FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
[x] Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
_________________________
Commission Exact name of registrant as specified in its charter State of I.R.S. Employer
File Number and principal office address and telephone number Incorporation I.D. Number
1-14514 CONSOLIDATED EDISON, INC. New York 13-3965100
4 Irving Place, New York, New York 10003
(212) 460-3900
1-1217 CONSOLIDATED EDISON COMPANY
of New York, Inc. New York 13-5009340
4 Irving Place, New York, New York 10003
(212) 460-4600
Each Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
Yes ___X___ No _______
As of the close of business on October 31, 1998, (i) Consolidated Edison,
Inc. ("CEI") had outstanding 233,186,794 Common Shares ($.10 par value) and (ii)
all of the outstanding Common Stock ($2.50 par value) of Consolidated Edison
Company of New York, Inc. was held by CEI.
- 2 -
TABLE OF CONTENTS
PAGE
FILING FORMAT 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Edison, Inc.
Consolidated Balance Sheet 3-4
Consolidated Income Statements 5-7
Consolidated Statements of Cash Flows 8-9
Consolidated Edison Company of New York, Inc.
Consolidated Balance Sheet 10-11
Consolidated Income Statements 12-14
Consolidated Statement of Cash Flows 15-16
Notes to Financial Statements 17-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 19-28
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 28
ABOUT MARKET RISK
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 29-30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 30-31
_________________________
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined quarterly report being filed
separately by two different registrants: CEI and Consolidated Edison Company of
New York, Inc. ("Con Edison"). CEI became the holding company for Con Edison on
January 1, 1998. See "Corporate Structure" in Item 1 of the combined CEI and Con
Edison Annual Reports on Form 10-K for the year ended December 31, 1997 (File
Nos. 1-14514 and 1-1217, the "1997 Form 10-K"). Any references in this report
to the "Company" are to CEI and Con Edison, collectively. Con Edison makes no
representation as to the information contained in this report relating to CEI
and the subsidiaries of CEI other than Con Edison.
-3-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
AS AT SEPTEMBER 30, 1998, DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
------------------------------------------------------------------
As At
---------------
Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
--------------- -------------- --------------
(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric $11,944,613 $11,743,745 $11,791,029
Gas 1,807,946 1,741,562 1,713,438
Steam 594,841 576,206 566,576
General 1,203,783 1,203,427 1,194,314
----------- ----------- -----------
Total 15,551,183 15,264,940 15,265,357
Less: Accumulated depreciation 4,630,649 4,392,377 4,493,341
----------- ----------- -----------
Net 10,920,534 10,872,563 10,772,016
Construction work in progress 315,912 292,218 278,244
Nuclear fuel assemblies and components,
less accumulated amortization 105,113 102,321 99,498
----------- ----------- -----------
NET UTILITY PLANT 11,341,559 11,267,102 11,149,758
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary cash investments 153,824 183,458 269,866
Funds held for redemption of preferred stock 74,156 - -
Funds held for refunding of debt - 328,874 -
Accounts receivable customer, less
allowance for uncollectible accounts
of $23,778, $21,600 and $21,674 618,287 581,163 543,821
Other receivables 45,668 60,759 62,921
Regulatory accounts receivable (917) (1,682) 10,013
Fuel, at average cost 29,324 53,697 41,894
Gas in storage, at average cost 52,320 37,209 49,099
Materials and supplies, at average cost 188,735 191,759 198,667
Prepayments 241,671 75,516 201,729
Other current assets 17,153 16,457 16,021
----------- ----------- -----------
TOTAL CURRENT ASSETS 1,420,219 1,527,210 1,394,031
----------- ----------- -----------
Investments and nonutility property 345,724 292,397 230,789
----------- ----------- -----------
Deferred charges
Enlightened Energy program costs 79,704 117,807 112,164
Unamortized debt expense 134,605 126,085 123,273
Recoverable fuel costs 21,411 98,301 57,399
Power contract termination costs 70,282 80,978 54,330
Other deferred charges 248,867 239,559 268,779
----------- ----------- -----------
TOTAL DEFERRED CHARGES 554,869 662,730 615,945
----------- ----------- -----------
Regulatory asset-future federal
INCOME TAXES 860,841 973,079 930,681
----------- ----------- -----------
TOTAL $14,523,212 $14,722,518 $14,321,204
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-4-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
AS AT SEPTEMBER 30, 1998, DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
------------------------------------------------------------------
As At
-------------------------------------------------
Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
-------------- ------------- --------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, authorized 500,000,000
shares; outstanding 233,186,794 shares,
235,489,650 shares and 235,033,168 shares $ 1,482,342 $ 1,482,351 $ 1,478,840
Treasury stock, at cost; 1998 - 2,301,300 shares (102,178) - -
Retained earnings 4,692,205 4,484,703 4,469,185
Capital stock expense (36,759) (36,975) (36,249)
----------- ----------- --------------
Total common shareholders' equity 6,035,610 5,930,079 5,911,776
----------- ----------- --------------
Preferred stock
Subject to mandatory redemption
7.20% Series I 47,500 47,500 47,500
6-1/8% Series J 37,050 37,050 37,050
----------- ----------- --------------
TOTAL SUBJECT TO MANDATORY REDEMPTION 84,550 84,550 84,550
----------- ----------- --------------
Other preferred stock
$ 5 Cumulative Preferred 175,000 175,000 175,000
5-3/4% Series A 7,061 7,061 7,061
5-1/4% Series B 13,844 13,844 13,844
4.65% Series C 15,330 15,330 15,330
4.65% Series D 22,233 22,233 22,233
6% Convertible Series B - - 4,326
----------- ----------- --------------
TOTAL OTHER PREFERRED STOCK 233,468 233,468 237,794
----------- ----------- --------------
TOTAL PREFERRED STOCK 318,018 318,018 322,344
----------- ----------- --------------
Long-term debt 4,047,837 4,188,906 4,288,837
----------- ----------- --------------
TOTAL CAPITALIZATION 10,401,465 10,437,003 10,522,957
---------- ----------- --------------
NONCURRENT LIABILITIES
Obligations under capital leases 37,771 39,879 40,575
Other noncurrent liabilities 158,235 106,137 83,926
----------- ----------- --------------
TOTAL NONCURRENT LIABILITIES 196,006 146,016 124,501
----------- ----------- --------------
CURRENT LIABILITIES
Long-term debt due within one year 325,000 529,385 102,630
Accounts payable 364,093 440,114 416,872
Customer deposits 177,023 161,731 161,548
Accrued taxes 150,516 65,736 145,440
Accrued interest 70,356 85,613 67,336
Accrued wages 82,691 82,556 80,345
Other current liabilities 179,193 183,122 132,999
----------- ----------- --------------
TOTAL CURRENT LIABILITIES 1,348,872 1,548,257 1,107,170
----------- ----------- --------------
PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES
AND OTHER DEFERRED CREDITS
Accumulated deferred federal income tax 2,306,304 2,307,835 2,299,834
Accumulated deferred investment tax credits 157,110 163,680 165,850
Other deferred credits 113,455 119,727 100,892
----------- ----------- --------------
TOTAL DEFERRED CREDITS 2,576,869 2,591,242 2,566,576
----------- ----------- --------------
TOTAL $14,523,212 $14,722,518 $14,321,204
=========== =========== ==============
The accompanying notes are an integral part of these financial statements.
-5-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $1,818,856 $1,786,147
Gas 139,928 157,623
Steam 62,946 67,258
Non-utility 39,893 16,310
---------- ----------
TOTAL OPERATING REVENUES 2,061,623 2,027,338
---------- ----------
OPERATING EXPENSES
Purchased power 322,123 337,088
Fuel 203,186 188,708
Gas purchased for resale 61,230 62,710
Other operations 273,265 272,604
Maintenance 115,259 106,229
Depreciation and amortization 130,206 126,451
Taxes, other than federal income tax 326,063 312,722
Federal income tax 191,888 186,043
---------- ----------
TOTAL OPERATING EXPENSES 1,623,220 1,592,555
---------- ----------
OPERATING INCOME 438,403 434,783
OTHER INCOME (DEDUCTIONS)
Investment income 1,961 2,599
Allowance for equity funds used during construction 647 756
Other income less miscellaneous deductions (10,282) (515)
Federal income tax 1,228 643
---------- ----------
TOTAL OTHER INCOME (6,446) 3,483
---------- ----------
INCOME BEFORE INTEREST CHARGES 431,957 438,266
Interest on long-term debt 76,821 80,330
Other interest 3,913 3,262
Allowance for borrowed funds used during construction (332) (371)
---------- ----------
NET INTEREST CHARGES 80,402 83,221
---------- ----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,537 4,601
---------- ----------
NET INCOME FOR COMMON STOCK $ 347,018 $ 350,444
========== ==========
COMMON SHARES OUTSTANDING AVERAGE (000) 233,628 235,030
BASIC AND DILUTED EARNINGS PER SHARE $1.49 $1.49
========== ==========
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $0.53 $0.525
========== ==========
The accompanying notes are an integral part of these financial statements.
-6-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $4,396,499 $4,283,463
Gas 735,660 826,019
Steam 255,747 291,708
Non-utility 87,805 49,791
---------- ----------
TOTAL OPERATING REVENUES 5,475,711 5,450,981
---------- ----------
OPERATING EXPENSES
Purchased power 1,004,799 1,004,017
Fuel 461,610 462,488
Gas purchased for resale 337,571 403,915
Other operations 838,483 839,560
Maintenance 365,943 367,251
Depreciation and amortization 387,729 375,248
Taxes, other than federal income tax 918,697 888,533
Federal income tax 319,864 301,974
---------- ----------
TOTAL OPERATING EXPENSES 4,634,696 4,642,986
---------- ----------
OPERATING INCOME 841,015 807,995
OTHER INCOME (DEDUCTIONS)
Investment income 7,945 6,577
Allowance for equity funds used during construction 1,734 4,076
Other income less miscellaneous deductions (9,747) (1,241)
Federal income tax 774 (956)
---------- ----------
TOTAL OTHER INCOME 706 8,456
---------- ----------
INCOME BEFORE INTEREST CHARGES 841,721 816,451
Interest on long-term debt 232,864 238,274
Other interest 15,226 10,963
Allowance for borrowed funds used during construction (889) (1,998)
---------- ----------
NET INTEREST CHARGES 247,201 247,239
---------- ----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 13,609 13,808
---------- ----------
NET INCOME FOR COMMON STOCK $ 580,911 $ 555,404
========== ==========
COMMON SHARES OUTSTANDING AVERAGE (000) 234,679 235,016
BASIC AND DILUTED EARNINGS PER SHARE $2.48 $2.36
========== ==========
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $1.59 $1.575
========== ==========
The accompanying notes are an integral part of these financial statements.
-7-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $5,748,611 $5,585,861
Gas 1,003,521 1,069,676
Steam 355,838 377,948
Non-utility 112,911 93,192
---------- ----------
TOTAL OPERATING REVENUES 7,220,881 7,126,677
---------- ----------
OPERATING EXPENSES
Purchased power 1,350,370 1,316,727
Fuel 595,946 585,544
Gas purchased for resale 486,253 549,304
Other operations 1,123,626 1,154,643
Maintenance 473,480 476,586
Depreciation and amortization 515,935 497,868
Taxes, other than federal income tax 1,211,319 1,168,247
Federal income tax 395,612 370,865
---------- ----------
TOTAL OPERATING EXPENSES 6,152,541 6,119,784
---------- ----------
OPERATING INCOME 1,068,340 1,006,893
OTHER INCOME (DEDUCTIONS)
Investment income 13,582 10,219
Allowance for equity funds used during construction 2,106 5,404
Other income less miscellaneous deductions (12,606) (4,685)
Federal income tax (268) (1,195)
---------- ----------
TOTAL OTHER INCOME 2,814 9,743
---------- ----------
INCOME BEFORE INTEREST CHARGES 1,071,154 1,016,636
Interest on long-term debt 312,748 315,663
Other interest 21,347 14,235
Allowance for borrowed funds used during construction (1,072) (2,621)
---------- ----------
NET INTEREST CHARGES 333,023 327,277
---------- ----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 18,144 18,418
---------- ----------
NET INCOME FOR COMMON STOCK $ 719,987 $ 670,941
========== ==========
COMMON SHARES OUTSTANDING AVERAGE (000) 234,788 235,009
BASIC AND DILUTED EARNINGS PER SHARE $3.07 $2.85
========== ==========
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $2.115 $2.095
========== ==========
The accompanying notes are an integral part of these financial statements.
-8-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income applicable to common stock $ 580,911 $ 555,404
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 387,729 375,248
Deferred recoverable fuel costs 76,890 44,063
Federal income tax deferred 95,510 56,250
Common equity component of allowance
for funds used during construction (1,687) (3,959)
Other non-cash credits (4,696) 18,968
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable customer, less
allowance for uncollectibles (37,124) 183
Regulatory accounts receivable (765) 35,384
Materials and supplies, including fuel
and gas in storage 12,286 24,829
Prepayments, other receivables and
other current assets (151,758) (158,956)
Enlightened Energy program costs 38,103 21,554
Power contract termination costs (54,435) (48,215)
Cost of removal less salvage 904 27,126
Accounts payable (76,021) (14,243)
Accrued income taxes 80,669 101,516
Other-net 31,450 (87,096)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES 977,966 948,056
--------- ---------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (414,249) (433,661)
Nuclear fuel expenditures (4,462) (10,402)
Contributions to nuclear decommissioning trust (15,976) (19,174)
Common equity component of allowance
for funds used during construction 1,687 3,959
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (433,000) (459,278)
--------- ---------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock (102,178) -
Issuance of long-term debt 460,000 150,000
Retirement of long-term debt (100,000) (103,626)
Advance refunding of long-term debt (705,240) -
Issuance and refunding costs (8,544) (2,013)
Funds held for refunding of debt 328,874 -
Funds held for redemption of preferred stock (74,156) -
Common stock dividends (373,356) (370,155)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (574,600) (325,794)
--------- ---------
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (29,634) 162,984
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 183,458 106,882
--------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30 $ 153,824 $ 269,866
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 240,016 $ 247,138
Income taxes 145,935 147,387
The accompanying notes are an integral part of these financial statements.
-9-
CONSOLIDATED EDISON, INC.
-------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income applicable to common stock $ 719,987 $ 670,941
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 515,935 497,868
Deferred recoverable fuel costs 35,988 (26,171)
Federal income tax deferred 61,880 46,090
Common equity component of allowance
for funds used during construction (2,049) (5,212)
Other non-cash credits (6,396) 28,229
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable customer, less
allowance for uncollectibles (74,466) 21,892
Regulatory accounts receivable 10,930 23,488
Materials and supplies, including fuel
and gas in storage 19,281 9,094
Prepayments, other receivables and
other current assets (23,821) (33,559)
Enlightened Energy program costs 32,460 15,143
Power contract termination costs (79,939) (70,743)
Cost of removal less salvage (14,671) 39,113
Accounts payable (52,779) 62,954
Accrued income taxes 2,978 3,338
Other-net 104,720 (44,104)
---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,250,038 1,238,361
---------- ----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (634,809) (630,047)
Nuclear fuel expenditures (8,639) (57,884)
Contributions to nuclear decommissioning trust (18,103) (21,301)
Common equity component of allowance
for funds used during construction 2,049 5,212
---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
INCLUDING CONSTRUCTION (659,502) (704,020)
---------- ----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock (102,178) -
Issuance of long-term debt 790,000 300,000
Retirement of long-term debt (102,630) (179,715)
Advance refunding of long-term debt (705,240) -
Issuance and refunding costs (15,461) (9,688)
Funds held for redemption of preferred stock (74,156) -
Common stock dividends (496,913) (492,351)
---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (706,578) (381,754)
---------- ----------
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (116,042) 152,587
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 269,866 117,279
---------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30 $ 153,824 $ 269,866
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 303,188 $ 302,720
Income taxes 334,179 324,387
The accompanying notes are an integral part of these financial statements.
-10-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
BALANCE SHEET
-------------
AS AT SEPTEMBER 30, 1998, DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
------------------------------------------------------------------
As At
---------------
Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
--------------- -------------- --------------
(Thousands of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric $11,944,613 $11,743,745 $11,791,029
Gas 1,807,946 1,741,562 1,713,438
Steam 594,841 576,206 566,576
General 1,203,783 1,203,427 1,194,314
----------- ----------- -----------
Total 15,551,183 15,264,940 15,265,357
Less: Accumulated depreciation 4,630,649 4,392,377 4,493,341
----------- ----------- -----------
Net 10,920,534 10,872,563 10,772,016
Construction work in progress 315,912 292,218 278,244
Nuclear fuel assemblies and components,
less accumulated amortization 105,113 102,321 99,498
----------- ----------- -----------
NET UTILITY PLANT 11,341,559 11,267,102 11,149,758
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary cash investments 69,170 183,458 269,866
Funds held for redemption of preferred stock 74,156 - -
Funds held for refunding of debt - 328,874 -
Accounts receivable customer, less
allowance for uncollectible accounts
of $22,798, $21,600 and $21,674 600,580 581,163 543,821
Other receivables 44,521 60,759 62,921
Regulatory accounts receivable (917) (1,682) 10,013
Fuel, at average cost 29,324 53,697 41,894
Gas in storage, at average cost 49,208 37,209 49,099
Materials and supplies, at average cost 188,735 191,759 198,667
Prepayments 240,787 75,516 201,729
Other current assets 17,922 16,457 16,021
----------- ----------- -----------
TOTAL CURRENT ASSETS 1,313,486 1,527,210 1,394,031
----------- ----------- -----------
INVESTMENTS AND NONUTILITY PROPERTY 253,758 292,397 230,789
----------- ----------- -----------
DEFERRED CHARGES
Enlightened Energy program costs 79,704 117,807 112,164
Unamortized debt expense 134,605 126,085 123,273
Recoverable fuel costs 21,411 98,301 57,399
Power contract termination costs 70,282 80,978 54,330
Other deferred charges 248,867 239,559 268,779
----------- ----------- -----------
TOTAL DEFERRED CHARGES 554,869 662,730 615,945
----------- ----------- -----------
REGULATORY ASSET - FUTURE FEDERAL
INCOME TAXES 860,841 973,079 930,681
----------- ----------- -----------
TOTAL $14,324,513 $14,722,518 $14,321,204
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-11-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
BALANCE SHEET
-------------
AS AT SEPTEMBER 30, 1998, DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
------------------------------------------------------------------
As At
-----------------------------------------------------
Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
-------------- ------------- --------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock $ 1,482,342 $ 1,482,351 $ 1,478,840
Repurchased CEI common stock (102,178) - -
Retained earnings 4,506,481 4,484,703 4,469,185
Capital stock expense (36,759) (36,975) (36,249)
----------- ----------- ------------
TOTAL COMMON SHAREHOLDERS' EQUITY 5,849,886 5,930,079 5,911,776
----------- ----------- ------------
Preferred stock
Subject to mandatory redemption
7.20% Series I 47,500 47,500 47,500
6-1/8% Series J 37,050 37,050 37,050
----------- ----------- ------------
TOTAL SUBJECT TO MANDATORY REDEMPTION 84,550 84,550 84,550
----------- ----------- ------------
Other preferred stock
$ 5 Cumulative Preferred 175,000 175,000 175,000
5-3/4% Series A 7,061 7,061 7,061
5-1/4% Series B 13,844 13,844 13,844
4.65% Series C 15,330 15,330 15,330
4.65% Series D 22,233 22,233 22,233
6% Convertible Series B - - 4,326
----------- ----------- ------------
TOTAL OTHER PREFERRED STOCK 233,468 233,468 237,794
----------- ----------- ------------
TOTAL PREFERRED STOCK 318,018 318,018 322,344
----------- ----------- -----------
Long-term debt 4,047,837 4,188,906 4,288,837
----------- ----------- ------------
TOTAL CAPITALIZATION 10,215,741 10,437,003 10,522,957
----------- ----------- -----------
NONCURRENT LIABILITIES
Obligations under capital leases 37,771 39,879 40,575
Other noncurrent liabilities 158,235 106,137 83,926
----------- ----------- ------------
TOTAL NONCURRENT LIABILITIES 196,006 146,016 124,501
----------- ----------- ------------
CURRENT LIABILITIES
Long-term debt due within one year 325,000 529,385 102,630
Accounts payable 356,947 440,114 416,872
Customer deposits 177,023 161,731 161,548
Accrued taxes 155,244 65,736 145,440
Accrued interest 70,397 85,613 67,336
Accrued wages 82,691 82,556 80,345
Other current liabilities 176,654 183,122 132,999
----------- ----------- ------------
TOTAL CURRENT LIABILITIES 1,343,956 1,548,257 1,107,170
----------- ----------- ------------
PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES
AND OTHER DEFERRED CREDITS
Accumulated deferred federal income tax 2,298,301 2,307,835 2,299,834
Accumulated deferred investment tax credits 157,110 163,680 165,850
Other deferred credits 113,399 119,727 100,892
----------- ----------- ------------
TOTAL DEFERRED CREDITS 2,568,810 2,591,242 2,566,576
----------- ----------- ------------
TOTAL $14,324,513 $14,722,518 $14,321,204
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
-12-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
STATEMENT OF CASH FLOWS
-------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income $ 607,158 $ 569,212
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 386,930 375,248
Deferred recoverable fuel costs 76,890 44,063
Federal income tax deferred 95,510 56,250
Common equity component of allowance
for funds used during construction (1,687) (3,959)
Other non-cash charges (4,696) 18,968
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less
allowance for uncollectibles (42,341) 183
Regulatory accounts receivable (765) 35,384
Materials and supplies, including fuel
and gas in storage 15,398 24,829
Prepayments, other receivables and
other current assets (156,806) (158,956)
Enlightened Energy program costs 38,103 21,554
Cost of removal less salvage (54,435) (48,215)
Power contract termination costs 904 27,126
Accounts payable (58,517) (14,243)
Accrued income taxes 80,508 101,516
Other - net 46,164 (87,092)
---------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,028,318 961,868
---------- ---------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (414,249) (433,661)
Nuclear fuel expenditures (4,462) (10,402)
Contributions to nuclear decommissioning trust (15,976) (19,174)
Common equity component of allowance
for funds used during construction 1,687 3,959
---------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
including construction (433,000) (459,278)
---------- ---------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock (102,178) -
Issuance of long-term debt 460,000 150,000
Retirement of long-term debt (100,000) (103,626)
Advance refunding of long-term debt (705,240) -
Issuance and refunding costs (8,544) (2,013)
Funds held for refunding of debt 328,874 -
Funds held for redemption of preferred stock (74,156) -
Preferred stock dividends (13,602) (13,812)
Common stock dividends (373,356) (370,155)
Corporate reorganization (121,404) -
---------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
including dividends (709,606) (339,606)
---------- ---------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (114,288) 162,984
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 183,458 106,882
---------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30 $ 69,170 $ 269,866
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 240,016 $ 247,138
Income taxes 145,935 147,387
The accompanying notes are an integral part of these financial statements.
-13-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-------------------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income $ 750,768 $ 689,359
PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
Depreciation and amortization 515,136 497,868
Deferred recoverable fuel costs 35,988 (26,171)
Federal income tax deferred 61,880 46,090
Common equity component of allowance
for funds used during construction (2,049) (5,212)
Other non-cash charges (6,396) 28,229
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less
allowance for uncollectibles (79,684) 21,892
Regulatory accounts receivable 10,930 23,488
Materials and supplies, including fuel
and gas in storage 22,393 9,094
Prepayments, other receivables and
other current assets (28,868) (33,559)
Enlightened Energy program costs 32,460 15,143
Cost of removal less salvage (79,939) (70,743)
Power contract termination costs (14,671) 39,113
Accounts payable (35,274) 62,954
Accrued income taxes 2,817 3,338
Other - net 119,500 (44,103)
---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,304,991 1,256,780
---------- ----------
INVESTING ACTIVITIES INCLUDING CONSTRUCTION
Construction expenditures (634,809) (630,047)
Nuclear fuel expenditures (8,639) (57,884)
Contributions to nuclear decommissioning trust (18,103) (21,301)
Common equity component of allowance
for funds used during construction 2,049 5,212
---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
including construction (659,502) (704,020)
---------- ----------
FINANCING ACTIVITIES INCLUDING DIVIDENDS
Repurchase of common stock (102,178) -
Issuance of long-term debt 790,000 300,000
Retirement of long-term debt (102,630) (179,715)
Advance refunding of long-term debt (705,240) -
Issuance and refunding costs (15,461) (9,688)
Common stock dividends (496,913) (492,351)
Funds held for redemption of preferred stock (74,156) -
Preferred stock dividends (18,203) (18,419)
Corporate reorganization (121,404) -
---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
INCLUDING DIVIDENDS (846,185) (400,173)
---------- ----------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (200,696) 152,587
CASH AND TEMPORARY CASH INVESTMENTS AT OCTOBER 1 269,866 117,279
---------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30 $ 69,170 $ 269,866
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 303,188 $ 302,720
Income taxes 334,179 324,387
The accompanying notes are an integral part of these financial statements.
-14-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
INCOME STATEMENT
----------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
----------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $ 1,839,330 $ 1,786,147
Gas 139,928 157,623
Steam 62,946 67,258
Non-utility - 16,310
----------- -----------
TOTAL OPERATING REVENUES 2,042,204 2,027,338
----------- -----------
OPERATING EXPENSES
Purchased power 321,756 337,088
Fuel 203,186 188,708
Gas purchased for resale 48,844 62,710
Other operations 261,829 272,604
Maintenance 115,259 106,229
Depreciation and amortization 129,876 126,451
Taxes, other than federal income tax 325,825 312,722
Federal income tax 193,560 186,043
----------- -----------
TOTAL OPERATING EXPENSES 1,600,135 1,592,555
----------- -----------
OPERATING INCOME 442,069 434,783
OTHER INCOME (DEDUCTIONS)
Investment income 700 2,599
Allowance for equity funds used during construction 647 756
Other income less miscellaneous deductions 88 (515)
Federal income tax (2,243) 643
----------- -----------
TOTAL OTHER INCOME (808) 3,483
----------- -----------
INCOME BEFORE INTEREST CHARGES 441,261 438,266
Interest on long-term debt 76,821 80,330
Other interest 3,913 3,262
Allowance for borrowed funds used during construction (332) (371)
----------- -----------
NET INTEREST CHARGES 80,402 83,221
----------- -----------
NET INCOME 360,859 355,045
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,537 4,601
----------- -----------
NET INCOME FOR COMMON STOCK $ 356,322 $ 350,444
=========== ===========
CON EDISON SALES
Electric (Thousands of kilowatthours)
Con Edison customers 10,329,213 11,093,900
Delivery service to NYPA and others 3,734,872 2,311,169
Service for municipal agencies 187,278 132,588
----------- -----------
Total sales in service territory 14,251,363 13,537,657
Off-system and ESCO sales 1,660,022 839,518
Gas (dekatherms)
Firm sales and transportation 9,936,190 10,231,594
Off-peak firm/interruptible 2,816,428 4,147,786
----------- -----------
Total sales to Con Edison customers 12,752,618 14,379,380
Transportation of customer-owned gas
NYPA 1,929,716 6,982,038
Other 3,386,724 1,865,160
Off-system sales 7,681,043 5,183,513
----------- -----------
Total sales and transportation 25,750,101 28,410,091
Steam (Thousands of pounds) 6,335,238 5,986,582
The accompanying notes are an integral part of these financial statements.
-15-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
INCOME STATEMENT
----------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
---------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $ 4,420,513 $ 4,283,463
Gas 735,660 826,019
Steam 255,747 291,708
Non-utility - 49,791
------------ ------------
TOTAL OPERATING REVENUES 5,411,920 5,450,981
------------ ------------
OPERATING EXPENSES
Purchased power 1,002,139 1,004,017
Fuel 461,610 462,488
Gas purchased for resale 288,587 403,915
Other operations 811,328 839,560
Maintenance 365,943 367,251
Depreciation and amortization 386,930 375,248
Taxes, other than federal income tax 918,209 888,533
Federal income tax 325,200 301,974
------------ ------------
TOTAL OPERATING EXPENSES 4,559,946 4,642,986
------------ ------------
OPERATING INCOME 851,974 807,995
OTHER INCOME (DEDUCTIONS)
Investment income 3,409 6,577
Allowance for equity funds used during construction 1,734 4,076
Other income less miscellaneous deductions (1,877) (1,241)
Federal income tax (881) (956)
------------ ------------
TOTAL OTHER INCOME 2,385 8,456
------------ ------------
INCOME BEFORE INTEREST CHARGES 854,359 816,451
Interest on long-term debt 232,864 238,274
Other interest 15,226 10,963
Allowance for borrowed funds used during construction (889) (1,998)
* ------------ ------------
NET INTEREST CHARGES 247,201 247,239
------------ ------------
NET INCOME 607,158 569,212
PREFERRED STOCK DIVIDEND REQUIREMENTS 13,609 13,808
------------ ------------
NET INCOME FOR COMMON STOCK $ 593,549 $ 555,404
============ ============
CON EDISON SALES
Electric (Thousands of kilowatthours)
Con Edison customers 28,119,679 28,307,154
Delivery service to NYPA and others 8,095,102 6,561,475
Service for municipal agencies 652,760 643,179
------------ ------------
Total sales in service territory 36,867,541 35,511,808
Off-system and ESCO sales 2,420,455 1,852,366
Gas (dekatherms)
Firm sales and transportation 64,221,815 69,253,336
Off-peak firm/interruptible 14,003,682 17,567,539
------------ ------------
Total sales to Con Edison customers 78,225,497 86,820,875
Transportation of customer-owned gas
NYPA 3,655,251 14,350,668
Other 10,572,988 5,318,913
Off-system sales 17,613,651 9,944,074
------------ ------------
Total sales and transportation 110,067,387 116,434,530
Steam (Thousands of pounds) 19,861,637 20,924,098
The accompanying notes are an integral part of these financial statements.
-16-
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
---------------------------------------------
INCOME STATEMENT
----------------
TWELVE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------
1998 1997
---- ----
(THOUSANDS OF DOLLARS)
Operating revenues
Electric $ 5,772,626 $ 5,585,861
Gas 1,003,521 1,069,676
Steam 355,838 377,948
Non-utility - 93,192
------------ ------------
TOTAL OPERATING REVENUES 7,131,985 7,126,677
------------ ------------
OPERATING EXPENSES
Purchased power 1,347,598 1,316,727
Fuel 595,946 585,544
Gas purchased for resale 412,960 549,304
Other operations 1,092,292 1,154,643
Maintenance 473,480 476,586
Depreciation and amortization 514,637 497,868
Taxes, other than federal income tax 1,210,817 1,168,247
Federal income tax 402,330 370,865
------------ ------------
TOTAL OPERATING EXPENSES 6,050,060 6,119,784
------------ ------------
OPERATING INCOME 1,081,925 1,006,893
OTHER INCOME (DEDUCTIONS)
Investment income 8,717 10,219
Allowance for equity funds used during construction 2,106 5,404
Other income less miscellaneous deductions (4,737) (4,685)
Federal income tax (1,852) (1,195)
------------ ------------
TOTAL OTHER INCOME 4,234 9,743
------------ ------------
INCOME BEFORE INTEREST CHARGES 1,086,159 1,016,636
Interest on long-term debt 312,748 315,663
Other interest 21,347 14,235
Allowance for borrowed funds used during construction (1,072) (2,621)
------------ ------------
NET INTEREST CHARGES 333,023 327,277
------------ ------------
NET INCOME 753,136 689,359
PREFERRED STOCK DIVIDEND REQUIREMENTS 18,144 18,418
------------ ------------
NET INCOME FOR COMMON STOCK $ 734,992 $ 670,941
============ ============
CON EDISON SALES
Electric (Thousands of kilowatthours)
Con Edison customers 37,340,503 37,242,020
Delivery service to NYPA and others 10,327,005 8,704,459
Service for municipal agencies 855,477 817,208
------------ ------------
Total sales in service territory 48,522,985 46,763,687
Off-system and ESCO sales 3,067,676 2,722,099
Gas (dekatherms)
Firm sales and transportation 88,462,270 92,484,265
Off-peak firm/interruptible 20,347,677 22,954,481
------------ ------------
Total sales to Con Edison customers 108,809,947 115,438,746
Transportation of customer-owned gas
NYPA 6,346,278 14,382,020
Other 12,910,949 6,680,797
Off-system sales 21,628,561 13,835,060
------------ ------------
Total sales and transportation 149,695,735 150,336,623
Steam (Thousands of pounds) 26,360,100 27,176,449
The accompanying notes are an integral part of these financial statements.
-17-
NOTE A - GENERAL
These footnotes accompany and form an integral part of (i) the interim
consolidated financial statements of Consolidated Edison, Inc. ("CEI") and its
subsidiaries, including Consolidated Edison Company of New York, Inc. ("Con
Edison"), the regulated utility, and several non-utility subsidiaries, and (ii)
the interim consolidated financial statements of Con Edison on a stand-alone
basis. These financial statements are unaudited but, in the respective opinions
of the managements of CEI and Con Edison, represent all adjustments (which
include only normally recurring adjustments) necessary for a fair statement of
the results for the interim periods presented. These financial statements should
be read together with the audited financial statements (including the notes
thereto) included in the combined CEI and Con Edison Annual Reports on Form 10-K
for the year ended December 31, 1997 (the "1997 Form 10-K").
NOTE B - CONTINGENCIES
INDIAN POINT Nuclear generating units similar in design to Con Edison's Indian
Point 2 unit have experienced problems that have required steam generator
replacement. Inspections of the Indian Point 2 steam generators since 1976 have
revealed various problems, some of which appear to have been arrested, but the
remaining service life of the steam generators is uncertain. The projected
service life of the steam generators is reassessed periodically in the light of
the inspections made during scheduled outages of the unit. Based on the latest
available data and current NRC criteria, Con Edison estimates that steam
generator replacement will not be required before 2002. Con Edison has
replacement steam generators, which are stored at the site. Replacement of the
steam generators would require estimated additional expenditures of
approximately $108 million (1997 dollars, exclusive of replacement power costs)
and an outage of approximately three months. However, securing necessary permits
and approvals or other factors could require a substantially longer outage if
steam generator replacement is required on short notice.
NUCLEAR INSURANCE The insurance policies covering Con Edison's nuclear
facilities for property damage, excess property damage, and outage costs permit
assessments under certain conditions to cover insurers' losses. As of September
30, 1998, the highest amount that could be assessed for losses during the
current policy year under all of the policies was $19 million. While
assessments may also be made for losses in certain prior years, Con Edison is
not aware of any losses in such years that it believes are likely to result in
an assessment.
Under certain circumstances, in the event of nuclear incidents at facilities
covered by the federal government's third-party liability indemnification
program, Con Edison could be assessed up to $88.1 million per incident, of which
not more than $10 million may be assessed in any one year.
ENVIRONMENTAL MATTERS The normal course of Con Edison's operations necessarily
involves activities and substances that expose it to potential liabilities under
federal, state and local laws protecting the environment. Such liabilities can
be material and in some instances may be imposed without regard to fault, or may
be imposed for past acts, even though such past acts may have been lawful at the
time they occurred. Sources of such potential liabilities include (but are not
limited to) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund), a 1994 settlement with the New York State
Department of Environmental Conservation (DEC), asbestos, and electric and
magnetic fields (EMF).
-18-
SUPERFUND By its terms Superfund imposes joint and several strict liability,
regardless of fault, upon generators of hazardous substances for resulting
removal and remedial costs and environmental damages. Con Edison has received
process or notice concerning possible claims under Superfund or similar state
statutes relating to a number of sites at which it is alleged that hazardous
substances generated by Con Edison (and, in most instances, a large number of
other potentially responsible parties) were deposited. Estimates of the
investigative, removal, remedial and environmental damage costs (if any) that
Con Edison will be obligated to pay with respect to each of these sites range
from extremely preliminary to highly refined. Based on these estimates Con
Edison had accrued at September 30, 1998 a liability of approximately $22.4
million. There will be additional costs with respect to these and possibly other
sites, the materiality of which is not presently determinable.
DEC SETTLEMENT In 1994 Con Edison agreed to a consent order settling a civil
administrative proceeding instituted by the DEC alleging environmental
violations by Con Edison. Pursuant to the consent order, Con Edison has
conducted an environmental management systems evaluation and an environmental
compliance audit. Con Edison also must implement "best management practices"
plans for certain facilities and undertake a remediation program at certain
sites. At September 30, 1998, Con Edison had an accrued liability of $16.6
million for these sites. Expenditures for environmental-related capital projects
in the five years 1998-2002, including expenditures to comply with the consent
order, are estimated at $148 million. These estimated expenditures do not
reflect divestiture by Con Edison of generating plants pursuant to the
Settlement Agreement (see Note A to the financial statements included in the
1997 Form 10-K) or otherwise.
ASBESTOS CLAIMS Suits have been brought in New York State and federal courts
against Con Edison and many other defendants, wherein a large number of
plaintiffs sought large amounts of compensatory and punitive damages for deaths
and injuries allegedly caused by exposure to asbestos at various premises of Con
Edison. Many of these suits have been disposed of without any payment by Con
Edison, or for immaterial amounts. The amounts specified in all the remaining
suits total billions of dollars but Con Edison believes that these amounts are
greatly exaggerated, as were the claims already disposed of. Based on the
information and relevant circumstances known to Con Edison at this time, it is
the opinion of Con Edison that these suits will not have a material adverse
effect on Con Edison's financial position, results of operations or liquidity.
EMF Electric and magnetic fields (EMF) are found wherever electricity is used.
In the event a causal relationship between EMF and adverse health effects is
established, or independently of any such causal determination, in the event of
adverse developments in related legal or public policy doctrines, there could be
a material adverse effect on the electric utility industry, including Con
Edison.
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis relates to (i) the interim
consolidated financial statements of Consolidated Edison, Inc. (CEI) and its
subsidiaries, including Consolidated Edison Company of New York, Inc. (Con
Edison), the regulated utility, and several non-utility subsidiaries, and (ii)
the interim consolidated financial statements of Con Edison on a stand-alone
basis. CEI is a holding company, operates only through its subsidiaries and has
no material assets other than the stock of its subsidiaries. Con Edison is the
principal subsidiary of CEI. Unless otherwise indicated, this discussion and
analysis applies to each of CEI and Con Edison. References in this report to
the "Company" are to CEI and Con Edison, collectively.
This discussion and analysis should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of the combined CEI and Con Edison Annual Reports on Form
10-K for the year ended December 31, 1997 (File Nos. 1-14514 and 1-1217, the
1997 Form 10-K) and the combined CEI and Con Edison Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 1998 and June 30, 1998 (the
earlier 1998 Form 10-Qs). Reference is also made to the notes to the financial
statements in Part I, Item 1 of this report, which notes are incorporated herein
by reference.
LIQUIDITY AND CAPITAL RESOURCES
Con Edison's cash balances reflect, among other things, the timing and
amount of external financing and the January 1, 1998 corporate reorganization.
(See "Corporate Structure" in Item 1 of the 1997 Form 10-K.)
Con Edison initiated a $500 million commercial paper program in January
1998. The highest amount outstanding during the nine months ended September 30,
1998 was $269 million. There was no commercial paper outstanding at September
30, 1998.
Con Edison's interest coverage for the 12 months ended September 30, 1998
was 4.27 times, compared with 4.09 times for the year 1997 and 4.05 times for
the 12 months ended September 30, 1997. The increase in interest coverage
reflects higher pre-tax income and lower interest charges resulting from the
Company's debt refinancings.
In September 1998 Con Edison issued $75 million of 6.90 percent 30-year
taxable debentures to refund (in November 1998), at a lower after-tax cost, 5-
3/4 percent Series A, 5-1/4 percent Series B and 7.20 percent Series I preferred
stock.
For information about securities refunded by Con Edison during the first
half of 1998, see "Liquidity and Capital Resources Refundings" in Item 7 of
the 1997 Form 10-K and "Liquidity and Capital Resources" in Part I, Item 2 of
the earlier 1998 Form 10-Qs.
In May 1998 CEI commenced its common stock repurchase program. Through
September 30, 1998, approximately 2.3 million shares were repurchased by Con
Edison at a cost of $102.2 million.
Con Edison's equivalent number of days of revenue outstanding as customer
accounts receivable was 27.3 days at September 30, 1998 compared with 28.2 days
at December 31, 1997 and 25.4 days at September 30, 1997.
-20-
Recoverable fuel costs amounted to $21.4 million at September 30, 1998
compared with $98.3 million at December 31, 1997 and $57.4 million at September
30, 1997, reflecting the ongoing recovery of previously deferred amounts through
the fuel adjustment clause and the changes in purchased power, fuel and gas
purchased for resale, as discussed below under "Results of Operations."
TRANSITION TO COMPETITION
Reference is made to (i) "Liquidity and Capital Resources - Competition and
Industry Restructuring and PSC Settlement Agreement" in Item 7, "Electric
Facilities - Generating Facilities" in Item 2 and "Challenges to the Settlement
Agreement" in Item 3 of the 1997 Form 10-K, (ii) "Liquidity and Capital
Resources - Transition to Competition" in Part I, Item 2 of the earlier 1998
Form 10-Qs and (iii) Part II, Item 1 (Legal Proceedings) of this report for
information about the September 1997 Settlement Agreement among Con Edison, the
staff of the New York State Public Service Commission (PSC) and certain other
parties (the Settlement Agreement) and additional matters.
In July 1998 the PSC issued an order (the Divestiture Order) authorizing
Con Edison to auction all of its New York City fossil-fueled electric generating
capacity (approximately 5,500 MW). The auction process commenced in August
1998. Sales of generating capacity will be subject to PSC approval and
contingent upon an independent system operator being operational in New York
State.
In August 1998 the PSC also approved a proposal pursuant to which Con
Edison affiliates would not participate in the auction and Con Edison would be
permitted to apply up to $50 million of any net after-tax gains resulting from
divestiture of its in-City capacity, jointly-owned Bowline Point and Roseton
generation stations and potential generating sites (which are also required to
be sold pursuant to the Divestiture Order) to reduce Con Edison's unrecovered
investment in Indian Point 2. The net after-tax gain to be applied would be in
excess of the $50 million of any net after-tax gain that under the Settlement
Agreement would be retained by shareholders.
The Settlement Agreement provides that the potential disallowance of
recovery by Con Edison of stranded costs attributable to contracts with non-
utility generators will be limited to the lower of (i) 10 percent of the above-
market costs (as determined in 2002) or (ii) $300 million (in 2002 dollars),
subject to certain offsets. In October 1998 the PSC authorized Con Edison to
defer payments related to the 1997 termination of contracts for 42.5 MW of
capacity and allowed Con Edison to offset the potential disallowance by
approximately $115 million (in 2002 dollars). The offset would be reduced if Con
Edison retains revenues relating to capciaty costs avoided as areulst of the
terminations (which costs are reflected in Con Edison's current rates) and for
any replacement capacity costs that Con Edison recovers in rates.
In October 1998 the PSC approved a long-range plan for Con Edison's steam
system. The plan includes divestiture of two electric and steam generating
stations (for which a detailed plan must be submitted within four months), sale
of certain property that has been held for future plant construction and further
studies on the future structure of the steam business.
In October 1998 Con Edison agreed with the union representing approximately
two-thirds of Con Edison's employees to extend our collective bargaining
agreement to June 2002. The agreement, which is subject to ratification by vote
of the employees, addresses, among other things, the effects on the employees of
the generating capacity divestiture.
-21-
ACQUISITION
In May 1998 CEI agreed to acquire Orange and Rockland Utilities, Inc. (O&R)
for cash at a price of $58.50 per share of O&R common stock (approximately $790
million in aggregate) pursuant to an Agreement and Plan of Merger among the
parties. The acquisition is to be accomplished through the merger of C
Acquisition Corp., a CEI subsidiary, with O&R. The transaction is subject to
certain conditions, including the approvals, petitions for which have been
filed, of the New York, New Jersey and Pennsylvania utility regulators and FERC
and the approval of the Securities and Exchange Commission. The transaction has
been approved by O&R's shareholders and is not subject to the approval of CEI's
shareholders.
FINANCIAL MARKET RISKS
Reference is made to "Liquidity and Capital Resources - Financial Market
Risks" in Item 7 of the 1997 Form 10-K and Part I, Item 2 of the earlier 1998
Form 10-Qs for information about CEI and Con Edison's financial market risks and
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (which will apply to the Company beginning
January 1, 2000). Currently, CEI and its consolidated subsidiaries, including
Con Edison, enter into derivative transactions only when such transactions meet
the criteria for hedging and qualify for deferred accounting treatment. See
Note A to the financial statements included in Item 8 of the 1997 Form 10-K. At
September 30, 1998, CEI had no derivative instruments outstanding and neither
the fair value of its subsidiaries' derivative instruments outstanding nor
potential derivative losses from reasonably possible near-term changes in market
prices were material to the financial position, results of operations or
liquidity of the Company.
NUCLEAR GENERATION
Reference is made to (i) "Electric Facilities - Generating Facilities" in
Item 2 and "Liquidity and Capital Resources - Nuclear Generation and 1995
Electric Rate Agreement - Partial Pass-Through Fuel Adjustment Clause (PPFAC)"
in Item 7 of the 1997 Form 10-K and (ii) "Liquidity and Capital Resources -
Nuclear Generation" in Part 1, Item 2 of the earlier 1998 Form 10-Qs, for
information about Con Edison's Indian Point 2 nuclear generating unit, which
returned to service in early September 1998.
ENVIRONMENTAL CLAIMS AND OTHER CONTINGENCIES
Reference is made to the notes to the financial statements included in this
report for information concerning potential liabilities of the Company arising
from the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (Superfund), from claims relating to alleged exposure to
asbestos, and from certain other contingencies to which the Company is subject.
YEAR 2000 ISSUES AND CONSEQUENCES
The "Year 2000 problem" arose because many existing computer programs use
only the last two digits to refer to a year. These computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19."
If not corrected, many computer applications could fail or create erroneous
results. The extent of the potential impact of the Year 2000 problem is not yet
known.
-22-
In 1995 Con Edison began a program to address its Year 2000 issues. An
inventory and assessment of Con Edison's company-developed systems, vender-
developed systems, technology infrastructure and telecommunications
infrastructure have been completed. Con Edison expects that necessary changes
to company-developed systems that are critical to providing energy service to
its customers and an inventory and assessment of the embedded technology in its
equipment, machinery and operating systems will be completed by year-end 1998.
Con Edison plans that any necessary changes to its other systems, infrastructure
and embedded technologies will be completed by June 1999. Con Edison intends to
continue to test its Year 2000 readiness throughout 1999. Con Edison estimates
that the cost of its program to address Year 2000 issues will be approximately
$27 million, of which approximately $20 million has been incurred. The cost is
being funded from internally-generated funds and expensed as incurred.
Con Edison is contacting entities, such as energy, services and material
suppliers, that are critical to its ability to provide energy service to its
customers, to determine the Year 2000 readiness of these entities. Con Edison
has sent inquiries regarding Year 2000 readiness to 4,500 suppliers. No third
party has indicated to Con Edison that it has a Year 2000 problem that will have
a material adverse effect on Con Edison's business.
Con Edison expects that its program will be adequate to address its Year
2000 issues, but nevertheless intends to develop a contingency plan in early
1999. There can, of course, be no assurance as to whether the contingency plan
will successfully address any contingencies that arise. In the event that Con
Edison is unsuccessful in addressing its Year 2000 issues, there could be a
material adverse effect on Con Edison's financial condition, results of
operations and liquidity.
FORWARD-LOOKING STATEMENTS
This discussion and analysis includes forward-looking statements, which are
statements of future expectation and not facts. Words such as "estimates,"
"expects," "anticipates," "intends," "plans" and similar expressions identify
forward-looking statements. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as competition and industry restructuring, changes in economic
conditions, changes in historical weather patterns, changes in laws,
regulations, regulatory policies or public policy doctrines, technological
developments, any failure of Con Edison or other entities to successfully
complete necessary changes to address Year 2000 problems, and other presently
unknown or unforeseen factors.
-23-
RESULTS OF OPERATIONS
CEI's net income for common stock for the third quarter ended September 30,
1998 was lower than the corresponding 1997 period by $3.4 million ($.00 per
share); for the nine months and 12 months ended September 30, 1998, it was
higher than in the corresponding 1997 periods by $25.5 million ($.12 per share)
and $49.0 million ($.22 per share), respectively. The variations in earnings for
the periods reflect higher electric revenues from warmer than normal summer
weather and an improving New York City economy, lower expenses as a result of
continued cost reduction programs and voluntary attrition in the labor force,
increased outage expenses at Indian Point 2 (which returned to service in early
September 1998) and start-up costs associated with CEI's non-utility
subsidiaries. Earnings per share reflect the CEI common stock repurchase program
discussed above under "Liquidity and Capital Resources." The results of
operations of CEI include the results of operations of Con Edison and of the
several non-utility subsidiaries of CEI.
Increases (Decreases)
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, 1998 September 30, 1998 September 30, 1998
Compared With Compared With Compared With
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, 1997 September 30, 1997 September 30, 1997
------------------ ------------------ -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Amounts are for CEI and are in Millions)
Operating revenues $ 34.3 1.8 % $ 24.7 0.5 % $ 94.2 1.3 %
Purchased power - electric and steam (15.0) (4.4) 0.7 0.1 33.7 2.6
Fuel - electric and steam 14.5 7.7 (0.9) (0.2) 10.3 1.8
Gas purchased for resale (1.5) (2.4) (66.3) (16.4) (63.0) (11.5)
------ ------ ------
Operating revenues less purchased
power, fuel and gas purchased for
resale (Net revenues) 36.3 2.5 91.2 2.5 113.2 2.4
Other operations and maintenance 9.7 2.6 (2.4) (0.2) (34.1) (2.1)
Depreciation and amortization 3.9 3.0 12.5 3.3 18.1 3.6
Taxes, other than federal
income tax 13.3 4.3 30.2 3.4 43.1 3.7
Federal income tax 5.8 3.1 17.9 5.9 24.7 6.7
------ ------ ------
Operating income 3.6 0.8 33.0 4.1 61.4 6.1
Other income less deductions and
related federal income tax (9.9) Large (7.7) (91.7) (6.9) (71.1)
Net interest charges (2.8) (3.4) (0.0) (0.0) 5.8 1.8
Preferred stock dividend
requirements (0.1) (1.4) (0.2) (1.4) (0.3) (1.5)
------ ------ ------
Net income for common stock $ (3.4) (1.0) % $ 25.5 4.6 % $ 49.0 7.3 %
====== ====== ======
-24-
CEI's investment in its non-utility subsidiaries was $133.4 million at
September 30, 1998. CEI's results of operations include the net after-tax
losses of its non-utility subsidiaries as follows (with amounts shown in
millions):
1998 1997
---------- ----------
Amount Per Share Amount Per Share
------- ---------- ------- ----------
Third Quarter $ (9.9) $(.04) $(3.1) $(.01)
Nine months ended September 30, $(15.0) $(.06) $(7.1) $(.03)
Twelve Months ended Sept. 30, $(17.5) $(.07) $(7.2) $(.03)
The losses shown above reflect the write-off in the third quarter of 1998
of a $10 million investment made by one of CEI's non-utility subsidiaries (which
is included in CEI's other income less miscellaneous deductions). For additional
information about CEI's non-utility subsidiaries, see "Competitive Businesses
and Competition" in Item 1 of the 1997 Form 10-K.
THIRD QUARTER 1998 COMPARED WITH
THIRD QUARTER 1997
CEI's net revenues (operating revenues less purchased power, fuel and gas
purchased for resale) increased $36.3 million in the third quarter of 1998
compared with the 1997 period. Electric and non-utility net revenues increased
$50.4 million and $6.3 million, respectively. Gas and steam net revenues
decreased $19.8 and $0.6 million, respectively.
Electric net revenues in the 1998 period were higher than in the 1997
period primarily as a result of higher sales, reflecting warmer weather and an
improving economy in the 1998 period, offset in part by the $107.5 million
annualized rate reductions that went into effect in January and April 1998. See
"Liquidity and Capital Resources - PSC Settlement Agreement - Rate Plan" in Item
7 of the 1997 Form 10-K.
Gas net revenues in the 1997 period include $9.2 million for customer service
and system improvement incentives that, pursuant to the 1997 gas rate agreement,
were discontinued effective October 1, 1997. Gas net revenues in the 1997
period also include a gas distribution incentive of $10.8 million. Con Edison
is eligible for a 1998 gas distribution incentive; the amount of the incentive
is subject to review by the PSC and is expected to be set later in 1998.
Con Edison's electric sales, excluding off-system sales, in the 1998 period
compared with the 1997 period were:
MILLIONS OF KWHRS.
3RD QUARTER 3RD QUARTER PERCENT
DESCRIPTION 1998 1997 VARIATION VARIATION
Residential/Religious 3,589 3,433 156 4.5 %
Commercial/Industrial 6,562 7,485 (923) (12.3) %
Other 178 176 2 1.1 %
Total Con Edison Customers 10,329 11,094 (765) (6.9) %
NYPA, Municipal Agency
and Other Sales 3,922 2,444 1,478 60.5 %
Total Service Area 14,251 13,538 713 5.3 %
-25-
The decline in sales to Con Edison customers is attributable to the Retail
Choice program. Under the program, which began in June 1998, customers may
purchase electricity from other power providers. Included in "NYPA, Municipal
Agency and Other Sales" in the 1998 period is the delivery by Con Edison of
1,306 million KWhrs. under its Retail Choice program. See "Liquidity and
Capital Resources Transition to Competition", above.
For the 1998 period, Con Edison's firm gas sales volume, including firm
transportation, decreased 2.9 percent and interruptible sales decreased 32.1
percent compared with the 1997 period. The decrease in interruptible sales
results principally from increased purchases of gas by Con Edison customers from
other suppliers. Transportation of customer-owned gas (other than gas
transported for the New York Power Authority), which comprised approximately 13
percent of the gas Con Edison sold or transported to customers in the 1998
period, increased 82 percent. See "Gas Operations - Gas Sales" in Item 1 of the
1997 Form 10-K.
Steam sales volume increased 5.8 percent compared with the 1997 period as a
result of the warmer summer weather in 1998.
After adjusting for variations, primarily in weather and billing days in
each period, electric sales volume in Con Edison's service territory increased
3.4 percent in the 1998 period, firm gas sales volume (including firm
transportation) decreased 2.8 percent and steam sales volume decreased 1.4
percent.
Electric fuel costs increased $20.6 million in the 1998 period due to an
increase in the unit cost of fuel. Electric purchased power costs decreased in
the 1998 period due to lower unit cost, partially offset by higher purchased
volumes. The variations in electric fuel and purchased power costs reflect the
greater availability of Indian Point 2 in the 1997 period than in the 1998
period. Steam fuel costs decreased $6.1 million in the 1998 period due to lower
unit cost. Steam purchased power costs increased $2.3 million due to higher
unit cost and higher purchased volumes. Con Edison's gas purchased for resale
decreased, reflecting lower sendout.
CEI's other operations and maintenance expense increased, reflecting the
increased expenses of its non-regulated subsidiaries. Con Edison's other
operations and maintenance expenses decreased in the 1998 period compared with
the 1997 period, due primarily to lower pension expense partially offset by the
Indian Point 2 outage that ended in early September 1998 and higher distribution
expenses.
Depreciation and amortization increased in the 1998 period due principally
to higher plant balances.
Taxes other than federal income tax increased in the 1998 period due to
higher property taxes.
Federal income tax increased in the 1998 period due to higher taxable
income.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1997
CEI's net revenues increased $91.2 million in the nine months ended September
30, 1998 compared with the 1997 period. Electric, steam and non-utility net
revenues increased $102.3 million, $1.5 million and $11.5 million, respectively.
Gas net revenues decreased $24.1 million.
Electric net revenues in the 1998 period were higher than in the corresponding
1997 period primarily as a result of higher sales, reflecting warmer summer
weather and an improving economy in the 1998 period, offset in part by the rate
reductions that went into effect in January and April 1998.
-26-
Gas net revenues in the 1997 period include $20 million for incentives. No
incentives have been accrued for the 1998 period.
Con Edison's electric sales, excluding off-system sales, in the 1998 period
compared with the 1997 period were:
MILLIONS OF KWHRS.
NINE MONTHS NINE MONTHS
ENDED ENDED PERCENT
DESCRIPTION SEPT. 30,1998 SEPT. 30, 1997 VARIATION VARIATION
Residential/Religious 8,671 8,382 289 3.4%
Commercial/Industrial 18,954 19,461 (507) (2.6)%
Other 495 464 31 6.7%
Total Con Edison Customers 28,120 28,307 (187) (0.7)%
NYPA, Municipal Agency
and Other Sales 8,748 7,205 1,543 21.4%
Total Service Area 36,868 35,512 1,356 3.8%
Included in "NYPA, Municipal Agency and Other Sales" in the 1998 period is the
delivery by Con Edison of 1,326 million KWhrs. under the Retail Choice program.
For the 1998 period, Con Edison's firm gas sales volume, including firm
transportation, decreased 7.3 percent and interruptible sales decreased 20.3
percent compared with the 1997 period, as a result of warmer winter weather in
1998. Under the gas rate agreements covering the 1998 and 1997 periods, most
weather related variations in firm gas sales and transportation did not affect
earnings. The decrease in interruptible sales results principally from
increased purchases of gas by Con Edison customers from other suppliers.
Transportation of customer-owned gas (other than gas transported for the New
York Power Authority), which comprised approximately ten percent of the gas Con
Edison sold or transported to customers in the 1998 period, increased 99
percent. See "Gas Operations - Gas Sales" In Item 1 of the 1997 Form 10-K.
Steam sales volume decreased 5.1 percent compared with the 1997 period, as
a result of the milder winter weather in 1998.
After adjusting for variations, primarily in weather and billing days in each
period, electric sales volume in Con Edison's service territory increased 2.8
percent in the 1998 period, firm gas sales volume (including firm
transportation) decreased 0.4 percent and steam sales volume decreased 1.9
percent.
Electric fuel costs increased $38.4 million in the 1998 period due to an
increase in the unit cost of fuel, partially offset by lower electric
generation. Electric purchased power costs decreased in the 1998 period due to
lower unit cost, partially offset by higher purchased volumes. Steam fuel costs
decreased $39.3 million in the 1998 period due to decreased generation of steam
and lower unit cost. Steam purchased power costs increased $1.8 million due to
higher unit cost. Con Edison's gas purchased for resale decreased, reflecting
lower sendout and a lower unit cost.
-27-
Con Edison's other operations and maintenance expenses decreased in the 1998
period compared with the 1997 period, due primarily to lower pension and retiree
benefit expenses, continued cost reduction programs and voluntary attrition in
the labor force, partially offset by increased Indian Point 2 outage expenses.
CEI's other operations expense also reflects the increased expenses of its non-
regulated subsidiaries.
Depreciation and amortization increased in the 1998 period due principally to
higher plant balances.
Taxes other than federal income tax increased in the 1998 period due primarily
to higher property taxes.
Federal income tax increased in the 1998 period due to higher taxable income.
TWELVE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
CEI's net revenues increased $113.2 million in the 12 months ended September
30, 1998 compared with the 1997 period. Electric, steam and non-utility net
revenues increased $112.6 million, $10.7 million and $11.9 million,
respectively. Gas net revenues decreased $22 million.
Electric net revenues in the 1998 period were higher than in the corresponding
1997 period primarily as a result of higher sales, offset in part by the rate
reductions that went into effect in January and April 1998. Electric net
revenues in the 1998 period include $0.5 million of incentive earnings under the
partial pass-through fuel adjustment clause (PPFAC) compared with $14.5 million
for PPFAC and other incentive earnings for the 1997 period.
Gas net revenues in the 1997 period include $20 million for incentives. No
incentives have been accrued for the 1998 period.
Steam net revenues in the 1998 period reflect a base rate increase effective
October 1, 1997, offset in part by weather-related sales decreases.
Con Edison's electric sales, excluding off-system sales, for the 1998
period compared with the 1997 period were:
MILLIONS OF KWHRS.
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED PERCENT
DESCRIPTION SEPT 30, 1998 SEPT 30, 1997 VARIATION VARIATION
Residential/Religious 11,292 10,949 343 3.1 %
Commercial/Industrial 25,403 25,686 (283) (1.1)%
Other 646 607 39 6.4 %
Total Con Edison Customers 37,341 37,242 99 0.3 %
NYPA Municipal Agency
and Other Sales 11,182 9,522 1,660 17.4 %
Total Service Area 48,523 46,764 1,759 3.8 %
-28-
Included in "NYPA, Municipal Agency and Other Sales" in the 1998 period is the
delivery by Con Edison of 1,326 million KWhrs. under the Retail Choice program.
For the 1998 period, Con Edison's firm gas sales volume (including firm
transportation) decreased 4.3 percent and interruptible sales decreased 11.4
percent. The decrease in interruptible sales results principally from increased
purchases of gas by Con Edison customers from other suppliers. Transportation
of customer-owned gas (other than gas transported for the New York Power
Authority), which comprised approximately nine percent of the gas Con Edison
sold or transported to customers in the 1998 period, increased 93 percent.
Steam sales volume decreased 3.0 percent compared with the 1997 period. The
decreases in firm gas and steam sales volumes for the 1998 period were due
primarily to milder than normal 1998 winter weather.
After adjustment for variations, primarily in weather and billing days in each
period, electric sales volume in Con Edison's service territory in the 1998
period increased 2.4 percent. Similarly adjusted, firm gas sales volume
(including firm transportation) was unchanged and steam sales volume decreased
1.7 percent.
Electric fuel costs increased $48.3 million in the 1998 period due to a
higher unit cost of fuel, partially offset by decreased generation of
electricity. Electric purchased power costs increased in the 1998 period,
reflecting increased purchased volumes, partially offset by lower unit cost of
purchases. The variations in electric fuel and purchased power costs reflect the
greater availability of Indian Point 2 in the 1997 period than in the 1998
period. Steam fuel costs decreased $38.0 million in the 1998 period due to
decreased generation of steam by Con Edison and a lower unit cost of fuel. Steam
purchased power costs were $5.2 million higher, reflecting greater purchased
volumes and higher unit cost of purchases. Con Edison's gas purchased for resale
decreased, reflecting a lower unit cost of fuel and lower sendout.
Con Edison's other operations and maintenance expenses decreased in the 1998
period due primarily to lower pension, retiree benefits and health insurance
costs, continued cost reduction programs and voluntary attrition of the labor
force, partially offset by increased Indian Point 2 outage expenses. CEI's
other operations expense also reflects the increased expenses of its non-
regulated subsidiaries.
Depreciation and amortization increased in the 1998 period due principally to
higher plant balances.
Taxes other than federal income tax increased in the 1998 period compared with
the 1997 period due primarily to higher property and revenue taxes.
Federal income tax increased in the 1998 period due to higher taxable income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information about the Company's primary market risks associated with
activities in derivative financial instruments, other financial instruments and
derivative commodity instruments, see "Liquidity and Capital Resources -
Financial Market Risks" in Part I, Item 2 of this report, Part I, Item 2 of the
combined CEI and Con Edison Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1998 and June 30, 1998 and Item 7 of the 1997 Form 10-K.
-29-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GRAMERCY PARK
Reference is made to "Gramercy Park" in Part I, Item 3, Legal Proceedings in the
1997 Form 10-K and in Part II, Item 1, Legal Proceedings in the combined CEI and
Con Edison Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1998.
CHALLENGES TO THE SETTLEMENT AGREEMENT
Reference is made to "Challenges to the Settlement Agreement" in Part I, Item 3,
Legal Proceedings in the 1997 Form 10-K and in Part II, Item 1, Legal
Proceedings in the combined CEI and Con Edison Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998 (the "Second Quarter Form 10-Q"). In
September 1998 the motion to dismiss the lawsuit commenced by the Public Utility
Law Project of New York, Inc. was denied. In October 1998 a motion by the New
York State Public Service Commission to appeal the denial was granted.
RATE PROCEEDINGS
Reference is made to "Rate Proceedings" in Part I, Item 3, Legal Proceedings in
the 1997 Form 10-K and in Part II, Item 1, Legal Proceedings in the Second
Quarter Form 10-Q. In September 1998, the United States Court of Appeals for the
Second Circuit denied plaintiffs' motion for reargument of the court's
affirmation of the dismissal by the United States District Court for the
Southern District of New York of the suit against Con Edison. In the proceeding
brought by these plaintiffs in the New York State Supreme Court, County of
Kings, there are two motions pending: (1) Con Edison's motion for reargument of
the court's denial of Con Edison's motion to dismiss and (2) plaintiffs' motion
to certify the class.
SUPERFUND - GLOBAL LANDFILL SITE
Reference is made to the information under the caption "SUPERFUND - Global
Landfill Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K and
in Part II, Item 1, Legal Proceedings in the Second Quarter Form 10-Q.
SUPERFUND - ANCHOR MOTOR SITE
Reference is made to the information under the caption "SUPERFUND - Anchor Motor
Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K and in Part
II, Item 1, Legal Proceedings in the Second Quarter Form 10-Q.
-30-
SUPERFUND - BORNE CHEMICAL SITE
Reference is made to the information under the caption "SUPERFUND - Borne
Chemical Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K and
in Part II, Item 1, Legal Proceedings in the Second Quarter Form 10-Q.
ARTHUR KILL TRANSFORMER FIRE
The United States Attorney for the Southern District of New York and
regulatory agencies are investigating Con Edison's response to a September 1998
transformer fire at Con Edison's Arthur Kill generating station. Following the
fire, it was determined that oil containing high levels of polychlorinated
biphenyls (PCBs) was released to the environment during the incident. Con Edison
is cooperating with the investigations. In October 1998 the New York State
Department of Environmental Conservation notified Con Edison of the inclusion of
the Arthur Kill station in the State's Registry of Inactive Hazardous Waste
Sites. Con Edison is in the process of auctioning the Arthur Kill station. See
"Transition to Competition" in Part I, Item 2 of this Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 12 Statement of computation of Con Edison's ratio of earnings to
fixed charges for the twelve-month periods ended September 30,
1998 and 1997.
Exhibit 27.1 Financial Data Schedule for CEI.*
Exhibit 27.2 Financial Data Schedule for Con Edison.*
___________
*To the extent provided in Rule 402 of Regulation S-T, this exhibit shall not be
deemed "filed", or otherwise subject to liabilities, or be deemed part of a
registration statement.
(B) REPORTS ON FORM 8-K
CEI and Con Edison each filed a Current Report on Form 8-K, dated September 24,
1998, reporting (under Item 5) Con Edison's sale of debentures to refund
certain series of preferred stock and Year 2000 issues and consequences. No
other CEI or Con Edison Current Reports on Form 8-K were filed during the
quarter ended September 30, 1998.
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED EDISON, INC.
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
DATE: November 5, 1998 By: JOAN S. FREILICH
Joan S. Freilich
Executive Vice President, Chief Financial
Officer and Duly Authorized Officer
DATE: November 5, 1998 By: HYMAN SCHOENBLUM
Hyman Schoenblum
Vice President, Controller and
Chief Accounting Officer
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
Ratio of Earnings to Fixed Charges
Twelve Months Ended
(Thousands of Dollars)
SEPTEMBER SEPTEMBER
1998 1997
--------- ---------
Earnings
Net Income $750,768 $689,359
Federal Income Tax 340,991 325,970
Federal Income Tax Deferred 70,620 54,820
Investment Tax Credits Deferred (8,740) (8,730)
---------- ----------
Total Earnings Before Federal Income Tax 1,153,639 1,061,419
Fixed Charges* 352,441 348,199
---------- ----------
Total Earnings Before Federal Income Tax
and Fixed Charges $1,506,080 $1,409,618
========== ==========
* Fixed Charges
Interest on Long-Term Debt $299,387 $304,299
Amort. of Debt Discount, Premium & Expense 13,361 11,364
Interest on Component of Rentals 18,346 18,301
Other Interest 21,347 14,235
---------- ----------
Total Fixed Charges $352,441 $348,199
========== ==========
Ratio of Earnings to Fixed Charges 4.27 4.05
UT
0001047862
Consolidated Edison, Inc.
1,000
Dec-31-1998
Sep-30-1998
9-Mos
Per-Book
11,341,559
345,724
1,420,219
554,869
860,841
14,523,212
582,967
862,616
4,692,205
6,035,610
84,550
233,468
4,047,837
0
0
0
325,000
0
37,771
2,804
3,756,172
14,523,212
5,475,711
319,864
4,314,832
4,634,696
841,015
706
841,721
247,201
594,520
13,609
580,911
373,356
232,864
977,966
2.48
2.48
UT
0000023632
Consolidated Edison Company of New York, Inc.
1,000
Dec-31-1998
Sep-30-1998
9-Mos
Per-Book
11,341,559
253,758
1,313,486
554,869
860,841
14,324,513
582,967
862,616
4,506,481
5,849,886
84,550
233,468
4,047,837
0
0
0
325,000
0
37,771
2,804
3,743,197
14,324,513
5,411,920
325,200
4,234,746
4,559,946
851,974
2,385
854,359
247,201
607,158
13,609
593,549
373,356
232,864
1,028,318
0
0
