the Company.

          SECTION 14.02. EVENTS OF SUBORDINATION. In the event (a) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for the benefit
of creditors or any other marshalling of the assets and liabilities of the
Company or otherwise, except a distribution in connection with a consolidation,
merger or sale, transfer or lease of the properties of the Company which
complies with the requirements of Section 11.02, or (b) the principal of any
Senior Indebtedness shall have been declared due and payable by reason of an
event of default with respect thereto and such event of default shall not have
been rescinded, then:

                    (1)  in the circumstance described in the foregoing clause
          (a) the holders of all Senior Indebtedness, and in the circumstance
          described in the foregoing clause (b) the holders of all Senior
          Indebtedness outstanding at the time the principal of such Senior
          Indebtedness shall have been so declared due and payable, shall first
          be entitled to receive payment of the full amount due thereon in
          respect of principal, premium, if any, and interest, or provision
          shall be made for such amount in money or money's worth, before the
          holders of any of the Subordinated Securities are entitled to receive
          any payment on account of the principal of, premium, if any, or
          interest on the indebtedness evidenced by the Subordinated Securities;

                    (2)  any payment by, or distribution of assets of, the
          Company of any kind or character, whether in cash, property or
          securities (other than securities of the Company as reorganized or
          readjusted or securities of the Company or any other corporation
          provided for by a plan of reorganization or readjustment the payment
          of which is subordinate, at least to the extent provided in this
          Article with respect to the Subordinated Securities, to the payment of
          all Senior Indebtedness, provided that the rights of the holders of
          the Senior Indebtedness are not altered by such reorganization or
          readjustment), to which the holders of any of the Subordinated
          Securities or the Trustee would be entitled except for the provisions
          of this Article shall be paid or delivered by the person making such
          payment or distribution, whether a trustee in bankruptcy, a receiver
          or liquidating trustee or otherwise, directly to the holders of such
          Senior Indebtedness or their representative or representatives or to
          the trustee or trustees under any indenture under which any
          instruments evidencing any of such Senior Indebtedness may have been
          issued, ratably according to the aggregate amounts remaining unpaid on
          account of such Senior Indebtedness held or represented by



                                     - 45 -

          each, to the extent necessary to make payment in full of all Senior
          Indebtedness remaining unpaid after giving effect to any concurrent
          payment or distribution (or provision therefor) to the holders of such
          Senior Indebtedness, before any payment or distribution is made to the
          holders of the indebtedness evidenced by the Subordinated Securities
          or to the Trustee under this Indenture; and

                    (3)  in the event that, notwithstanding the foregoing, any
          payment by, or distribution of assets of, the Company of any kind of
          character, whether in cash, property or securities (other than
          securities of the Company as reorganized or readjusted or securities
          of the Company or any other corporation provided for by a plan of
          reorganization or readjustment the payment of which is subordinate, at
          least to the extent provided in this Article with respect to the
          Subordinated Securities, to the payment of all Senior Indebtedness,
          provided that the rights of the holders of Senior Indebtedness are not
          altered by such reorganization or readjustment), shall be received by
          the Trustee or the holders of any of the Subordinated Securities
          before all Senior Indebtedness is paid in full, such payment or
          distribution shall be paid over to the holders of such Senior
          Indebtedness or their representative or representatives or to the
          trustee or trustees under any indenture under which any instruments
          evidencing any of such Senior Indebtedness may have been issued,
          ratably as aforesaid, for application to the payment of all Senior
          Indebtedness remaining unpaid until all such Senior Indebtedness shall
          have been paid in full, after giving effect to any concurrent payment
          or distribution (or provision therefor) to the holders of such Senior
          Indebtedness.

          SECTION 14.03. SUBROGATION. Subject to the payment in full of all
Senior Indebtedness, the holders of the Subordinated Securities shall be
subrogated to the rights of the holders of such Senior Indebtedness to receive
payments or distribution of cash, property or securities of the Company
applicable to such Senior Indebtedness until all amounts owing on the
Subordinated Securities shall be paid in full, and, as among the Company, its
creditors other than holders of such Senior Indebtedness, and the holders of the
Subordinated Securities, no such payment or distribution made to the holders of
Senior Indebtedness by virtue of this article which otherwise would have been
made to the holders of the Subordinated Securities shall be deemed to be a
payment by the Company on account of such Senior Indebtedness, it being
understood that the provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the holders of the Subordinated
Securities, on the one hand, and the holders of Senior Indebtedness, on the
other hand.

          SECTION 14.04. OBLIGATION OF COMPANY UNCONDITIONAL. Nothing contained
in this Article or elsewhere in this Indenture or in the Subordinated Securities
is intended to or shall impair, as among the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Subordinated
Securities the obligation of the Company, which is absolute and unconditional to
pay to the holders of the Subordinated Securities the principal of, premium, if
any, and interest on the Subordinated Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Subordinated Securities
and creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the holder of any
Subordinated Security from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article of the holders of



                                     - 46 -

Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.

          Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the holders of the Subordinated Securities
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which any such dissolution, winding up, liquidation or
reorganization proceeding affecting the affairs of the Company is pending or
upon a certificate of the trustee in bankruptcy, receiver, assignee for the
benefit of creditors, liquidating trustee or agent or other Person making any
payment or distribution, delivered to the Trustee or to the holders of the
Subordinated Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount paid or distributed thereon and all other facts
pertinent thereto or to this Article. In the event that the Trustee determines,
in good faith, that further evidence is required with respect to the right of
any person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Section, the Trustee may request such person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, as to the extent to which such
Person is entitled to participate in such payment or distribution, and as to
other facts pertinent to the right of such Person under this Section, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

          SECTION 14.05. PAYMENTS ON SUBORDINATED SECURITIES PERMITTED. Nothing
contained in this Article or elsewhere in this Indenture, or in any of the
Subordinated Securities, shall affect the obligation of the Company to make, or
prevent the Company from making, payments of the principal of, premium, if any,
or interest on the Subordinated Securities in accordance with the provision
hereof and thereof, or shall prevent the Trustee or any paying agent of the
Company from applying any moneys deposited with it hereunder to the payment of
the principal of, premium, if any, or interest on the Subordinated Securities,
in each case except as otherwise provided in this Article.

          SECTION 14.06. EFFECTUATION OF SUBORDINATION BY TRUSTEE. Each holder
of Subordinated Securities, by his acceptance thereof, authorizes and directs
the Trustee in his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.

          SECTION 14.07. KNOWLEDGE OF TRUSTEE. Notwithstanding the provisions of
this Article or any other provisions of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment of moneys to or by the Trustee, or the taking of any other
action by the Trustee (and shall not be liable for making such payment or taking
such action), unless and until a responsible officer of the Trustee having
responsibility for the administration of the trust established by this Indenture
shall have received written notice thereof from the Company, any holder of
Subordinated Securities, any paying agent of the Company or any holder or
representative of any class of Senior Indebtedness, and, prior to the receipt of
any such written notice, the Trustee shall be entitled in all respects to assume
that no such facts exist; provided that, if prior to the third business day
preceding the date upon which by the terms hereof any monies become payable for
any purpose (including, without limitation, the payment of either the principal
of or interest on



                                      - 47 -

any Subordinated Security), or the date of the execution of an instrument
pursuant to Section 12.02 acknowledging satisfaction and discharge of this
Indenture, a responsible officer of the Trustee shall not have received with
respect to such monies or to such funds or obligations deposited pursuant to
Section 12.02, the notice provided for in this Section 14.07, then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such monies or such funds or obligations and
apply the same to the purpose for which they were received and shall not be
affected by any notice to the contrary which may be received by it on or after
such date.

          SECTION 14.08. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee
shall be entitled to all the rights set forth in this Article with respect to
any Senior Indebtedness at the time held by it, to the same extent as any other
holder of Senior Indebtedness, and nothing in Section 7.12 or elsewhere in this
Indenture shall deprive the Trustee of any of its rights as such holder. Nothing
in this Article shall apply to claims of or payments to the Trustee under or
pursuant to Section 7.06.

          With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and the Trustee shall
not be liable to any holder of Senior Indebtedness, if it shall mistakenly pay
over or deliver to holders of Subordinated Securities, the Company or any other
Person monies or assets to which any holder of Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.

          SECTION 14.09. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT IMPAIRED.
No right of any present or future holder of any Senior Indebtedness to enforce
the subordination herein shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.

                                 ARTICLE FIFTEEN

                            MISCELLANEOUS PROVISIONS

          SECTION 15.01. SUCCESSORS. All the covenants, stipulations, promises
and agreements in this Indenture contained by or in behalf of the Company shall
bind its successors and assigns, whether so expressed or not.

          SECTION 15.02. BENEFITS OF INDENTURE RESTRICTED TO PARTIES AND
SECURITYHOLDERS. Nothing in this Indenture or in the Securities, expressed or
implied, shall give or be construed to give to any person, other than the
Company, the Trustee and the Securityholders, any legal or equitable right,
remedy or claim under or in respect of this Indenture.



                                     - 48 -

          SECTION 15.03. PAYMENTS DUE ON SUNDAYS AND HOLIDAYS. In any case where
the date of maturity of principal of or interest on any Securities or the date
fixed for redemption of any Securities shall be a Sunday or legal holiday or a
day on which banking institutions in the City of New York are authorized by law
to close, then payment of interest or principal and premium, if any, may be made
on the next succeeding business day with the same force and effect as if made on
the date of maturity or the date fixed for redemption and no interest shall
accrue for the period after such date.

          SECTION 15.04. NOTICES AND DEMANDS ON COMPANY AND TRUSTEE. Any notice
or demand which by any provision of this Indenture is required or permitted to
be given or served by the Trustee or by the holders of Securities on the Company
shall be in writing and shall be deemed to have been sufficiently given or
served, for all purposes, if given or served at, or sent by registered mail to,
the principal office of the Company (until another address is filed in writing
by the Company with the Trustee). Any notice, direction, request or demand by
any Securityholder to or upon the Trustee shall be in writing and shall be
deemed to have been sufficiently given or made, for all purposes, if given or
made at, or sent by registered mail to, the office of the Trustee located at 450
West 33rd Street, New York, New York 10001, Attention: Capital Markets Fiduciary
Services, or at any other address previously furnished in writing to the Company
by the Trustee. Any notice required or permitted to be mailed to a
Securityholder by the Company or the Trustee pursuant to the provisions of this
Indenture shall be in writing and shall be deemed to be properly mailed by being
deposited, first class mail postage prepaid, in a post office letter box in the
United States addressed to such Securityholder at the address of such holder as
shown on the Security Register.

          SECTION 15.05. LAW OF NEW YORK TO GOVERN. This Indenture and each
Security shall be deemed to be a contract made under the law of the State of New
York, and for all purposes shall be construed in accordance with the law of said
State.

          SECTION 15.06. OFFICERS' CERTIFICATES AND OPINIONS OF COUNSEL;
STATEMENTS TO BE CONTAINED THEREIN. Upon any application or demand by the
Company to the Trustee to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent provided for in this Indenture relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relative to such particular application or demand, no
additional certificate or opinion need be furnished.

          Each certificate or opinion provided for in this Indenture, and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture, shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition and the
definitions herein relating thereto; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (3) a statement that, in the
opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and (4) a statement as to whether
or not, in the opinion of such person, such condition or covenant has been
complied with.



                                     - 49 -

          SECTION 15.07. CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST
INDENTURE ACT OF 1939. If and to the extent that any provision of this Indenture
(or any provision of the terms of a series of Securities) limits, qualifies or
conflicts with another provision included in this Indenture which is required to
be included in this Indenture by any of sections 310 to 317, inclusive, of the
Trust Indenture Act of 1939, such required provision shall control.

          SECTION 15.08. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.

          SECTION 15.09. SEVERABILITY. If any provision of this Indenture shall
be held or deemed to be or shall, in fact, be inoperative or unenforceable as
applied in any particular case in any jurisdiction or jurisdictions or in all
jurisdictions, or in all cases because it conflicts with any other provision or
provisions hereof or any constitution or statute or rule of public policy or for
any other reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatever.



                                     - 50 -

          IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

                                 ORANGE AND ROCKLAND UTILITIES, INC.


                                 By
                                      Hyman Schoenblum
                                      Vice President and Chief Financial Officer


[CORPORATE SEAL]
ATTEST:

- -----------------------------
[Title]

                                 THE CHASE MANHATTAN BANK,
                                   Trustee


                                 By
                                      James P. Freeman
                                      Vice President


[CORPORATE SEAL]
ATTEST:

- -----------------------------
[Title]



                                     - 51 -

STATE OF NEW YORK   )
                    )   ss.
COUNTY OF NEW YORK  )

     On the 15th day of June, 2000 before me personally came Hyman Schoenblum,
to me known, who, being by me duly sworn, did depose and say that he is a Vice
President and Chief Financial Officer of ORANGE AND ROCKLAND UTILITIES, INC.,
one of the corporations described in and which executed the above instrument;
that he knows the corporate seal of said corporation; that the seal affixed to
the said instrument is such corporate seal; that it was so affixed by authority
of the Board of Directors of said corporation; and that he signed his name
thereto by like authority.

[NOTORIAL SEAL]

                                              ----------------------------------
                                              Peter J. Barrett
                                              Notary Public, State of New York
                                              No. 4973207
                                              Qualified in Westchester County
                                      Commission Expires: October 15, 2000


STATE OF NEW YORK   )
                    )   ss.
COUNTY OF NEW YORK  )

     On the 15th day of June, 2000 before me personally came James P. Freeman,
to me known, who, being by me duly sworn, did depose and say that he is a Vice
President of THE CHASE MANHATTAN BANK, one of the corporations described in and
which executed the above instrument; that he knows the corporate seal of said
corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.

[NOTORIAL SEAL]

                                              ----------------------------------
                                              Peter J. Barrett
                                              Notary Public, State of New York
                                              No. 4973207
                                              Qualified in Westchester County
                                      Commission Expires: October 15, 2000



              ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
                                                                    EXHIBIT 12.3
                       RATIO OF EARNINGS TO FIXED CHARGES
                               Twelve Months Ended
                             (Thousands of Dollars)




                                                              December    December    December    December    December
                                                                1998        1999        2000        2001        2002
                                                             -----------------------------------------------------------
                                                                                               

EARNINGS
        Net Income                                             $44,968    $14,726      $39,069     $40,182      $44,896
        Federal Income & State Tax                              24,877     40,101       24,654      25,937       24,574

        Total Earnings Before Federal and State Income Tax      69,845     54,827       63,723      66,119       69,470

FIXED CHARGES*                                                  36,973     35,454       27,141      26,373       30,118
                                                             -----------------------------------------------------------
                    Total Earnings Before Federal and State
                       Income Tax and Fixed Charges           $106,818    $90,281      $90,864     $92,492      $99,588
                                                             ===========================================================



        * Fixed Charges

        Interest on Long-Term Debt                              23,867     26,326       21,873      21,855       21,218
        Amortization of Debt Discount, Premium and Expense       1,138      1,208        1,060         994          961
        Interest Component on lease Payment                      2,505      2,583        1,257       1,305        1,598
        Other Interest                                           9,463      5,337        2,951       3,213        7,302
                                                             -----------------------------------------------------------

                    Total Fixed Charges                         36,973     35,454       27,141      27,367       31,079
                                                             ===========================================================



        Ratio of Earnings to Fixed Charges                        2.89       2.55         3.35        3.38         3.20
                                                             ===========================================================



                                                                  EXHIBIT 99.3.1

Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, John D. McMahon, the Chief Executive Officer of Orange and Rockland
Utilities, Inc. (the "Company") certify that the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, which this statement
accompanies, (the "Form 10-K") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78o(d)) and that the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.

                                                    /s/ John D. McMahon
                                                    ---------------------
                                                    John D. McMahon


Dated: February 27, 2003



                                                                  EXHIBIT 99.3.2

Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

I, Edward J. Rasmussen, the Chief Financial Officer of Orange and Rockland
Utilities, Inc. (the "Company") certify that the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, which this statement
accompanies, (the "Form 10-K") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78o(d)) and that the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of the Company.

                                                /s/ Edward J. Rasmussen
                                                -------------------------
                                                Edward J. Rasmussen


Dated: February 27, 2003