Form 10-Q
UNITED STATES
SECURITIESAND 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 | ||
OR | ||
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number | Exact name of registrant as specified in its charter and principal office address and telephone number | State of Incorporation | I.R.S. Employer ID. Number | |||
1-14514 | Consolidated Edison, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600 | New York | 13-3965100 | |||
1-1217 | Consolidated Edison Company of New York, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600 | New York | 13-5009340 |
Indicate by check mark whether 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 ¨ (See “Filing Format” on next page)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).Act.
Non-accelerated filer ¨ |
Non-accelerated filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Con Edison | Yes ¨ No x | |||
Con Edison of New York | Yes ¨ No x |
As of the close of business on October 31, 2005April 28, 2006 Con Edison had outstanding 244,960,349245,775,697 Common Shares ($.10 par value). Con Edison owns all of the outstanding common equity of Con Edison of New York.
Filing Format
This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and, as such, the information in this report about Con Edison of New York also applies to Con Edison. As used in this report, the term the “Companies” refers to each of the two separate registrants: Con Edison and Con Edison of New York. However, Con Edison of New York makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.
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4 | ||||||
PART I—Financial Information | ||||||
Item 1 | Financial Statements (Unaudited) | |||||
Con Edison | ||||||
Con Edison of New York | ||||||
Notes to Financial Statements (Unaudited) | ||||||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | |||||
Item 4 | Controls and Procedures | |||||
Item 1 | Legal Proceedings | |||||
Item 6 | Exhibits | |||||
The following is a glossary of frequently used abbreviations or acronyms that may be used inare 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 | |
The Companies | ||
The Utilities | Con Edison of New York and O&R | |
Regulatory and State Agencies | ||
DEC | New York State Department of Environmental Conservation | |
ECAR | East Central Area Reliability Council | |
EPA | Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
IRS | Internal Revenue Service | |
ISO-NE | ISO New England | |
NJBPU | New Jersey Board of Public Utilities | |
NYISO | New York Independent System Operator | |
NYPA | New York Power Authority | |
NYSERDA | New York State Energy Research and Development Authority | |
PJM | PJM Interconnection | |
PSC | New York State Public Service Commission | |
PPUC | Pennsylvania Public Utility Commission | |
SEC | Securities and Exchange Commission | |
Other | ||
| ||
APB | Accounting Principles Board | |
AFDC | Allowance for funds used during construction | |
CO2 | Carbon dioxide | |
COSO | Committee of Sponsoring Organizations of the Treadway Commission | |
DIG | Derivatives Implementation Group | |
District Court | The United States District Court for the Southern District of New York | |
dths | Dekatherms | |
EITF | Emerging Issues Task Force | |
EMF | Electric and magnetic fields | |
ERRP | East River Repowering Project | |
FASB | Financial Accounting Standards Board |
FIN | FASB Interpretation No. | |
First Quarter Form 10-Q | The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, | |
Fitch | Fitch Ratings | |
Form 10-K | The Companies’ combined Annual Report on Form 10-K for the year ended December 31, | |
FSP | FASB Staff Position | |
GHG | Greenhouse gases | |
Other | ||
kV | Kilovolts | |
kWh | Kilowatt-hour | |
LILO | Lease In/Lease Out | |
LTIP | Long Term Incentive Plan | |
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
mdths | Thousand dekatherms | |
MGP Sites | Manufactured gas plant sites | |
mmlbs | Million pounds | |
Moody’s | Moody’s Investors Service | |
MVA | Megavolt amperes | |
MW | Megawatts or thousand kilowatts | |
| Megawatt | |
| New York | |
NUGs | Non-utility generators | |
OCI | Other Comprehensive Income | |
PCBs | Polychlorinated biphenyls | |
| ||
PRP | Potentially responsible party | |
RCN | RCN Corporation | |
S&P | Standard & Poor’s Rating Services | |
SFAS | Statement of Financial Accounting Standards | |
SO2 | Sulfur dioxide | |
SSCM | Simplified | |
Superfund | Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes | |
VaR | Value-at-Risk | |
VIE | Variable interest entity |
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2005 | December 31, 2004 | March 31, 2006 | December 31, 2005 | |||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||
ASSETS | ||||||||||||
UTILITY PLANT,ATORIGINALCOST | ||||||||||||
Electric | $ | 13,319 | $ | 12,912 | $ | 13,767 | $ | 13,586 | ||||
Gas | 2,977 | 2,867 | 3,083 | 3,044 | ||||||||
Steam | 1,591 | 823 | 1,634 | 1,624 | ||||||||
General | 1,523 | 1,500 | 1,557 | 1,541 | ||||||||
TOTAL | 19,410 | 18,102 | 20,041 | 19,795 | ||||||||
Less: Accumulated depreciation | 4,303 | 4,288 | 4,437 | 4,355 | ||||||||
Net | 15,107 | 13,814 | 15,604 | 15,440 | ||||||||
Construction work in progress | 629 | 1,354 | 877 | 771 | ||||||||
NETUTILITYPLANT | 15,736 | 15,168 | 16,481 | 16,211 | ||||||||
NON-UTILITYPLANT | ||||||||||||
Unregulated generating assets, less accumulated depreciation of $96 and $78 in 2005 and 2004, respectively | 816 | 841 | ||||||||||
Non-utility property, less accumulated depreciation of $29 and $25 in 2005 and 2004, respectively | 37 | 31 | ||||||||||
Unregulated generating assets, less accumulated depreciation of $109 and $102 in 2006 and 2005, respectively | 803 | 810 | ||||||||||
Non-utility property, less accumulated depreciation of $33 and $31 in 2006 and 2005, respectively | 36 | 38 | ||||||||||
Non-utility property held for sale | 74 | 65 | — | 52 | ||||||||
Construction work in progress | — | 1 | 1 | 1 | ||||||||
NET PLANT | 16,663 | 16,106 | 17,321 | 17,112 | ||||||||
CURRENTASSETS | ||||||||||||
Cash and temporary cash investments | 119 | 26 | 177 | 81 | ||||||||
Restricted cash | 20 | 18 | 23 | 15 | ||||||||
Accounts receivable - customers, less allowance for uncollectible accounts of $32 and $33 in 2005 and 2004, respectively | 910 | 741 | ||||||||||
Accounts receivable - customers, less allowance for uncollectible accounts of $37 and $39 in 2006 and 2005, respectively | 907 | 1,025 | ||||||||||
Accrued unbilled revenue | 129 | 73 | 94 | 116 | ||||||||
Other receivables, less allowance for uncollectible accounts of $6 and $5 in 2005 and 2004, respectively | 308 | 198 | ||||||||||
Other receivables, less allowance for uncollectible accounts of $6 in 2006 and 2005 | 356 | 350 | ||||||||||
Fuel oil, at average cost | 40 | 32 | 50 | 47 | ||||||||
Gas in storage, at average cost | 241 | 170 | 145 | 248 | ||||||||
Materials and supplies, at average cost | 113 | 105 | 139 | 130 | ||||||||
Prepayments | 632 | 93 | 256 | 434 | ||||||||
Fair value of derivative assets | 707 | 66 | 89 | 331 | ||||||||
Recoverable energy costs | 106 | 221 | ||||||||||
Current assets held for sale | 5 | 5 | — | 8 | ||||||||
Deferred derivative losses | 59 | 9 | ||||||||||
Other current assets | 227 | 186 | 206 | 147 | ||||||||
TOTALCURRENTASSETS | 3,451 | 1,713 | 2,607 | 3,162 | ||||||||
INVESTMENTS | 263 | 257 | 267 | 265 | ||||||||
DEFERREDCHARGES,REGULATORYASSETSANDNONCURRENTASSETS | ||||||||||||
Goodwill | 406 | 406 | 406 | 406 | ||||||||
Intangible assets, less accumulated amortization of $21 and $13 in 2005 and 2004, respectively | 93 | 100 | ||||||||||
Intangible assets, less accumulated amortization of $27 and $24 in 2006 and 2005, respectively | 88 | 90 | ||||||||||
Prepaid pension costs | 1,465 | 1,442 | 1,455 | 1,474 | ||||||||
Regulatory assets | 2,057 | 2,258 | 2,030 | 2,017 | ||||||||
Other deferred charges and noncurrent assets | 370 | 278 | 302 | 324 | ||||||||
TOTALDEFERREDCHARGES,REGULATORYASSETSANDNONCURRENTASSETS | 4,391 | 4,484 | 4,281 | 4,311 | ||||||||
TOTALASSETS | $ | 24,768 | $ | 22,560 | $ | 24,476 | $ | 24,850 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2005 | December 31, 2004 | March 31, 2006 | December 31, 2005 | |||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||
CAPITALIZATIONAND LIABILITIES | ||||||||||||
CAPITALIZATION | ||||||||||||
Common shareholders’ equity (See Statement of Common Shareholders’ Equity) | $ | 7,336 | $ | 7,054 | $ | 7,362 | $ | 7,310 | ||||
Preferred stock of subsidiary | 213 | 213 | 213 | 213 | ||||||||
Long-term debt | 7,061 | 6,561 | 7,775 | 7,398 | ||||||||
TOTALCAPITALIZATION | 14,610 | 13,828 | 15,350 | 14,921 | ||||||||
MINORITYINTERESTS | 41 | 39 | 42 | 42 | ||||||||
NONCURRENTLIABILITIES | ||||||||||||
Obligations under capital leases | 31 | 33 | 29 | 30 | ||||||||
Provision for injuries and damages | 175 | 180 | 167 | 167 | ||||||||
Pensions and retiree benefits | 235 | 207 | 257 | 223 | ||||||||
Superfund and other environmental costs | 236 | 198 | 251 | 238 | ||||||||
Asset retirement obligations | 95 | 94 | ||||||||||
Noncurrent liabilities held for sale | 7 | 5 | — | 9 | ||||||||
Other noncurrent liabilities | 69 | 62 | 100 | 64 | ||||||||
TOTALNONCURRENTLIABILITIES | 753 | 685 | 899 | 825 | ||||||||
CURRENTLIABILITIES | ||||||||||||
Long-term debt due within one year | 371 | 469 | 43 | 22 | ||||||||
Notes payable | 224 | 156 | 315 | 755 | ||||||||
Accounts payable | 1,189 | 920 | 987 | 1,236 | ||||||||
Customer deposits | 228 | 232 | 224 | 229 | ||||||||
Accrued taxes | 267 | 36 | 102 | 94 | ||||||||
Accrued interest | 111 | 95 | 114 | 102 | ||||||||
Accrued wages | 89 | 88 | 92 | 77 | ||||||||
Fair value of derivative liabilities | 156 | 24 | 198 | 133 | ||||||||
Deferred derivative gains | 496 | 23 | 35 | 224 | ||||||||
Deferred income taxes - recoverable energy costs | 43 | 90 | ||||||||||
Current liabilities held for sale | 10 | 11 | — | 12 | ||||||||
Other current liabilities | 407 | 191 | 305 | 349 | ||||||||
TOTALCURRENTLIABILITIES | 3,548 | 2,245 | 2,458 | 3,323 | ||||||||
DEFERREDCREDITSANDREGULATORYLIABILITIES | ||||||||||||
Deferred income taxes and investment tax credits | 3,810 | 3,726 | 3,723 | 3,644 | ||||||||
Regulatory liabilities | 1,983 | 1,999 | 1,974 | 2,062 | ||||||||
Other deferred credits | 23 | 38 | 30 | 33 | ||||||||
TOTALDEFERREDCREDITSANDREGULATORYLIABILITIES | 5,816 | 5,763 | 5,727 | 5,739 | ||||||||
TOTALCAPITALIZATIONANDLIABILITIES | $ | 24,768 | $ | 22,560 | $ | 24,476 | $ | 24,850 |
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | |||||||||||||||||||
(Millions of Dollars/Except Share Data) | (Millions of Dollars/ Except Share Data) | |||||||||||||||||||||||
OPERATINGREVENUES | ||||||||||||||||||||||||
Electric | $ | 2,518 | $ | 2,168 | $ | 5,682 | $ | 5,238 | $ | 1,759 | $ | 1,513 | ||||||||||||
Gas | 232 | 182 | 1,314 | 1,111 | 843 | 728 | ||||||||||||||||||
Steam | 111 | 88 | 474 | 415 | 275 | 267 | ||||||||||||||||||
Non-utility | 514 | 296 | 1,112 | 813 | 440 | 292 | ||||||||||||||||||
TOTALOPERATINGREVENUES | 3,375 | 2,734 | 8,582 | 7,577 | 3,317 | 2,800 | ||||||||||||||||||
OPERATINGEXPENSES | ||||||||||||||||||||||||
Purchased power | 1,538 | 1,215 | 3,447 | 3,035 | 1,184 | 940 | ||||||||||||||||||
Fuel | 222 | 148 | 553 | 467 | 255 | 191 | ||||||||||||||||||
Gas purchased for resale | 133 | 86 | 786 | 643 | 556 | 452 | ||||||||||||||||||
Other operations and maintenance | 420 | 384 | 1,239 | 1,121 | 440 | 414 | ||||||||||||||||||
Depreciation and amortization | 147 | 140 | 434 | 413 | 151 | 141 | ||||||||||||||||||
Taxes, other than income taxes | 323 | 278 | 874 | 815 | 318 | 270 | ||||||||||||||||||
Income taxes | 173 | 153 | 322 | 306 | 105 | 110 | ||||||||||||||||||
TOTALOPERATINGEXPENSES | 2,956 | 2,404 | 7,655 | 6,800 | 3,009 | 2,518 | ||||||||||||||||||
OPERATINGINCOME | 419 | 330 | 927 | 777 | 308 | 282 | ||||||||||||||||||
OTHERINCOME (DEDUCTIONS) | ||||||||||||||||||||||||
Investment and other income | (11 | ) | 24 | 6 | 39 | 13 | 7 | |||||||||||||||||
Allowance for equity funds used during construction | — | 6 | 8 | 18 | 1 | 7 | ||||||||||||||||||
Preferred stock dividend requirements of subsidiary | (3 | ) | (3 | ) | (8 | ) | (8 | ) | (3 | ) | (3 | ) | ||||||||||||
Other deductions | (3 | ) | (4 | ) | (14 | ) | (10 | ) | (5 | ) | (6 | ) | ||||||||||||
Income taxes | 5 | 6 | 10 | 12 | (8 | ) | 4 | |||||||||||||||||
TOTALOTHERINCOME (DEDUCTIONS) | (12 | ) | 29 | 2 | 51 | (2 | ) | 9 | ||||||||||||||||
INTERESTEXPENSE | ||||||||||||||||||||||||
Interest on long-term debt | 111 | 105 | 330 | 320 | 113 | 107 | ||||||||||||||||||
Other interest | 9 | 8 | 19 | 24 | 14 | 8 | ||||||||||||||||||
Allowance for borrowed funds used during construction | — | (4 | ) | (6 | ) | (13 | ) | (1 | ) | (5 | ) | |||||||||||||
NETINTERESTEXPENSE | 120 | 109 | 343 | 331 | 126 | 110 | ||||||||||||||||||
INCOMEFROMCONTINUINGOPERATIONS | 287 | 250 | 586 | 497 | 180 | 181 | ||||||||||||||||||
LOSSFROMDISCONTINUEDOPERATIONS | (2 | ) | (4 | ) | (5 | ) | (10 | ) | ||||||||||||||||
INCOMEFROMDISCONTINUEDOPERATIONS (NETOFINCOMETAXES) | 1 | — | ||||||||||||||||||||||
NETINCOME | $ | 285 | $ | 246 | $ | 581 | $ | 487 | $ | 181 | $ | 181 | ||||||||||||
EARNINGSPERCOMMONSHARE -BASIC | ||||||||||||||||||||||||
Continuing operations | $ | 1.17 | $ | 1.04 | $ | 2.41 | $ | 2.12 | $ | 0.74 | $ | 0.75 | ||||||||||||
Discontinued operations | — | (0.02 | ) | (0.02 | ) | (0.04 | ) | — | — | |||||||||||||||
Net income | $ | 1.17 | $ | 1.02 | $ | 2.39 | $ | 2.08 | $ | 0.74 | $ | 0.75 | ||||||||||||
EARNINGSPERCOMMONSHARE -DILUTED | ||||||||||||||||||||||||
Continuing operations | $ | 1.17 | $ | 1.03 | $ | 2.40 | $ | 2.12 | $ | 0.74 | $ | 0.75 | ||||||||||||
Discontinued operations | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.04 | ) | — | — | ||||||||||||||
Net income | $ | 1.16 | $ | 1.01 | $ | 2.38 | $ | 2.08 | $ | 0.74 | $ | 0.75 | ||||||||||||
DIVIDENDSDECLAREDPERSHAREOFCOMMONSTOCK | $ | 0.570 | $ | 0.565 | $ | 1.710 | $ | 1.695 | $ | 0.575 | $ | 0.570 | ||||||||||||
AVERAGENUMBEROFSHARESOUTSTANDING -BASIC (INMILLIONS) | 244.4 | 241.5 | 243.5 | 233.9 | 245.5 | 242.7 | ||||||||||||||||||
AVERAGENUMBEROFSHARESOUTSTANDING -DILUTED (INMILLIONS) | 245.4 | 242.2 | 244.2 | 234.6 | 246.5 | 243.4 |
The accompanying notes are an integral part of these financial statements. 8 |
CONSOLIDATED STATEMENTOF COMPREHENSIVE INCOME
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | |||||||||||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||||||||||||
NET INCOME | $ | 285 | $ | 246 | $ | 581 | $ | 487 | $ | 181 | $ | 181 | ||||||||||
OTHER COMPREHENSIVE INCOME/(LOSS), NETOF TAXES | ||||||||||||||||||||||
Minimum pension liability adjustments, net of $(2) and $1 taxes in 2005 and 2004, respectively | — | — | (3 | ) | 1 | |||||||||||||||||
Unrealized (losses)/gains on derivatives qualified as cash flow hedges, net of $22, $(4), $40 and $11 taxes in 2005 and 2004, respectively | 31 | (6 | ) | 58 | 15 | |||||||||||||||||
Less: Reclassification adjustment for gains included in net income, net of $16, $2, $23 and $7 taxes in 2005 and 2004, respectively | 23 | 3 | 34 | 9 | ||||||||||||||||||
Supplemental pension plan minimum liability adjustments, net of $(3) and $(2) taxes in 2006 and 2005, respectively | (4 | ) | (3 | ) | ||||||||||||||||||
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $(32) and $21 taxes in 2006 and 2005, respectively | (46 | ) | 30 | |||||||||||||||||||
Less: Reclassification adjustment for gains/(losses) included in net income, net of $(18) and $3 taxes in 2006 and 2005, respectively | (26 | ) | 5 | |||||||||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NETOF TAXES | 8 | (9 | ) | 21 | 7 | (24 | ) | 22 | ||||||||||||||
COMPREHENSIVE INCOME | $ | 293 | $ | 237 | $ | 602 | $ | 494 | $ | 157 | $ | 203 |
The accompanying notes are an integral part of these financial statements. | 9 |
CONSOLIDATED STATEMENTOF COMMON SHAREHOLDERS' EQUITY
FOR THE THREEAND NINE MONTHS ENDED SEPTEMBER 30, 2005AND 2004
(UNAUDITED)
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Capital Stock Expense | Accumulated Comprehensive Income/(Loss) | Total | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Capital Expense | Accumulated Income/(Loss) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 225,840,220 | $ | 25 | $ | 2,003 | $ | 5,451 | 23,210,700 | $ | (1,001 | ) | $ | (39 | ) | $ | (16 | ) | $ | 6,423 | ||||||||||||||||||||||||||||||||||||||||||
Net income | 155 | 155 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (127 | ) | (127 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 955,259 | 42 | (6 | ) | 36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 226,795,479 | $ | 25 | $ | 2,045 | $ | 5,473 | 23,210,700 | $ | (1,001 | ) | $ | (39 | ) | $ | (11 | ) | $ | 6,492 | ||||||||||||||||||||||||||||||||||||||||||
Net income | 86 | 86 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (128 | ) | (128 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - public offering | 14,000,000 | 1 | 527 | (15 | ) | 513 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 530,885 | 21 | (1 | ) | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 11 | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 241,326,364 | $ | 26 | $ | 2,593 | $ | 5,430 | 23,210,700 | $ | (1,001 | ) | $ | (54 | ) | $ | — | $ | 6,994 | |||||||||||||||||||||||||||||||||||||||||||
Net income | 246 | 246 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (137 | ) | (137 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 526,901 | 20 | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (9 | ) | (9 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 241,853,265 | $ | 26 | $ | 2,613 | $ | 5,539 | 23,210,700 | $ | (1,001 | ) | $ | (54 | ) | $ | (9 | ) | $ | 7,114 | ||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 242,514,183 | $ | 26 | $ | 2,642 | $ | 5,451 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | (9 | ) | $ | 7,054 | 242,514,183 | $ | 26 | $ | 2,642 | $ | 5,451 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | (9 | ) | $ | 7,054 | |||||||||||||||||||||||
Net income | 181 | 181 | 181 | 181 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (138 | ) | (138 | ) | (138 | ) | (138 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 476,235 | 20 | 20 | 476,235 | 20 | 20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 22 | 22 | 22 | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 242,990,418 | $ | 26 | $ | 2,662 | $ | 5,494 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | 13 | $ | 7,139 | 242,990,418 | $ | 26 | $ | 2,662 | $ | 5,494 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | 13 | $ | 7,139 | |||||||||||||||||||||||||
Net income | 115 | 115 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (139 | ) | (139 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 948,465 | 1 | 43 | (4 | ) | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (9 | ) | (9 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 243,938,883 | $ | 27 | $ | 2,705 | $ | 5,466 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | 4 | $ | 7,146 | |||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 245,286,058 | $ | 27 | $ | 2,768 | $ | 5,605 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | (34 | ) | $ | 7,310 | ||||||||||||||||||||||||||||||||||||||||||
Net income | 285 | 285 | 181 | 181 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | (139 | ) | (139 | ) | (141 | ) | (141 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares - dividend reinvestment and employee stock plans | 920,011 | 41 | (5 | ) | 36 | 456,347 | 24 | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 8 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 244,858,894 | $ | 27 | $ | 2,746 | $ | 5,607 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | 12 | $ | 7,336 | |||||||||||||||||||||||||||||||||||||||||||
Stock options | (23 | ) | 35 | 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (24 | ) | (24 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF | 245,742,405 | $ | 27 | $ | 2,769 | $ | 5,680 | 23,210,700 | $ | (1,001 | ) | $ | (55 | ) | $ | (58 | ) | $ | 7,362 |
The accompanying notes are an integral part of these financial statements. 10 |
CONSOLIDATED STATEMENTOF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||
2005 | 2004 | 2006 | 2005 | |||||||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||||||
OPERATINGACTIVITIES | ||||||||||||||||
Net Income | $ | 581 | $ | 487 | $ | 181 | $ | 181 | ||||||||
PRINCIPALNON-CASHCHARGES/(CREDITS)TOINCOME | ||||||||||||||||
Depreciation and amortization | 434 | 416 | 151 | 141 | ||||||||||||
Deferred income taxes | (2 | ) | 454 | (8 | ) | 9 | ||||||||||
Electric rate case amortization/accruals | (78 | ) | — | |||||||||||||
Electric rate case amortization and accruals | (50 | ) | — | |||||||||||||
Common equity component of allowance for funds used during construction | (8 | ) | (18 | ) | (1 | ) | (7 | ) | ||||||||
Prepaid pension costs (net of capitalized amounts) | (32 | ) | (104 | ) | 7 | (13 | ) | |||||||||
Other non-cash items (net) | 7 | 7 | 110 | 1 | ||||||||||||
CHANGESINASSETSANDLIABILITIES | ||||||||||||||||
Accounts receivable - customers, less allowance for uncollectibles | (169 | ) | 50 | 118 | (84 | ) | ||||||||||
Materials and supplies, including fuel oil and gas in storage | (87 | ) | (54 | ) | 91 | 117 | ||||||||||
Prepayments | (539 | ) | (176 | ) | ||||||||||||
Other receivables | (165 | ) | (151 | ) | ||||||||||||
Other current assets | (42 | ) | (79 | ) | ||||||||||||
Prepayments, other receivables and other current assets | 134 | (106 | ) | |||||||||||||
Recoverable energy costs | (56 | ) | 81 | 180 | 80 | |||||||||||
Accounts payable | 269 | (38 | ) | (249 | ) | (48 | ) | |||||||||
Pensions and retiree benefits | 28 | 4 | 34 | 27 | ||||||||||||
Accrued taxes | 231 | (44 | ) | 8 | 97 | |||||||||||
Accrued interest | 17 | (3 | ) | 12 | 13 | |||||||||||
Deferred charges and other regulatory assets | (167 | ) | (244 | ) | (29 | ) | (62 | ) | ||||||||
Deferred credits and other regulatory liabilities | (41 | ) | 176 | (58 | ) | 12 | ||||||||||
Other assets | 174 | 21 | (8 | ) | (24 | ) | ||||||||||
Other liabilities | 255 | 12 | (41 | ) | 52 | |||||||||||
NETCASHFLOWSFROMOPERATINGACTIVITIES | 610 | 797 | 582 | 386 | ||||||||||||
INVESTINGACTIVITIES | ||||||||||||||||
Utility construction expenditures (excluding capitalized support costs of $8 and $33 in 2005 and 2004, respectively) | (1,055 | ) | (969 | ) | ||||||||||||
Utility construction expenditures (excluding capitalized support costs of $(11) and $1 in 2006 and 2005, respectively) | (375 | ) | (346 | ) | ||||||||||||
Cost of removal less salvage | (133 | ) | (100 | ) | (44 | ) | (41 | ) | ||||||||
Non-utility construction expenditures | (13 | ) | (35 | ) | (1 | ) | (3 | ) | ||||||||
Common equity component of allowance for funds used during construction | 8 | 18 | 1 | 7 | ||||||||||||
Investments by unregulated subsidiaries | (6 | ) | (7 | ) | ||||||||||||
Proceeds from/(cost of) sale of First Avenue properties | 534 | (16 | ) | |||||||||||||
Proceeds from sale of properties | 60 | 285 | ||||||||||||||
Proceeds from sale of CEC | 39 | — | ||||||||||||||
NETCASHFLOWSUSEDININVESTINGACTIVITIES | (665 | ) | (1,109 | ) | (320 | ) | (98 | ) | ||||||||
FINANCINGACTIVITIES | ||||||||||||||||
Net proceeds from short-term debt | 68 | 14 | ||||||||||||||
Net payments of short-term debt | (440 | ) | (106 | ) | ||||||||||||
Retirement of long-term debt | (239 | ) | (832 | ) | (1 | ) | — | |||||||||
Issuance of long-term debt | 643 | 967 | 400 | 390 | ||||||||||||
Issuance of common stock | 70 | 561 | 10 | 10 | ||||||||||||
Debt issuance costs | (7 | ) | (14 | ) | (4 | ) | (3 | ) | ||||||||
Common stock dividends | (387 | ) | (363 | ) | (131 | ) | (128 | ) | ||||||||
NETCASHFLOWSFROMFINANCINGACTIVITIES | 148 | 333 | ||||||||||||||
NETCASHFLOWS (USEDIN)/FROMFINANCINGACTIVITIES | (166 | ) | 163 | |||||||||||||
CASHANDTEMPORARYCASHINVESTMENTS: | ||||||||||||||||
NETCHANGEFORTHEPERIOD | 93 | 21 | 96 | 451 | ||||||||||||
BALANCEATBEGINNINGOFPERIOD | 26 | 49 | 81 | 26 | ||||||||||||
BALANCEATENDOFPERIOD | $ | 119 | $ | 70 | $ | 177 | $ | 477 | ||||||||
SUPPLEMENTALDISCLOSUREOFCASHFLOWINFORMATION | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 304 | $ | 293 | $ | 105 | $ | 92 | ||||||||
Income taxes | $ | 79 | $ | 103 | $ | 37 | $ | 19 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2005 | December 31, 2004 | March 31, 2006 | December 31, 2005 | |||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||
ASSETS | ||||||||||||
UTILITY PLANT,AT ORIGINAL COST | ||||||||||||
Electric | $ | 12,486 | $ | 12,100 | $ | 12,916 | $ | 12,740 | ||||
Gas | 2,631 | 2,531 | 2,718 | 2,683 | ||||||||
Steam | 1,591 | 823 | 1,634 | 1,624 | ||||||||
General | 1,399 | 1,379 | 1,435 | 1,418 | ||||||||
TOTAL | 18,107 | 16,833 | 18,703 | 18,465 | ||||||||
Less: Accumulated depreciation | 3,908 | 3,906 | 4,039 | 3,960 | ||||||||
Net | 14,199 | 12,927 | 14,664 | 14,505 | ||||||||
Construction work in progress | 594 | 1,328 | 839 | 739 | ||||||||
NET UTILITY PLANT | 14,793 | 14,255 | 15,503 | 15,244 | ||||||||
NON-UTILITYPROPERTY | ||||||||||||
Non-utility property | 18 | 19 | ||||||||||
Non-utility property, net | 16 | 19 | ||||||||||
NET PLANT | 14,811 | 14,274 | 15,519 | 15,263 | ||||||||
CURRENT ASSETS | ||||||||||||
Cash and temporary cash investments | 82 | 10 | 115 | 61 | ||||||||
Accounts receivable - customers, less allowance for uncollectible accounts of $29 in 2005 and 2004 | 768 | 666 | ||||||||||
Other receivables, less allowance for uncollectible accounts of $4 and $3 in 2005 and 2004, respectively | 216 | 113 | ||||||||||
Accounts receivable - customers, less allowance for uncollectible accounts of $33 and $35 in 2006 and 2005, respectively | 772 | 880 | ||||||||||
Other receivables, less allowance for uncollectible accounts of $5 in 2006 and 2005 | 210 | 226 | ||||||||||
Accounts receivable from affiliated companies | 219 | 115 | 51 | 34 | ||||||||
Fuel oil, at average cost | 30 | 24 | 36 | 32 | ||||||||
Gas in storage, at average cost | 178 | 125 | 113 | 183 | ||||||||
Materials and supplies, at average cost | 101 | 94 | 108 | 100 | ||||||||
Prepayments | 606 | 73 | 242 | 417 | ||||||||
Fair value of derivative assets | 434 | 18 | 9 | 175 | ||||||||
Recoverable energy costs | 91 | 192 | ||||||||||
Deferred derivative losses | 54 | 9 | ||||||||||
Other current assets | 72 | 69 | 105 | 73 | ||||||||
TOTAL CURRENT ASSETS | 2,706 | 1,307 | 1,906 | 2,382 | ||||||||
INVESTMENTS | 3 | 3 | 3 | 3 | ||||||||
DEFERRED CHARGES, REGULATORY ASSETSAND NONCURRENT ASSETS | ||||||||||||
Prepaid pension costs | 1,466 | 1,442 | 1,455 | 1,474 | ||||||||
Regulatory assets | 1,786 | 2,005 | 1,787 | 1,773 | ||||||||
Other deferred charges and noncurrent assets | 298 | 213 | 220 | 251 | ||||||||
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS | 3,550 | 3,660 | ||||||||||
TOTAL DEFERRED CHARGES, REGULATORY ASSETSAND NONCURRENT ASSETS | 3,462 | 3,498 | ||||||||||
TOTAL ASSETS | $ | 21,070 | $ | 19,244 | $ | 20,890 | $ | 21,146 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2005 | December 31, 2004 | March 31, 2006 | December 31, 2005 | |||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||
CAPITALIZATIONAND LIABILITIES | ||||||||||||
CAPITALIZATION | ||||||||||||
Common shareholder’s equity (See Statement of Common Shareholder’s Equity) | $ | 6,425 | $ | 6,116 | $ | 6,521 | $ | 6,437 | ||||
Preferred stock | 213 | 213 | 213 | 213 | ||||||||
Long-term debt | 5,706 | 5,235 | 6,453 | 6,055 | ||||||||
TOTAL CAPITALIZATION | 12,344 | 11,564 | 13,187 | 12,705 | ||||||||
NONCURRENT LIABILITIES | ||||||||||||
Obligations under capital leases | 31 | 33 | 29 | 30 | ||||||||
Provision for injuries and damages | 166 | 170 | 161 | 160 | ||||||||
Pensions and retiree benefits | 139 | 109 | 142 | 122 | ||||||||
Superfund and other environmental costs | 179 | 141 | 199 | 186 | ||||||||
Asset retirement obligations | 94 | 93 | ||||||||||
Other noncurrent liabilities | 34 | 34 | 35 | 32 | ||||||||
TOTAL NONCURRENT LIABILITIES | 549 | 487 | 660 | 623 | ||||||||
CURRENT LIABILITIES | ||||||||||||
Long-term debt due within one year | 350 | 450 | — | — | ||||||||
Notes payable | 122 | 100 | 179 | 520 | ||||||||
Accounts payable | 941 | 738 | 763 | 1,015 | ||||||||
Accounts payable to affiliated companies | 52 | 40 | 23 | 23 | ||||||||
Customer deposits | 214 | 218 | 210 | 215 | ||||||||
Accrued taxes | 326 | 58 | 112 | 103 | ||||||||
Accrued interest | 90 | 79 | 91 | 87 | ||||||||
Accrued wages | 86 | 81 | 79 | 70 | ||||||||
Deferred derivative gains | 408 | 8 | 15 | 170 | ||||||||
Deferred income taxes - recoverable energy costs | 37 | 78 | ||||||||||
Other current liabilities | 337 | 160 | 325 | 332 | ||||||||
TOTAL CURRENT LIABILITIES | 2,926 | 1,932 | 1,834 | 2,613 | ||||||||
DEFERRED CREDITSAND REGULATORY LIABILITIES | ||||||||||||
Deferred income taxes and investment tax credits | 3,385 | 3,346 | 3,353 | 3,258 | ||||||||
Regulatory liabilities | 1,847 | 1,887 | 1,838 | 1,924 | ||||||||
Other deferred credits | 19 | 28 | 18 | 23 | ||||||||
TOTAL DEFERRED CREDITSAND REGULATORY LIABILITIES | 5,251 | 5,261 | 5,209 | 5,205 | ||||||||
TOTAL CAPITALIZATIONAND LIABILITIES | $ | 21,070 | $ | 19,244 | $ | 20,890 | $ | 21,146 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | |||||||||||||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||||||||||||||
OPERATINGREVENUES | ||||||||||||||||||||||||
Electric | $ | 2,317 | $ | 2,009 | $ | 5,237 | $ | 4,838 | $ | 1,633 | $ | 1,393 | ||||||||||||
Gas | 209 | 161 | 1,160 | 962 | 737 | 631 | ||||||||||||||||||
Steam | 111 | 88 | 474 | 415 | 275 | 267 | ||||||||||||||||||
TOTALOPERATINGREVENUES | 2,637 | 2,258 | 6,871 | 6,215 | 2,645 | 2,291 | ||||||||||||||||||
OPERATINGEXPENSES | ||||||||||||||||||||||||
Purchased power | 1,073 | 943 | 2,476 | 2,335 | 775 | 707 | ||||||||||||||||||
Fuel | 131 | 98 | 358 | 316 | 193 | 134 | ||||||||||||||||||
Gas purchased for resale | 110 | 76 | 666 | 536 | 460 | 379 | ||||||||||||||||||
Other operations and maintenance | 352 | 316 | 1,045 | 926 | 375 | 352 | ||||||||||||||||||
Depreciation and amortization | 129 | 120 | 378 | 356 | 133 | 122 | ||||||||||||||||||
Taxes, other than income taxes | 305 | 261 | 821 | 761 | 299 | 253 | ||||||||||||||||||
Income taxes | 165 | 138 | 300 | 282 | 113 | 98 | ||||||||||||||||||
TOTALOPERATINGEXPENSES | 2,265 | 1,952 | 6,044 | 5,512 | 2,348 | 2,045 | ||||||||||||||||||
OPERATINGINCOME | 372 | 306 | 827 | 703 | 297 | 246 | ||||||||||||||||||
OTHERINCOME (DEDUCTIONS) | ||||||||||||||||||||||||
Investment and other income | 10 | 10 | 26 | 30 | 9 | 7 | ||||||||||||||||||
Allowance for equity funds used during construction | — | 6 | 8 | 18 | — | 7 | ||||||||||||||||||
Other deductions | (3 | ) | (3 | ) | (9 | ) | (10 | ) | (3 | ) | (3 | ) | ||||||||||||
Income taxes | 1 | 2 | (2 | ) | 1 | — | 1 | |||||||||||||||||
TOTALOTHERINCOME (DEDUCTIONS) | 8 | 15 | 23 | 39 | 6 | 12 | ||||||||||||||||||
INTERESTEXPENSE | ||||||||||||||||||||||||
Interest on long-term debt | 87 | 82 | 260 | 250 | 89 | 83 | ||||||||||||||||||
Other interest | 8 | 7 | 15 | 23 | 10 | 7 | ||||||||||||||||||
Allowance for borrowed funds used during construction | — | (4 | ) | (6 | ) | (13 | ) | (1 | ) | (5 | ) | |||||||||||||
NETINTERESTEXPENSE | 95 | 85 | 269 | 260 | 98 | 85 | ||||||||||||||||||
NETINCOME | 285 | 236 | 581 | 482 | 205 | 173 | ||||||||||||||||||
PREFERREDSTOCKDIVIDENDREQUIREMENTS | 3 | 3 | 8 | 8 | 3 | 3 | ||||||||||||||||||
NETINCOMEFORCOMMONSTOCK | $ | 282 | $ | 233 | $ | 573 | $ | 474 | $ | 202 | $ | 170 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENTOF COMPREHENSIVE INCOME
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | ||||||||||||||||
(Millions of Dollars) | (Millions of Dollars) | ||||||||||||||||||||
NETINCOME | $ | 285 | $ | 236 | $ | 581 | $ | 482 | $ | 205 | $ | 173 | |||||||||
OTHERCOMPREHENSIVEINCOME/(LOSS),NETOFTAXES | |||||||||||||||||||||
Minimum pension liability adjustments, net of $(2) and $2 taxes in 2005 and 2004, respectively | — | — | (2 | ) | 3 | ||||||||||||||||
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $3 and $(2) taxes in 2005 | 5 | — | (3 | ) | — | ||||||||||||||||
Supplemental pension plan minimum liability adjustments, net of $(3) and $(2) taxes in 2006 and 2005, respectively | (4 | ) | (2 | ) | |||||||||||||||||
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $6 taxes in 2005 | (1 | ) | 8 | ||||||||||||||||||
Less: Reclassification adjustment for gains included in net income, net of $1 taxes in 2005 | — | — | 1 | — | — | 1 | |||||||||||||||
TOTALOTHERCOMPREHENSIVEINCOME/(LOSS),NETOFTAXES | 5 | — | (6 | ) | 3 | (5 | ) | 5 | |||||||||||||
COMPREHENSIVEINCOME | $ | 290 | $ | 236 | $ | 575 | $ | 485 | $ | 200 | $ | 178 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENTOF COMMON SHAREHOLDER’S EQUITY
FOR THE THREEAND NINE MONTHS ENDED SEPTEMBER 30, 2005AND 2004
(UNAUDITED)
Common Stock | Additional Paid-In Capital | Retained Earnings | Repurchased Stock | Capital Expense | Accumulated Income/(Loss) | Total | Common Stock | Additional Paid-In Capital | Retained Earnings | Repurchased Stock | Capital Expense | Accumulated Loss | Total | |||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF DECEMBER 31, 2003 | 235,488,094 | $ | 589 | $ | 1,274 | $ | 4,626 | $ | (962 | ) | $ | (39 | ) | $ | (6 | ) | $ | 5,482 | ||||||||||||||||||||||||||||||||||||||
Net income | 155 | 155 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (103 | ) | (103 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF MARCH 31, 2004 | 235,488,094 | $ | 589 | $ | 1,274 | $ | 4,675 | $ | (962 | ) | $ | (39 | ) | $ | (3 | ) | $ | 5,534 | ||||||||||||||||||||||||||||||||||||||
Net income | 92 | 92 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (82 | ) | (82 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital contribution by parent | 528 | (15 | ) | 513 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF JUNE 30, 2004 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,682 | $ | (962 | ) | $ | (54 | ) | $ | (3 | ) | $ | 6,054 | ||||||||||||||||||||||||||||||||||||||
Net income | 235 | 235 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (108 | ) | (108 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF SEPTEMBER 30, 2004 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,806 | $ | (962 | ) | $ | (54 | ) | $ | (3 | ) | $ | 6,178 | ||||||||||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF DECEMBER 31, 2004 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,748 | $ | (962 | ) | $ | (55 | ) | $ | (6 | ) | $ | 6,116 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,748 | $ | (962 | ) | $ | (55 | ) | $ | (6 | ) | $ | 6,116 | ||||||||||||||||||||
Net income | 173 | 173 | 173 | 173 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (111 | ) | (111 | ) | (111 | ) | (111 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (3 | ) | (3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 5 | 5 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF MARCH 31, 2005 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,807 | $ | (962 | ) | $ | (55 | ) | $ | (1 | ) | $ | 6,180 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,807 | $ | (962 | ) | $ | (55 | ) | $ | (1 | ) | $ | 6,180 | ||||||||||||||||||||
BALANCEASOF DECEMBER 31, 2005 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 5,074 | $ | (962 | ) | $ | (55 | ) | $ | (11 | ) | $ | 6,437 | ||||||||||||||||||||||||||||||||||||||
Net income | 124 | 124 | 205 | 205 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (52 | ) | (52 | ) | (113 | ) | (113 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (3 | ) | (3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (16 | ) | (16 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF JUNE 30, 2005 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 4,876 | $ | (962 | ) | $ | (55 | ) | $ | (17 | ) | $ | 6,233 | ||||||||||||||||||||||||||||||||||||||
Net income | 284 | 284 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend to parent | (95 | ) | (95 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative preferred dividends | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCEASOF SEPTEMBER 30, 2005 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 5,063 | $ | (962 | ) | $ | (55 | ) | $ | (12 | ) | $ | 6,425 | ||||||||||||||||||||||||||||||||||||||
BALANCEASOF MARCH 31, 2006 | 235,488,094 | $ | 589 | $ | 1,802 | $ | 5,163 | $ | (962 | ) | $ | (55 | ) | $ | (16 | ) | $ | 6,521 |
The accompanying notes are an integral part of these financial statements.
Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENTOF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||
2005 | 2004 | 2006 | 2005 | |||||||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||||||
OPERATINGACTIVITIES | ||||||||||||||||
Net income | $ | 581 | $ | 482 | $ | 205 | $ | 173 | ||||||||
PRINCIPALNON-CASHCHARGES/(CREDITS)TOINCOME | ||||||||||||||||
Depreciation and amortization | 378 | 356 | 133 | 122 | ||||||||||||
Deferred income taxes | (22 | ) | 404 | 32 | 6 | |||||||||||
Electric rate case amortization/accruals | (78 | ) | — | |||||||||||||
Electric rate case amortization and accruals | (50 | ) | — | |||||||||||||
Common equity component of allowance for funds used during construction | (8 | ) | (18 | ) | — | (7 | ) | |||||||||
Prepaid pension costs (net of capitalized amounts) | (32 | ) | (104 | ) | 7 | (13 | ) | |||||||||
Other non-cash items (net) | (27 | ) | 10 | (4 | ) | (2 | ) | |||||||||
CHANGESINASSETSANDLIABILITIES | ||||||||||||||||
Accounts receivable - customers, less allowance for uncollectibles | (102 | ) | 47 | 109 | (33 | ) | ||||||||||
Materials and supplies, including fuel oil and gas in storage | (66 | ) | (37 | ) | 58 | 83 | ||||||||||
Prepayments | (532 | ) | (162 | ) | ||||||||||||
Other receivables | (207 | ) | (141 | ) | ||||||||||||
Other current assets | (2 | ) | (83 | ) | ||||||||||||
Prepayments, other receivables and other current assets | 147 | (109 | ) | |||||||||||||
Recoverable energy costs | (48 | ) | (8 | ) | 163 | 72 | ||||||||||
Accounts payable | 217 | (13 | ) | (245 | ) | (35 | ) | |||||||||
Pensions and retiree benefits | 30 | 5 | 20 | 16 | ||||||||||||
Accrued taxes | 268 | (71 | ) | 9 | 81 | |||||||||||
Accrued interest | 10 | (3 | ) | 4 | 8 | |||||||||||
Deferred charges and other regulatory assets | (139 | ) | (146 | ) | (31 | ) | (57 | ) | ||||||||
Deferred credits and other regulatory liabilities | (40 | ) | 172 | (64 | ) | 9 | ||||||||||
Other assets | 147 | 11 | (1 | ) | (18 | ) | ||||||||||
Other liabilities | 212 | 3 | (38 | ) | 46 | |||||||||||
NETCASHFLOWSFROMOPERATINGACTIVITIES | 540 | 704 | 454 | 342 | ||||||||||||
INVESTINGACTIVITIES | ||||||||||||||||
Utility construction expenditures (excluding capitalized support costs of $8 and $33 in 2005 and 2004, respectively) | (1,001 | ) | (918 | ) | ||||||||||||
Utility construction expenditures (excluding capitalized support costs of $(11) and $1 in 2006 and 2005, respectively) | (356 | ) | (337 | ) | ||||||||||||
Cost of removal less salvage | (131 | ) | (99 | ) | (43 | ) | (41 | ) | ||||||||
Common equity component of allowance for funds used during construction | 8 | 18 | — | 7 | ||||||||||||
Proceeds from/(cost of) sale of First Avenue properties | 534 | (16 | ) | |||||||||||||
Proceeds from sale of properties | 60 | 285 | ||||||||||||||
NETCASHFLOWSUSEDININVESTINGACTIVITIES | (590 | ) | (1,015 | ) | (339 | ) | (86 | ) | ||||||||
FINANCINGACTIVITIES | ||||||||||||||||
Net proceeds from short-term debt | 22 | 17 | ||||||||||||||
Retirement of long-term debt | (228 | ) | (823 | ) | ||||||||||||
Net payments of short-term debt | (341 | ) | (100 | ) | ||||||||||||
Issuance of long-term debt | 601 | 920 | 400 | 350 | ||||||||||||
Debt issuance costs | (7 | ) | (14 | ) | (4 | ) | (3 | ) | ||||||||
Capital contribution by parent | — | 513 | ||||||||||||||
Dividend to parent | (258 | ) | (293 | ) | (113 | ) | (111 | ) | ||||||||
Preferred stock dividends | (8 | ) | (8 | ) | (3 | ) | (3 | ) | ||||||||
NETCASHFLOWSFROMFINANCINGACTIVITIES | 122 | 312 | ||||||||||||||
NETCASHFLOWS (USEDIN)/FROMFINANCINGACTIVITIES | (61 | ) | 133 | |||||||||||||
CASHANDTEMPORARYCASHINVESTMENTS: | ||||||||||||||||
NETCHANGEFORTHEPERIOD | 72 | 1 | 54 | 389 | ||||||||||||
BALANCEATBEGINNINGOFPERIOD | 10 | 33 | 61 | 10 | ||||||||||||
BALANCEATENDOFPERIOD | $ | 82 | $ | 34 | $ | 115 | $ | 399 | ||||||||
SUPPLEMENTALDISCLOSUREOFCASHFLOWINFORMATION | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 241 | $ | 225 | $ | 86 | $ | 74 | ||||||||
Income taxes | $ | 138 | $ | 127 | $ | 55 | $ | 39 |
The accompanying notes are an integral part of these financial statements.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED)
General
These combined notes accompany and form an integral part of the separate interim consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison); and Consolidated Edison Company of New York, Inc. and its subsidiaries (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the Con Edison of New York interim consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s unregulated subsidiariescompetitive businesses (discussed below), in Con Edison’s interim consolidated financial statements. The term the “Utilities” is used in these notes to refer to Con Edison of New York and O&R.
As used in these notes, the term the “Companies” refers to Con Edison and Con Edison of New York and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, Con Edison of New York makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.
The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 20042005 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (the First Quarter Form 10-Q) and June 30, 2005 (the Second Quarter Form 10-Q). Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of results for the entire fiscal year.
Con Edison has two regulated utility subsidiaries: Con Edison of New York and O&R. Con Edison of New York provides electric service to approximately 3.2 million customers and gas service to over 1 million customers in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service to approximately 0.3 million customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to over 0.1 million customers in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following unregulatedcompetitive energy subsidiaries:businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity to delivery customers of utilities, including Con Edison of New York and O&R, and also offers energy-related services; Consolidated Edison Energy, Inc. (Con
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Edison Energy), a wholesale energy supply company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and participates in other infrastructure projects.
In December 2004, after a comprehensive strategic review, Con Edison determined to sell Con Edison Communications, LLC (Con Edison Communications). See Note N.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Note A - Earnings perPer Common Share
Reference is made to “Earnings per Common Share” in Note A to the financial statements included in Item 8 of the Form 10-K. For the three and nine months ended September 30,March 31, 2006 and 2005, and 2004, Con Edison’s basic and diluted EPS are calculated as follows:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||
(Millions of Dollars, except per share amounts/Shares in Millions) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | ||||||||||||||||
Income from continuing operations | $ | 287 | $ | 250 | $ | 586 | $ | 497 | $ | 180 | $ | 181 | ||||||||||
Loss from discontinued operations, net of tax | (2 | ) | (4 | ) | (5 | ) | (10 | ) | ||||||||||||||
Income from discontinued operations, net of tax | 1 | — | ||||||||||||||||||||
Net income | 285 | 246 | 581 | 487 | $ | 181 | $ | 181 | ||||||||||||||
Weighted average common shares outstanding – Basic | 244.4 | 241.5 | 243.5 | 233.9 | ||||||||||||||||||
Weighted average common shares outstanding - Basic | 245.5 | 242.7 | ||||||||||||||||||||
Add: Incremental shares attributable to effect of potentially dilutive securities | 1.0 | 0.7 | 0.7 | 0.7 | 1.0 | 0.7 | ||||||||||||||||
Adjusted weighted average common shares outstanding – Diluted | 245.4 | 242.2 | 244.2 | 234.6 | ||||||||||||||||||
EARNINGSPERCOMMONSHARE –BASIC | ||||||||||||||||||||||
Adjusted weighted average common shares outstanding - Diluted | 246.5 | 243.4 | ||||||||||||||||||||
EARNINGSPERCOMMONSHARE -BASIC | ||||||||||||||||||||||
Continuing operations | $ | 1.17 | $ | 1.04 | $ | 2.41 | $ | 2.12 | $ | 0.74 | $ | 0.75 | ||||||||||
Discontinued operations | — | (0.02 | ) | (0.02 | ) | (0.04 | ) | — | — | |||||||||||||
Net income | $ | 1.17 | $ | 1.02 | $ | 2.39 | $ | 2.08 | $ | 0.74 | $ | 0.75 | ||||||||||
EARNINGSPERCOMMONSHARE –DILUTED | ||||||||||||||||||||||
EARNINGSPERCOMMONSHARE -DILUTED | ||||||||||||||||||||||
Continuing operations | $ | 1.17 | $ | 1.03 | $ | 2.40 | $ | 2.12 | $ | 0.74 | $ | 0.75 | ||||||||||
Discontinued operations | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.04 | ) | — | — | ||||||||||||
Net income | $ | 1.16 | $ | 1.01 | $ | 2.38 | $ | 2.08 | $ | 0.74 | $ | 0.75 |
The computation of diluted earnings per share excludes 0.90.8 million and 7.82.7 million Con Edison common shares for the three months ended September 30,March 31, 2006 and 2005, and 2004, respectively, and 0.9 million and 7.7 million common shares for the nine months ended September 30, 2005 and 2004, respectively, because the exercise prices ofon the related underlying options were greater thanexceeds the average daily closing market price of the common shares during the respectivethese periods.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Note B - Stock-Based Compensation
Reference is made to “Stock-Based Compensation” in Note A to the financial statements in Item 8 of the Form 10-K. The following table illustrates the effect on net income and earnings per share for the three and nine months ended September 30, 2005 and 2004, respectively, if the Companies had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” for purposes of recognizing compensation expense for employee stock-based arrangements:
For the Three Months Ended September 30, | |||||||||||||
Con Edison* | Con Edison of New York | ||||||||||||
(Millions of Dollars, except per share amounts) | 2005 | 2004 | 2005 | 2004 | |||||||||
Net income, as reported | $ | 285 | $ | 246 | $ | 282 | $ | 233 | |||||
Add: Stock-based compensation expense included in reported net income, net of related tax effects | 1 | 1 | 1 | 1 | |||||||||
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects | 2 | 4 | 2 | 2 | |||||||||
Pro forma net income | $ | 284 | $ | 243 | $ | 281 | $ | 232 | |||||
Earnings per common share: | |||||||||||||
Basic - as reported | $ | 1.17 | $ | 1.02 | |||||||||
Basic - pro forma | $ | 1.16 | $ | 1.01 | |||||||||
Diluted - as reported | $ | 1.16 | $ | 1.01 | |||||||||
Diluted - pro forma | $ | 1.16 | $ | 1.00 |
For the Nine Months Ended September 30, | |||||||||||||
Con Edison* | Con Edison of New York | ||||||||||||
(Millions of Dollars, except per share amounts) | 2005 | 2004 | 2005 | 2004 | |||||||||
Net income, as reported | $ | 581 | $ | 487 | $ | 573 | $ | 474 | |||||
Add: Stock-based compensation expense included in reported net income, net of related tax effects | 4 | 4 | 3 | 3 | |||||||||
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects | 7 | 8 | 6 | 6 | |||||||||
Pro forma net income | $ | 578 | $ | 483 | $ | 570 | $ | 471 | |||||
Earnings per common share: | |||||||||||||
Basic - as reported | $ | 2.39 | $ | 2.08 | |||||||||
Basic - pro forma | $ | 2.37 | $ | 2.07 | |||||||||
Diluted - as reported | $ | 2.38 | $ | 2.08 | |||||||||
Diluted - pro forma | $ | 2.37 | $ | 2.06 |
Note C - Regulatory Matters
Reference is made to “Accounting Policies” in Note A and “Rate and Restructuring Agreements” in Note B to the financial statements in Item 8 of the Form 10-K10-K.
Rate and Restructuring Agreements
Electric
In accordance with Con Edison of New York’s 2005 Electric Rate Agreement, for each rate year, Adjusted Earnings (as defined in Note CB to the financial statements in Part I, Item 18 of the First Quarter Form 10-Q10-K) between an 11.4 percent and Second Quarter Form 10-Q.a 13 percent return on equity are to be used to offset 50 percent of any regulatory asset resulting from specified cost reconciliations. The company can retain 50 percent of any remaining above-target Adjusted Earnings, with the balance being deferred for the benefit of customers. If Adjusted Earnings exceed 13 percent return, no regulatory asset resulting from the cost reconciliations will be accrued. The company can retain 25 percent of any above-target Adjusted Earnings, with the balance being deferred for the benefit of customers.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
At December 31, 2005, Con Edison of New York estimated that its Adjusted Earnings for the rate year ending March 31, 2006 would exceed the target by $59 million, of which $47 million was applied to offset regulatory assets arising from the cost reconciliations and $6 million was reserved for customer benefit. Adjusted Earnings for the rate year exceeded the target by $38 million, and the company adjusted the regulatory asset offset by $9 million and eliminated the $6 million reserve for customer benefit (which had the effect of increasing operating revenues for the three month period ended March 31, 2006 by $15 million).
Gas
In November 2005, O&R filed a request with the New York State Public Service Commission (PSC) for an increase in the rates it charges for gas service, effective November 1, 2006, of $24 million (4.7 percent). The filing reflected a return on common equity of 11 percent and a common equity ratio of 48.9 percent of capitalization. The filing included a proposal for a three-year plan, with additional increases effective November 1, 2007 and 2008 of $2.1 million and $1.8 million, respectively. In March 2006, the PSC Staff recommended an increase in base rates of $6.1 million effective November 1, 2006, basing its recommendation upon a return on common equity of 8.9 percent and a common equity ratio of 47.6 percent. The PSC is expected to render a decision in October 2006.
Steam
In November 2005, Con Edison of New York filed a request with the PSC for a net increase in the rates it charges for steam service, effective October 1, 2006, of $68 million (9.6 percent). The filing reflected a return on common equity of 11 percent and a common equity ratio of 49 percent of capitalization. The filing included a proposal for a three-year rate plan, with additional increases effective October 1, 2007 and 2008 of $15 million and $12 million, respectively. In February 2006, the PSC Staff recommended no increase in rates basing its recommendation upon a return on common equity of 8.7 percent and a common equity ratio of 47.6 percent. The PSC is expected to render a decision in September 2006.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Regulatory Assets and Liabilities
Regulatory assets and liabilities at September 30, 2005March 31, 2006 and December 31, 20042005 were comprised of the following items:
Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | ||||||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||
Regulatory assets | |||||||||||||||||||||||||||||
Future federal income tax | $ | 827 | $ | 762 | $ | 780 | $ | 715 | $ | 979 | $ | 952 | $ | 928 | $ | 902 | |||||||||||||
Recoverable energy costs | 295 | 275 | 272 | 257 | |||||||||||||||||||||||||
Environmental remediation costs | 224 | 165 | 162 | 106 | 262 | 241 | 203 | 182 | |||||||||||||||||||||
World Trade Center restoration costs | 123 | 104 | 123 | 104 | 135 | 127 | 135 | 127 | |||||||||||||||||||||
Pension and other postretirement benefits deferrals | 91 | 42 | 38 | — | 131 | 96 | 77 | 46 | |||||||||||||||||||||
Transition bond charges | 71 | 74 | — | — | |||||||||||||||||||||||||
O&R Transition bond charges | 69 | 70 | — | — | |||||||||||||||||||||||||
Net T&D reconciliation | 60 | 38 | 60 | 38 | |||||||||||||||||||||||||
Recoverable energy costs | 58 | 120 | 58 | 120 | |||||||||||||||||||||||||
Revenue taxes | 62 | 46 | 61 | 46 | 57 | 59 | 57 | 59 | |||||||||||||||||||||
Unbilled gas revenue | 44 | 44 | 44 | 44 | |||||||||||||||||||||||||
Workers’ compensation | 45 | 48 | 45 | 48 | 43 | 42 | 43 | 42 | |||||||||||||||||||||
Unbilled gas revenue | 44 | 44 | 44 | 44 | |||||||||||||||||||||||||
Asbestos-related costs | 25 | 25 | 25 | 25 | |||||||||||||||||||||||||
Other retirement program costs | 25 | 29 | 25 | 29 | 23 | 24 | 23 | 24 | |||||||||||||||||||||
Asbestos-related costs | 25 | 26 | 25 | 25 | |||||||||||||||||||||||||
Collection agent deferral | 21 | 21 | 21 | 21 | |||||||||||||||||||||||||
Sale costs - First Avenue properties | — | 178 | — | 178 | |||||||||||||||||||||||||
Sale of nuclear generating plant including interest | — | 176 | — | 176 | |||||||||||||||||||||||||
Electric interference costs | — | 44 | — | 44 | |||||||||||||||||||||||||
NYS tax law changes | — | 40 | — | 40 | |||||||||||||||||||||||||
Electric cost reconciliations | (38 | ) | (47 | ) | (38 | ) | (47 | ) | |||||||||||||||||||||
Other | 204 | 184 | 190 | 172 | 182 | 226 | 172 | 211 | |||||||||||||||||||||
Regulatory Assets | 2,030 | 2,017 | 1,787 | 1,773 | |||||||||||||||||||||||||
Deferred derivative losses - current | 59 | 9 | 54 | 9 | |||||||||||||||||||||||||
Recoverable energy costs - current | 106 | 221 | 91 | 192 | |||||||||||||||||||||||||
Total Regulatory Assets | $ | 2,057 | $ | 2,258 | $ | 1,786 | $ | 2,005 | $ | 2,195 | $ | 2,247 | $ | 1,932 | $ | 1,974 | |||||||||||||
Regulatory liabilities | |||||||||||||||||||||||||||||
Allowance for cost of removal less salvage | $ | 651 | $ | 723 | $ | 594 | $ | 666 | $ | 538 | $ | 558 | $ | 480 | $ | 501 | |||||||||||||
Net electric deferrals | 383 | — | 383 | — | 258 | 288 | 258 | 288 | |||||||||||||||||||||
Gain on sale of First Avenue properties | 256 | — | 256 | — | 255 | 256 | 255 | 256 | |||||||||||||||||||||
2004 electric, gas and steam one-time rate plan charges | 124 | 124 | 124 | 124 | 116 | 121 | 116 | 121 | |||||||||||||||||||||
Transmission congestion contracts | 107 | 163 | 107 | 163 | |||||||||||||||||||||||||
EPA SO2 Allowance Proceeds - electric and steam | 97 | 76 | 97 | 76 | |||||||||||||||||||||||||
Prior year deferred tax amortization | 81 | 81 | 81 | 81 | |||||||||||||||||||||||||
Proceeds from sale of W. 24th St. property | 57 | — | 57 | — | |||||||||||||||||||||||||
NYS tax law changes | 48 | 51 | 36 | 39 | |||||||||||||||||||||||||
Property tax reconciliation | 44 | 31 | 44 | 31 | |||||||||||||||||||||||||
O&R Refundable energy costs | 43 | 40 | — | — | |||||||||||||||||||||||||
Interest on federal income tax refund | 41 | 41 | 41 | 41 | |||||||||||||||||||||||||
Utilities’ hedging unrealized gains | 101 | 2 | 80 | — | 31 | 75 | 25 | 59 | |||||||||||||||||||||
EPA SO2 Allowance Proceeds – Electric and Steam | 59 | 20 | 59 | 20 | |||||||||||||||||||||||||
NYS tax law changes | 41 | 44 | 29 | 32 | |||||||||||||||||||||||||
Interest on federal income tax refund | 41 | 37 | 41 | 37 | |||||||||||||||||||||||||
NYISO reconciliation | 20 | 20 | 20 | 20 | |||||||||||||||||||||||||
DC service incentive | 23 | 33 | 23 | 33 | 14 | 17 | 14 | 17 | |||||||||||||||||||||
Refundable energy costs | 26 | 29 | — | — | |||||||||||||||||||||||||
NYISO reconciliation | 20 | 160 | 20 | 160 | |||||||||||||||||||||||||
Gas interference - cost sharing | 8 | 9 | 8 | 9 | |||||||||||||||||||||||||
Gas interruptible sales credits | 18 | 22 | 18 | 22 | 4 | 8 | 4 | 8 | |||||||||||||||||||||
Gas interference – cost sharing | 13 | 11 | 13 | 11 | |||||||||||||||||||||||||
Excess dividends tax | 4 | 18 | 4 | 18 | |||||||||||||||||||||||||
Transmission congestion contracts | — | 391 | — | 391 | |||||||||||||||||||||||||
Gain on divestiture | — | 56 | — | 55 | |||||||||||||||||||||||||
Electric excess earnings | — | 50 | — | 50 | |||||||||||||||||||||||||
Deposit from sale of First Avenue properties | — | 50 | — | 50 | |||||||||||||||||||||||||
Accrued electric rate reduction | — | 25 | — | 25 | |||||||||||||||||||||||||
Gain on disposition of property – W. 45 St. | — | 24 | — | 24 | |||||||||||||||||||||||||
Earnings sharing reserve | 1 | 7 | 1 | 7 | |||||||||||||||||||||||||
Other | 223 | 180 | 203 | 169 | 211 | 220 | 194 | 207 | |||||||||||||||||||||
Regulatory Liabilities | 1,983 | 1,999 | 1,847 | 1,887 | 1,974 | 2,062 | 1,838 | 1,924 | |||||||||||||||||||||
Deferred derivative gains - current | 496 | 23 | 408 | 8 | 35 | 224 | 15 | 170 | |||||||||||||||||||||
Total Regulatory Liabilities | $ | 2,479 | $ | 2,022 | $ | 2,255 | $ | 1,895 | $ | 2,009 | $ | 2,286 | $ | 1,853 | $ | 2,094 |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
“Net electric deferrals” represents the remaining unamortized balance of certain regulatory assets and liabilities of Con Edison of New York that were combined effective April 1, 2005 and are being amortized to income over the period April 2005 through March 2008, in accordance with the electric rate plan discussed in “Rate and Restructuring Agreements” in Note CB to the financial statements in Part I, Item I8 of the First Quarter Form 10-Q.
In May 2005, Con Edison of New York completed the sale of certain properties located on First Avenue in Manhattan. Net proceeds from the sale received at closing totaled $534 million, resulting in a pre-tax gain on the sale of $256 million. In accordance with the Public Service Commission (PSC) order approving the sale of the properties, the company has deferred the net gain for the benefit of customers. The net after-tax gain on the sale, including additional expenses to be incurred, is estimated at $114 million. There may be additional proceeds in the event of certain zoning or other developments.
In November 2005, Con Edison of New York filed a request with the PSC for a net increase in rates it charges for steam service, effective October 1, 2006, of $68 million (9.6 percent). The filing reflects a return on common equity of 11 percent and a common equity ratio of 49 percent of capitalization. The filing includes a proposal for a three-year rate plan, with additional increases effective October 1, 2007 and 2008 of $15 million and $12 million, respectively. The filing proposes continuation of the current steam rate plan provisions with respect to recovery from customers of the cost of fuel and purchased steam and environmental remediation expenses and the reconciliation of actual expenses allocable to steam to the amounts reflected in rates for pension and other post-employment benefit costs, property taxes and interference costs.10-K.
Note DC - Short-TermShort Term Borrowing and Credit Agreements
For information about the Companies’ commercial paper programs and revolving credit agreements, seeReference is made to Note D to the financial statements in Part I, Item 18 of the First Quarter 10-Q. Form 10-K.
At September 30, 2005,March 31, 2006, Con Edison had $224$315 million of commercial paper outstanding of which $122$179 million was outstanding under Con Edison of New York’s program. The weighted average interest rate for the nine-monththree-month period was 3.13 percent and 2.954.5 percent for Con Edison and Con Edison of New York, respectively.York. At September 30, 2005,March 31, 2006, no loans were outstanding under any of the Companies’ credit agreements and $248$7.2 million of letters of credit were outstanding.
Note D - Pension Benefits
Reference is made to Note E to the financial statements in Item 8 of the Form 10-K.
Net Periodic Benefit Cost
The components of the Companies’ net periodic benefit costs for the three months ended March 31, 2006 and 2005 were as follows:
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Service cost - including administrative expenses | $ | 34 | $ | 31 | $ | 31 | $ | 27 | ||||||||
Interest cost on projected benefit obligation | 114 | 106 | 107 | 99 | ||||||||||||
Expected return on plan assets | (155 | ) | (161 | ) | (149 | ) | (155 | ) | ||||||||
Amortization of net actuarial loss | 31 | 17 | 26 | 13 | ||||||||||||
Amortization of prior service costs | 3 | 3 | 3 | 3 | ||||||||||||
NET PERIODIC BENEFIT COST | $ | 27 | $ | (4 | ) | $ | 18 | $ | (13 | ) | ||||||
Amortization of regulatory asset* | 1 | 1 | 1 | 1 | ||||||||||||
TOTAL PERIODIC BENEFIT COST | $ | 28 | $ | (3 | ) | $ | 19 | $ | (12 | ) | ||||||
Cost capitalized | (8 | ) | 2 | (6 | ) | 4 | ||||||||||
Cost deferred | (30 | ) | (5 | ) | (27 | ) | (2 | ) | ||||||||
Cost credited to operating expenses | $ | (10 | ) | $ | (6 | ) | $ | (14 | ) | $ | (10 | ) |
* | Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program. |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Expected Contributions
Based on current estimates, the Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2006. The Companies’ policy however is to fund their accounting cost to the extent such funding is tax deductible. Therefore, Con Edison and Con Edison of New York expect to make discretionary contributions of $98 million and $63 million, respectively, to the pension plan during 2006.
Note E - Other Postretirement Benefits
Reference is made to Note F to the financial statements in Item 8 of the Form 10-K.
Net Periodic Benefit Cost
The components of the Companies’ net periodic postretirement benefit costs for the three months ended March 31, 2006 and 2005 were as follows:
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Service cost | $ | 4 | $ | 3 | $ | 3 | $ | 2 | ||||||||
Interest cost on accumulated other postretirement benefit obligation | 21 | 18 | 19 | 16 | ||||||||||||
Expected return on plan assets | (19 | ) | (19 | ) | (18 | ) | (18 | ) | ||||||||
Amortization of net actuarial loss | 14 | 14 | 12 | 12 | ||||||||||||
Amortization of prior service cost | (3 | ) | (3 | ) | (3 | ) | (3 | ) | ||||||||
Amortization of transition obligation | 1 | 1 | 1 | 1 | ||||||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST | $ | 18 | $ | 14 | $ | 14 | $ | 10 | ||||||||
Cost capitalized | (6 | ) | (4 | ) | (5 | ) | (3 | ) | ||||||||
Cost deferred | (6 | ) | — | (5 | ) | 1 | ||||||||||
Cost charged to operating expenses | $ | 6 | $ | 10 | $ | 4 | $ | 8 |
Note F - Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which includeincludes costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and environmental damages. Liability under these laws can be material and may be imposed for contamination from past acts, even
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though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites, are referred to herein as “Superfund Sites.”
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.
For the three and nine months ended September 30, 2005, Con Edison of New York incurred approximately $12 million and $25 million, respectively, for environmental remediation costs. Insurance recoveries were $2 million for the nine months ended September 30, 2005, all of which reduced related regulatory assets. For the three and nine months ended September 30, 2004, Con Edison of New York incurred approximately $21 million and $36 million, respectively, for environmental remediation costs. Insurance recoveries of $15 million were received by Con Edison of New York during the nine months ended September 30, 2004, $14 million of which reduced related regulatory assets, with the remainder credited to expense.
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The accrued liabilities and regulatory assets related to Superfund Sites for the Companies at September 30, 2005March 31, 2006 and December 31, 20042005 were as follows:
Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | |||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Accrued liabilities: | ||||||||||||||||||||||||||
Accrued Liabilities: | ||||||||||||||||||||||||||
Manufactured gas plant sites | $ | 176 | $ | 148 | $ | 120 | $ | 92 | $ | 174 | $ | 173 | $ | 123 | $ | 121 | ||||||||||
Other Superfund Sites | 60 | 50 | 59 | 49 | 77 | 65 | 76 | 65 | ||||||||||||||||||
Total | $ | 236 | $ | 198 | $ | 179 | $ | 141 | $ | 251 | $ | 238 | $ | 199 | $ | 186 | ||||||||||
Regulatory assets | $ | 224 | $ | 165 | $ | 162 | $ | 106 | ||||||||||||||||||
Regulatory Assets | $ | 262 | $ | 241 | $ | 203 | $ | 182 |
Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. As investigations progress on these and other sites, the CompaniesUtilities expect that additional liability will be accrued, the amount of which is not presently determinable but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.
There were no insurance recoveries received related to Superfund Sites for the three months ended March 31, 2006 and 2005. Environmental remediation costs incurred related to the Superfund sites for these periods were as follows:
Con Edison | Con Edison of New York | ||||||||||||
(Millions of Dollars) | 2006 | 2005 | 2006 | 2005 | |||||||||
Remediation costs incurred | $ | 12 | $ | 4 | $ | 11 | $ | 3 |
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In 2002, Con Edison of New York estimated that for its manufactured gas plant sites, manymost of which had not been investigated, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range from approximately $65 millionup to $1.1 billion. In 2004, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range from approximately $31 million to $87 million. These estimates were based on the assumption that there is contamination at each of the sites and additional assumptions regarding the extent of contamination and the type and extent of remediation that may be required. Actual experience may be materially different.
Asbestos Proceedings
Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the CompaniesUtilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2004, Con Edison of New York estimated that its aggregate undiscounted potential liability for these suits and
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additional suits that may be brought over the next 15 years is $25 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different.
In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, Con Edison of New York is permitted to defer as regulatory assets (for subsequent recovery through rates) liabilities incurred for its asbestos lawsuits and workers’ compensation claims.
The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 2005March 31, 2006 and December 31, 20042005 were as follows:
Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | |||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Accrued liability - asbestos suits | $ | 25 | $ | 26 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | ||||||||||
Regulatory assets - asbestos suits | 25 | 26 | 25 | 25 | $ | 25 | $ | 25 | $ | 25 | $ | 25 | ||||||||||||||
Accrued liability - workers’ compensation | 121 | 122 | 116 | 119 | $ | 119 | $ | 118 | $ | 114 | $ | 113 | ||||||||||||||
Regulatory assets - workers’ compensation | $ | 45 | $ | 48 | $ | 45 | $ | 48 | $ | 43 | $ | 42 | $ | 43 | $ | 42 |
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Note FG - Northeast Utilities Litigation
In March 2001, Con Edison commenced an action in the United States District Court for the Southern District of New York (the District Court), entitled Consolidated Edison, Inc. v. Northeast Utilities (the First Federal Proceeding), 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, and the District Court’s declaration that under the merger agreement Con Edison has no further or continuing obligations to Northeast Utilities and 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 in the First Federal Proceeding 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
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Utilities’ common stock (the so-called “lost premium” claim), 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.
In March 2003, the District Court ruled on certain motions filed by Con Edison and Northeast Utilities in the First Federal Proceeding. The District Court ruled that Con Edison’s claim against Northeast Utilities for hundreds of millions of dollars for breach of the merger agreement, as well as Con Edison’s claim that Northeast Utilities underwent a material adverse change, will go to trial. The District Court also dismissed Con Edison’s fraud and misrepresentation claims. In addition, the District Court ruled that Northeast Utilities’ shareholders were intended third-party beneficiaries of the merger agreement and the alleged $1.2 billion lost premium claim against Con Edison would go to trial.
In May 2003, a lawsuit by a purported class of Northeast Utilities’ shareholders, entitled Rimkoski, et al. v. Consolidated Edison, Inc., was filed in New York County Supreme Court (the State Proceeding) alleging breach of the merger agreement. The complaint defined the putative class as holders of Northeast Utilities’ common stock on March 5, 2001, and alleged that the class members were intended third party beneficiaries of the merger agreement. The complaint sought damages
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believed to be substantially duplicative of those sought by Northeast Utilities on behalf of its shareholders in the First Federal Proceeding. In December 2003, the District Court granted Rimkoski’s motion to intervene in the First Federal Proceeding and, in February 2004, the State Proceeding was dismissed without prejudice. In January 2004, Rimkoski filed a motion in the First Federal Proceeding to certify his action as a class action on behalf of all holders of Northeast Utilities’ common stock on March 5, 2001 and to appoint Rimkoski as class representative. The motion is pending.In February 2006, counsel for Rimkoski entered into a stipulation consenting to the dismissal of the Rimkoski claim with prejudice. In May 2006, the court approved the stipulation.
In May 2004, the District Court ruled that the Northeast Utilities’ shareholders who may pursue the lost premium claim against Con Edison are the holders of Northeast Utilities’ common stock on March 5, 2001 and the District Court therefore dismissed Northeast Utilities’ lost premium claim. The District Court certified its ruling regarding the lost premium claim for interlocutory appeal to the United States Court of Appeals for the Second Circuit (the Court of Appeals), and in June 2004 Northeast Utilities filed its motion for leave to appeal the issue to the Court of Appeals. The District Court further certified for interlocutory appeal its March 2003 determination that Northeast Utilities’ shareholders are intended third-party beneficiaries under the merger agreement, and in June 2004 Con Edison filed its motion for leave to appeal the issue to the Court of Appeals. In October 2004, the
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Court of Appeals granted both Con Edison’s motion and Northeast Utilities’ motion. In October 2005, the Court of Appeals reversed the District Court’s March 2003 ruling that Northeast Utilities’ shareholders were intended third-party beneficiaries of the merger agreement, and held that Northeast Utilities’ shareholders therefore could not sue Con Edison for the claimed lost premium. Also, in October 2005, Northeast Utilities and RimkowskiRimkoski each filed petitions for rehearing of that Court of Appeals’ decision. In January 2006, the petitions for rehearing were denied. In April 2006, Northeast Utilities’ and Rimkoski’s time to seek review before the United States Supreme Court expired and no such review was sought.
In May 2004, the District Court dismissed the lawsuit that was commenced in October 2003 by a purported class of Northeast Utilities’ shareholders, entitled Siegel et al. v. Consolidated Edison, Inc. (the Second Federal Proceeding). The Second Federal Proceeding had sought unspecified injunctive relief and damages believed to be substantially duplicative of the damages sought from Con Edison in the First Federal Proceeding. APlaintiffs in the Second Federal Proceeding filed a motion byseeking to intervene in the First Federal Proceeding. In February 2006, counsel to plaintiffs in the Second Federal Proceeding entered into a stipulation consenting to intervenethe denial of the intervention motion as moot. In May 2006, the court approved the stipulation.
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In April 2006, Northeast Utilities filed a motion seeking dismissal of Con Edison’s lost synergy claim. A decision on the motion is not expected until later in the First Federal Proceeding is pending.2006.
Con Edison believes that Northeast Utilities materially breached the merger agreement, and that Con Edison did not materially breach the merger agreement. Con Edison believes it was not obligated to acquire Northeast Utilities because Northeast Utilities did 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.
Con Edison is unable to predict whether ordoes not expect that 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 GH - Other Material Contingencies
Lease In/Lease Out Transactions
As part of a broad initiative, the Internal Revenue Service (IRS) 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 Development entered into two LILO transactions, involving gas distribution and electric generating facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with SFASStatement of Financial Accounting Standards (SFAS) No. 13, “Accounting for Leases,” Con Edison is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s
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consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. At September 30, 2005,March 31, 2006 and December 31, 2004,2005, the company’s investment in these leveraged leases ($223227 million and $215$225 million, respectively) net of deferred tax liabilities ($182193 million and $165$187 million, respectively), amounted to $41$34 million and $50$38 million, respectively. The estimated tax savings from the two LILO transactions through September 30, 2005,March 31, 2006, in the aggregate, was $132$141 million. On audit of Con Edison’s tax return for 1997, the IRS disallowed the tax losses in connection with the 1997 LILO transaction.
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Con Edison believes that its LILO’s have been correctly reported. In December 2005, Con Edison intends to pay the $0.4paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction,transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commence litigationcommenced an action in federal courtthe United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States to obtain a refund of this tax payment.
In July 2005, the Financial Accounting Standards BoardBoard’s (FASB) issued a proposed FASB Staff Position (FSP) No. FAS 13-a, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.” The proposed FSP would require the expected timing of income tax cash flows generated by Con Edison’s LILO transactions to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions. Additionally, if a revision of an important assumption requires a recalculation of a leveraged leasetransactions, and changes its characteristics such that it would not qualify as a leveraged lease, the lease should be reclassified as a direct financing lease on a prospective basis at the date the change in assumption occurs. If the company’s tax position with respect to the LILO transactions were to be revised, the company could be required to recalculate the accounting effect of the LILO transactions, which could result in a charge to earnings that could have a material adverse effect on its results of operations.
Timing of Deduction of Construction-Related Costs
In August 2005, the IRS issued Revenue Ruling 2005-53 with respect to when federal income tax deductions can be taken for certain construction-related costs. The Companies’ used the “simplified service cost method” (SSCM) to determine the extent to which these costs could be deducted in 2002, 2003 and 2004, and as a result reduced their current tax expense (for Con Edison, by $289$263 million, of which $264$239 million is attributable to Con Edison of New York).York. Under Revenue Ruling 2005-53, the Companies may be required to repay, with interest, a portion of their past SSCM tax benefits and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. The interest could range from zero to approximately $35$53 million. Repayment of the SSCM tax benefits would not otherwise affect the Utilities’ results of operations because deferred taxes have been
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previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes.
Collection Agent Termination
In April 2004, Con Edison of New York terminated arrangements with a collection agent, which also processed payments for other large corporations and governmental agencies. The New York State Banking Department suspended the license of the collection agent, and the collection agent consented to an involuntary bankruptcy proceeding commenced against it by a group of its unsecured creditors. The collection agent has not forwarded to the company an estimated $21 million of payments it received from the company’s customers. The company is continuing to review the matter and the possible recovery of these payments from the bankrupt’s estate, insurance or other sources. In April 2004, the company reflected the possible loss of these payments on its balance sheet and recorded an offsetting regulatory asset. The company has filed a petition with the PSC in connection with this matter.
Lower Manhattan Restoration
Con Edison of New York estimates that its costs for emergency response to the September 11, 2001 attack on the World Trade Center, and for resulting temporary and subsequent permanent restoration of electric, gas and steam transmission and distribution facilities damaged in the attack will total $430 million, net of insurance payments. Most of the costs, which are capital in nature, have already been incurred. At September 30, 2005,March 31, 2006, the company hashad received reimbursement for $169 million of these costs ($76 million under insurance policies and $93 million from the federal government). The company
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expects to receive additional funds from insurance policies and federal reimbursement. At September 30, 2005,March 31, 2006, the company had incurred capital costs of $197$201 million and, pursuant to a petition it filed with the PSC in 2001, deferred $131non-capital costs of $143 million, including interest, as a regulatory asset; theseasset (these amounts are net of reimbursements to that date.received). The company expects the PSC to permit recovery from customers of the costs, net of any federal reimbursement, insurance payments and tax savings.
Suits brought on behalf of several thousand plaintiffs alleged to have been working at the World Trade Center site following the attack are pending in the United States District Court for the Southern District of New York against numerous parties, including the City of New York, Con Edison and Con Edison of New York. The suits generally seek unspecified amounts of damages allegedly resulting from exposure to hazardous substances in connection with emergency response and restoration activities at the site. The Companies believe that their activities were prudent and in compliance with applicable laws. Neither of the Companies, however, is able to predict whether or not any proceedings or other actions relating to the activities will have a material adverse effect on its financial condition, results of operations or liquidity.
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Based upon New York City’s announced plans for improvement projects in lower Manhattan, including a transportation hub, the company anticipates that over the next five to ten years it may incur up to $250 million in incremental interferenceof costs in lower Manhattan.to move its facilities to avoid interfering with these projects. The company’s rate plans include provisions for the recovery of interferencesuch costs. See Note B to the financial statements in Item 8 of the Form 10-K.
Generating Assets Sold To Mirant
In June 1999, O&R completed the sale of all of its generating assets to affiliatesand Con Edison of Mirant Corporation (formerly Southern Energy, Inc.) andNew York completed the sale of its two-thirds interest in the Bowline Point generating facility owned by Con Edisonto affiliates (the Mirant Affiliates) of New York.Mirant Corporation (Mirant, formerly Southern Energy, Inc.). The total gross proceeds from the sale amounted to $476 million ($343 million attributable to O&R and $133 million attributable to Con Edison of New York). In 2003, Mirant and most of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In January 2006, Mirant and most of its subsidiaries, but not the Mirant Affiliates emerged from bankruptcy.
The Utilities have entered into an agreement withIn May 2006, Mirant, its affiliated debtorsthe Mirant Affiliates and debtors in possession, andanother Mirant subsidiary (the Claimants) commenced a proceeding seeking, among other things, to void the Official Committeesale of Unsecured Creditors for Mirant Corporation tolling the running of any statute of limitations with respect to any claim Mirant, its affiliated debtors or debtors in possession, or the Official Committee of Unsecured Creditors for Mirant Corporation may have against the Utilities. Mirant has indicated that it is considering a lawsuit against the Utilities in which it may seek to claim that some portion of what was paid in 1999 to purchase the generating assets and recover the amounts paid by the Mirant Affiliates in connection with the sale (which the Claimants allege exceeded the fair value of the assets.
assets), together with interest on such amounts. In addition, the Claimants seek damages, and a declaration that the Utilities are obligated to defend and indemnify the Mirant has also indicated that it may pursue claims against O&R for compensation forAffiliates, in connection with certain system reliability services it alleges it providedenvironmental, operational and other matters relating to O&R since November 1999, as well as claims related to certainsome of the former O&R facilities.assets, the costs of which could be substantial. The Claimants also object to the allowance of claims totaling approximately $1 million filed by the Utilities believe that these purported claims are without merit and would vigorously defend against them if they are pursued by Mirant.in the bankruptcy proceeding.
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In addition, Mirant has indicated in certain filings in its Amended Plan of Reorganizationbankruptcy proceeding that under certain circumstances it would retire its Lovett generating units in 2007 and 2008. O&R is in the process of upgrading its transmission and distribution system to meet anticipated loaddemand growth, and believes that by 2007 it would be able to meet existing transmission reliability criteria in the event that the Lovett units were shut down.
The Companies are unable to predict whether or not any Mirant related lawsuits or other actions will have a material adverse effect on their financial position, results of operations or liquidity.
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Note H - Guarantees
Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. In addition, a Con Edison Development subsidiary has issued guaranteesa guarantee on behalf of entitiesan entity in which it has an equity interest. Maximum amounts guaranteed by Con Edison totaled $1.2 billion and $989 million$1.1 billion at September 30, 2005March 31, 2006 and December 31, 2004,2005, respectively.
A summary, by type and term, of Con Edison’s total guarantees at September 30, 2005March 31, 2006 is as follows:
Guarantee Type | 0–3 years | 4–10 years | > 10 years | Total | 0–3 years | 4–10 years | > 10 years | Total | ||||||||||||||||
(Millions of Dollars) | (Millions of Dollars) | |||||||||||||||||||||||
Commodity transactions | $ | 728 | $ | 3 | $ | 281 | $ | 1,012 | $ | 823 | $ | 13 | $ | 234 | $ | 1,070 | ||||||||
Affordable housing program | — | 37 | — | 37 | — | 33 | — | 33 | ||||||||||||||||
Intra-company guarantees | 20 | 43 | 1 | 64 | 35 | — | 6 | 41 | ||||||||||||||||
Other guarantees | 32 | 12 | 2 | 46 | 32 | 50 | — | 82 | ||||||||||||||||
TOTAL | $ | 780 | $ | 95 | $ | 284 | $ | 1,159 | $ | 890 | $ | 96 | $ | 240 | $ | 1,226 |
Other guarantees include $47 million of guarantees issued by Con Edison covering RCN Corporation’s (RCN) lease payments for the right to use Con Edison of New York’s conduit system in accordance with a tariff approved by the PSC and rent payment obligations under various lease agreements for office buildings. See Note M.
For a description of guarantee types, see Note SI to the financial statements in Item 8 of the Form 10-K.
Note I - Stock-Based Compensation
The Companies compensate employees and directors with, among other things, stock options, restricted stock units and contributions to a discount stock purchase plan. Shares of Con Edison common stock used to satisfy the Companies’ obligations with respect to such compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased on the open market. The shares used in 2006 have been new shares.
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In January 2006 Con Edison adopted SFAS 123(R), “Share-Based Payment,” applying the modified prospective approach. Pursuant to SFAS No. 123(R), the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the three months ended March 31, 2006:
(Millions of Dollars) | Con Edison | Con Edison of New York | ||||||||||||||||
Stock Options | Restricted Stock Units | Performance-Based Restricted Stock | Stock Options | Restricted Stock Units | Performance-Based Restricted Stock | |||||||||||||
Compensation expense recognized | $ | 4 | $ | — | $ | 8 | $ | 3 | $ | — | $ | 7 |
The following table illustrates the effect on net income and earnings per share for the three months ended March 31, 2005 if the Companies had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123,” for the purposes of recognizing expense for stock-based compensation arrangements:
For the Three Months Ended March 31, 2005 | |||||||
(Millions of Dollars, except per share amounts/Shares in Millions) | Con Edison* | Con Edison of New York | |||||
Net income, as reported | $ | 181 | $ | 173 | |||
Add: Stock-based compensation expense included in reported net income, net of related tax effects | 1 | 1 | |||||
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects | 2 | 2 | |||||
Pro forma net income | $ | 180 | $ | 172 | |||
Earnings per common share: | |||||||
Basic - as reported | $ | 0.75 | |||||
Basic - pro forma | $ | 0.74 | |||||
Diluted - as reported | $ | 0.75 | |||||
Diluted - pro forma | $ | 0.74 |
* | Represents the consolidated financial results of Con Edison and all of its subsidiaries. |
Stock Options
For a description of the stock options, and the 1996 Stock Option Plan and the Long Term Incentive Plan (LTIP) under which the stock options have been awarded, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Pursuant to SFAS 123(R), the Companies generally recognize compensation expense (based on the fair value of stock option awards) over the continuous service period in which the options vest. Awards to employees currently eligible for retirement are expensed in the month awarded.
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The outstanding options are “equity awards” because shares of Con Edison common stock are delivered upon exercise of the options. As equity awards, the fair value of the options is measured at the grant date. The weighted average fair value of each option awarded in the three-month period ended March 31, 2006 is $4.08. This value was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2006 | |||
Risk-free interest rate | 4.36 | % | |
Expected term | 4.6 years | ||
Expected stock volatility | 13.88 | % | |
Expected dividend yield | 4.86 | % |
The weighted average risk-free rate is calculated using the five-year U.S. Treasury securities rate on the grant date of each stock option and then weighted for the number of shares awarded. The expected life of the options is based on historical employee exercise behavior and post-vesting cancellations. The expected stock volatility is calculated using the quarterly closing prices of Con Edison stock over a period of five years, which approximates the expected term of the options. The expected dividend yield is calculated using the annualized dividend divided by the stock price on the date of grant.
A summary of changes in the status of stock options during the three months ended March 31, 2006 is as follows:
Con Edison | Con Edison of New York | |||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | |||||||||
Outstanding at 12/31/05 | 7,867,151 | $ | 41.913 | 6,697,401 | $ | 42.000 | ||||||
Granted | 804,000 | 46.880 | 699,000 | 46.880 | ||||||||
Exercised | (67,500 | ) | 37.560 | (60,800 | ) | 37.404 | ||||||
Forfeited | (20,900 | ) | 42.691 | (5,000 | ) | 44.688 | ||||||
Outstanding at 3/31/06 | 8,582,751 | $ | 42.412 | 7,330,601 | $ | 42.503 |
The exercise price of options awarded in 2006 is $46.88. The change in the fair value of the options from their grant dates to March 31, 2006 (aggregate intrinsic value) is $9 million for Con Edison. The aggregate intrinsic value of options exercised in the period ended March 31, 2006 is $1 million and the cash received by Con Edison for payment of the exercise price was $2 million. The weighted average remaining contractual life of options outstanding is eight years as of March 31, 2006.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
The following table summarizes stock options outstanding at March 31, 2006 for each plan year for the Companies:
Con Edison | Con Edison of New York | ||||||||||||||||
Plan Year | Remaining Contractual Life | Options Outstanding | Weighted Average Exercise Price | Options Exercisable | Options Outstanding | Weighted Average Exercise Price | Options Exercisable | ||||||||||
2006 | 10 | 804,000 | $ | 46.880 | — | 699,000 | $ | 46.880 | — | ||||||||
2005 | 9 | 1,284,550 | 42.730 | — | 1,033,250 | 42.715 | — | ||||||||||
2004 | 8 | 1,294,750 | 43.767 | — | 1,049,200 | 43.764 | — | ||||||||||
2003 | 7 | 1,584,700 | 39.647 | 797,000 | 1,320,700 | 39.705 | 697,000 | ||||||||||
2002 | 6 | 1,261,250 | 42.510 | 1,261,250 | 1,086,250 | 42.510 | 1,086,250 | ||||||||||
2001 | 5 | 760,550 | 37.750 | 760,550 | 646,050 | 37.750 | 646,050 | ||||||||||
2000 | 4 | 236,600 | 32.500 | 236,600 | 187,600 | 32.500 | 187,600 | ||||||||||
1999 | 3 | 902,650 | 47.938 | 902,650 | 859,850 | 47.938 | 859,850 | ||||||||||
1998 | 2 | 398,300 | 42.563 | 398,300 | 393,300 | 42.563 | 393,300 | ||||||||||
1997/96 | 1 | 55,401 | 31.500 | 55,401 | 55,401 | 31.500 | 55,401 | ||||||||||
Total | 8,582,751 | 4,411,751 | 7,330,601 | 3,925,451 |
The total expense to be recognized in future periods for unvested stock options outstanding as of March 31, 2006 is $6 million for Con Edison, including $5 million for Con Edison of New York.
Restricted Stock Units
For a description of the restricted stock units, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. In certain cases, dividend equivalents are paid on the restricted stock units. In the three months ended March 31, 2006, restricted stock unit awards under the LTIP were made as follows: (i) annual awards to officers under restricted stock unit agreements that provide for adjustment of the number of units (as described in Note N to the financial statements in Item 8 of the Form 10-K, performance-based restricted stock units or PBRS) and (ii) under the directors’ deferred compensation plan. No other awards of restricted stock units were made in 2006.
In accordance with SFAS 123(R), for outstanding restricted stock awards other than PBRS or awards under the directors’ deferred compensation plan, the Companies have accrued a liability based on the market value of a common share on the grant date and are recognizing compensation expense over the vesting period. The weighted average vesting period for outstanding awards is two years and is based on the employees’ continuous service to Con Edison; the latest period ends April 2009. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are “liability awards” because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. For the three-month
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
period ended March 31, 2006, there were 212,500 and 171,700 shares outstanding for Con Edison and Con Edison of New York, respectively. The weighted average fair value as of the grant date of the outstanding shares is $36.59 and $36.31 for Con Edison and Con Edison of New York, respectively. The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of March 31, 2006 is $1 million.
For PBRS that are subject to adjustment based on Con Edison’s total shareholder return relative to the Standard and Poor’s Electric Utilities Index during a specified performance period (the TSR portion), the Companies use a Monte Carlo simulation model to estimate the fair value of the awards. The fair value is recomputed each reporting period as of the earlier of the reporting date and the vesting date. For PBRS that are subject to adjustment based on determinations made in connection with the Companies’ annual bonus plans (the EIP portion), the fair value of the awards is determined using the market price on the date of grant. PBRS awards are “liability awards” because each PBRS represent the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the PBRS are reflected in net income. The following table illustrates the assumptions used to calculate the fair value of the awards:
2006 | ||||
Risk-free interest rate | 4.76 to 5.04 | % | ||
Expected term | 3 years | |||
Expected volatility | 13.32 | % | ||
Expected quarterly dividends | $ | 0.575 to $0.59 |
The risk-free rate is based on the U.S. Treasury zero-coupon yield curve on the date of grant. The expected term of the PBRS is three years, which equals the vesting period. The Companies do not expect significant forfeitures to occur. The expected volatility is calculated using daily closing stock prices over a period of three years, which approximates the expected term of the awards. Expected annual escalation of dividends is based on historical trends.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
A summary of changes in the status of the PBRS’ TSR portion during the three months ended March 31, 2006 is as follows:
Con Edison | Con Edison of New York | ||||||||||||
Units | Weighted Average Grant Date Fair Value* | Units | Weighted Average Grant Date Fair Value* | ||||||||||
Non-vested at 12/31/05 | 206,275 | $ | 31.489 | 171,950 | $ | 31.581 | |||||||
Granted | 99,300 | 43.830 | 87,400 | 43.830 | |||||||||
Vested and Exercised | (156,450 | ) | 46.477 | (144,475 | ) | 46.455 | |||||||
Forfeited | — | — | — | — | |||||||||
Non-vested at 3/31/06 | 149,125 | $ | 29.252 | 114,875 | $ | 29.530 |
* | Fair value is determined using the Monte Carlo simulation described above. |
A summary of changes in the status of the PBRS’ EIP portion during the three months ended March 31, 2006 is as follows:
Con Edison | Con Edison of New York | ||||||||||||
Units | Weighted Average Grant Date Price | Units | Weighted Average Grant Date Price | ||||||||||
Non-vested at 12/31/05 | 206,275 | $ | 43.297 | 171,950 | $ | 43.300 | |||||||
Granted | 99,300 | 46.880 | 87,400 | 46.880 | |||||||||
Vested and Exercised | (156,450 | ) | 46.477 | (144,475 | ) | 46.455 | |||||||
Forfeited | — | — | — | — | |||||||||
Non-vested at 3/31/06 | 149,125 | $ | 43.500 | 114,875 | $ | 43.500 |
The total expense to be recognized in future periods for unvested PBRS outstanding as of March 31, 2006 is $5 million for Con Edison, including $4 million for Con Edison of New York.
For a description of the Non-Officer Director Deferred Compensation plan, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Restricted stock units issued under the directors’ deferred compensation plan are considered “equity awards,” because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison’s common stock on the business day immediately preceding the date of issue. In the three months ended March 31, 2006, approximately 1,000 units were issued.
Stock Purchase Plan
For a description of the Stock Purchase Plan, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Participants in the plan immediately vest in shares purchased by them
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. In the three months ended March 31, 2006, 149,584 shares were purchased under the Stock Purchase Plan at a weighted average price of $46.17 per share.
Note IJ - Financial Information By Business Segment
Reference is made to Note O to the financial statements in Item 8 of the Form 10-K.
The financial data for the business segments are as follows:
For the Three Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues | Intersegment Revenues | Depreciation and Amortization | Operating Income | Operating Revenues | Inter-segment Revenues | Depreciation and Amortization | Operating Income | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||||||||||||||||||||
Con Edison of New York | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Electric | $ | 2,317 | $ | 2,009 | $ | 2 | $ | 3 | $ | 98 | $ | 96 | $ | 363 | $ | 323 | $ | 1,633 | $ | 1,393 | $ | 2 | $ | 3 | $ | 101 | $ | 99 | $ | 137 | $ | 106 | |||||||||||||||||||||||||||
Gas | 209 | 161 | 1 | 1 | 19 | 19 | 3 | 4 | 737 | 631 | 1 | 1 | 20 | 19 | 98 | 92 | |||||||||||||||||||||||||||||||||||||||||||
Steam | 111 | 88 | 19 | — | 12 | 5 | 6 | (21 | ) | 275 | 267 | 19 | — | 12 | 4 | 62 | 48 | ||||||||||||||||||||||||||||||||||||||||||
Total Con Edison of New York | $ | 2,637 | $ | 2,258 | $ | 22 | $ | 4 | $ | 129 | $ | 120 | $ | 372 | $ | 306 | $ | 2,645 | $ | 2,291 | $ | 22 | $ | 4 | $ | 133 | $ | 122 | $ | 297 | $ | 246 | |||||||||||||||||||||||||||
O&R | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Electric | $ | 199 | $ | 159 | $ | — | $ | — | $ | 7 | $ | 6 | $ | 23 | $ | 21 | $ | 126 | $ | 120 | $ | — | $ | — | $ | 6 | $ | 7 | $ | 8 | $ | 10 | |||||||||||||||||||||||||||
Gas | 23 | 21 | — | — | 2 | 2 | (2 | ) | (3 | ) | 106 | 97 | — | — | 3 | 2 | 10 | 12 | |||||||||||||||||||||||||||||||||||||||||
Total O&R | $ | 222 | $ | 180 | $ | — | $ | — | $ | 9 | $ | 8 | $ | 21 | $ | 18 | $ | 232 | $ | 217 | $ | — | $ | — | $ | 9 | $ | 9 | $ | 18 | $ | 22 | |||||||||||||||||||||||||||
Unregulated Energy Subsidiaries | $ | 514 | $ | 296 | $ | — | $ | — | $ | 9 | $ | 11 | $ | 24 | $ | 6 | |||||||||||||||||||||||||||||||||||||||||||
Competitive energy businesses | $ | 440 | $ | 293 | $ | 16 | $ | — | $ | 9 | $ | 10 | $ | (10 | ) | $ | 13 | ||||||||||||||||||||||||||||||||||||||||||
Other* | 2 | — | (22 | ) | (4 | ) | — | 1 | 2 | — | — | (1 | ) | (38 | ) | (4 | ) | — | — | 3 | 1 | ||||||||||||||||||||||||||||||||||||||
Total Con Edison | $ | 3,375 | $ | 2,734 | $ | — | $ | — | $ | 147 | $ | 140 | $ | 419 | $ | 330 | $ | 3,317 | $ | 2,800 | $ | — | $ | — | $ | 151 | $ | 141 | $ | 308 | $ | 282 |
* | Parent company expenses, primarily interest, and consolidation adjustments. |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||
Operating Revenues | Intersegment Revenues | Depreciation and Amortization | Operating Income | |||||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||
Con Edison of New York | ||||||||||||||||||||||||||||
Electric | $ | 5,237 | $ | 4,838 | $ | 7 | $ | 8 | $ | 294 | $ | 285 | $ | 650 | $ | 589 | ||||||||||||
Gas | 1,160 | 962 | 2 | 2 | 57 | 56 | 126 | 102 | ||||||||||||||||||||
Steam | 474 | 415 | 38 | 1 | 27 | 15 | 51 | 12 | ||||||||||||||||||||
Total Con Edison of New York | $ | 6,871 | $ | 6,215 | $ | 47 | $ | 11 | $ | 378 | $ | 356 | $ | 827 | $ | 703 | ||||||||||||
O&R | ||||||||||||||||||||||||||||
Electric | $ | 441 | $ | 400 | $ | — | $ | — | $ | 19 | $ | 18 | $ | 44 | $ | 40 | ||||||||||||
Gas | 154 | 149 | — | — | 7 | 7 | 9 | 7 | ||||||||||||||||||||
Total O&R | $ | 595 | $ | 549 | $ | — | $ | — | $ | 26 | $ | 25 | $ | 53 | $ | 47 | ||||||||||||
Unregulated Energy Subsidiaries | $ | 1,112 | $ | 813 | $ | — | $ | — | $ | 30 | $ | 31 | $ | 43 | $ | 25 | ||||||||||||
Other* | 4 | — | (47 | ) | (11 | ) | — | 1 | 4 | 2 | ||||||||||||||||||
Total Con Edison | $ | 8,582 | $ | 7,577 | $ | — | $ | — | $ | 434 | $ | 413 | $ | 927 | $ | 777 |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Note J - Pension Benefits
Reference is made to Note E to the financial statements in Item 8 of the Form 10-K.
Net Periodic Benefit Cost
The components of the Companies’ net periodic benefit costs for the three and nine months ended September 30, 2005 and 2004 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost - including administrative expenses | $ | 29 | $ | 26 | $ | 27 | $ | 24 | ||||||||
Interest cost on projected benefit obligation | 108 | 100 | 101 | 93 | ||||||||||||
Expected return on plan assets | (161 | ) | (157 | ) | (155 | ) | (151 | ) | ||||||||
Amortization of net actuarial (gain)/loss | 21 | (11 | ) | 16 | (14 | ) | ||||||||||
Amortization of prior service costs | 3 | 2 | 3 | 2 | ||||||||||||
NET PERIODIC BENEFIT COST | $ | — | $ | (40 | ) | $ | (8 | ) | $ | (46 | ) | |||||
Amortization of regulatory asset* | 1 | 1 | 1 | 1 | ||||||||||||
TOTAL PERIODIC BENEFIT COST | $ | 1 | $ | (39 | ) | $ | (7 | ) | $ | (45 | ) | |||||
Cost capitalized | — | 12 | 2 | 13 | ||||||||||||
Cost deferred | (12 | ) | (2 | ) | (10 | ) | — | |||||||||
Credited to operating expenses | $ | (11 | ) | $ | (29 | ) | $ | (15 | ) | $ | (32 | ) |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost - including administrative expenses | $ | 88 | $ | 78 | $ | 81 | $ | 72 | ||||||||
Interest cost on projected benefit obligation | 323 | 307 | 302 | 287 | ||||||||||||
Expected return on plan assets | (482 | ) | (482 | ) | (464 | ) | (465 | ) | ||||||||
Amortization of net actuarial (gain)/loss | 61 | (30 | ) | 48 | (39 | ) | ||||||||||
Amortization of prior service costs | 10 | 8 | 9 | 8 | ||||||||||||
NET PERIODIC BENEFIT COST | $ | — | $ | (119 | ) | $ | (24 | ) | $ | (137 | ) | |||||
Amortization of regulatory asset* | 3 | 3 | 3 | 3 | ||||||||||||
TOTAL PERIODIC BENEFIT COST | $ | 3 | $ | (116 | ) | $ | (21 | ) | $ | (134 | ) | |||||
Cost capitalized | 1 | 35 | 6 | 39 | ||||||||||||
Cost deferred | (35 | ) | (2 | ) | (26 | ) | — | |||||||||
Credited to operating expenses | $ | (31 | ) | $ | (83 | ) | $ | (41 | ) | $ | (95 | ) |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Expected Contributions
Based on current estimates, the Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2005. Con Edison made discretionary contributions of $30 million in September 2005. Con Edison of New York does not expect to make any contributions in 2005.
Note K - Other Postretirement Benefits
Reference is made to Note F to the financial statements in Item 8 of the Form 10-K.
Net Periodic Benefit Cost
The components of the Companies’ net periodic other postretirement benefit costs for the three and nine months ended September 30, 2005 and 2004 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost | $ | 4 | $ | 3 | $ | 3 | $ | 2 | ||||||||
Interest cost on accumulated other postretirement benefit obligation | 20 | 20 | 18 | 17 | ||||||||||||
Expected return on plan assets | (19 | ) | (21 | ) | (18 | ) | (19 | ) | ||||||||
Amortization of net actuarial loss | 18 | 10 | 16 | 9 | ||||||||||||
Amortization of prior service costs | (4 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||
Amortization of transition obligation | 1 | 1 | 1 | 1 | ||||||||||||
NET PERIODIC OTHER POSTRETIREMENT BENEFIT COST | $ | 20 | $ | 9 | $ | 16 | $ | 6 | ||||||||
Cost capitalized | (6 | ) | (2 | ) | (5 | ) | (1 | ) | ||||||||
Cost deferred | (5 | ) | 4 | (4 | ) | 5 | ||||||||||
Cost charged to operating expenses | $ | 9 | $ | 11 | $ | 7 | $ | 10 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | Con Edison of New York | |||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Service cost | $ | 11 | $ | 8 | $ | 8 | $ | 6 | ||||||||
Interest cost on accumulated other postretirement benefit obligation | 62 | 57 | 55 | 50 | ||||||||||||
Expected return on plan assets | (59 | ) | (60 | ) | (55 | ) | (56 | ) | ||||||||
Amortization of net actuarial loss | 54 | 30 | 47 | 26 | ||||||||||||
Amortization of prior service costs | (11 | ) | (11 | ) | (11 | ) | (11 | ) | ||||||||
Amortization of transition obligation | 3 | 3 | 3 | 3 | ||||||||||||
NET PERIODIC OTHER POSTRETIREMENT BENEFIT COST | $ | 60 | $ | 27 | $ | 47 | $ | 18 | ||||||||
Cost capitalized | (18 | ) | (8 | ) | (15 | ) | (5 | ) | ||||||||
Cost deferred | (16 | ) | 3 | (12 | ) | 5 | ||||||||||
Cost charged to operating expenses | $ | 26 | $ | 22 | $ | 20 | $ | 18 |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Expected Contributions
Based on current estimates, Con Edison and Con Edison of New York expect to make contributions of $71 million and $58 million, respectively, to the other postretirement benefit plans in 2005.
Note L - Derivative Instruments and Hedging Activities
Reference is made to Note P to the financial statements in Item 8 of the Form 10-K.
Energy Price Hedging
Con Edison’s subsidiaries hedge market price fluctuations in the market prices for theassociated with physical purchases and sales of electricity, natural gas, and oil they need to conduct their businesssteam by purchasing and sellingusing derivative instruments including futures, options, forwards, basis swaps, transmission congestion contracts and financial transmission rights contracts. The fair valuevalues of derivative assetsthese hedges at March 31, 2006 and December 31, 2005 were as follows:
Con Edison | Con Edison of New York | ||||||||||||||
(Millions of Dollars) | 2006 | 2005 | 2006 | 2005 | |||||||||||
Fair value of net assets/(liabilities) | $ | (94 | ) | $ | 280 | $ | (15 | ) | $ | 223 |
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Credit Exposure
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements and collateral or prepayment arrangements.
Con Edison and Con Edison of New York increasedhad $308 million and $77 million credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at September 30, 2005 as comparedMarch 31, 2006, respectively. Of these amounts, $248 million and $28 million was with year-end 2004 dueinvestment-grade counterparties and $60 million and $49 million was primarily to higher mark-to-market gains on commodity hedges. Forwith the Utilities to the extent such gains are realized, they reduce the cost of energy recoverable from customers and have no effect on net income. The fair values of these hedges at September 30, 2005 and December 31, 2004 were as follows:New York Mercantile Exchange, respectively.
Con Edison | Con Edison of New York | ||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | |||||||||
Fair value of net assets | $ | 656 | $ | 49 | $ | 494 | $ | 9 |
Cash Flow Hedges
Con Edison’s subsidiaries designate a portion of derivative instruments as cash flow hedges under Statement of Financial Accounting Standards (SFAS)SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
The following table presents selected information related to these cash flow hedges included in accumulated other comprehensive income (OCI)OCI at September 30, 2005:March 31, 2006:
Maximum Term | Accumulated Other Comprehensive Income/ (Loss) Net of Tax | Portion Expected to be Reclassified to Earnings During the Next 12 Months | Maximum Term | Accumulated Other Comprehensive Income/ (Loss) Net of Tax | Portion Expected to be Reclassified to Earnings during the Next 12 Months | |||||||||||||||||||||||||
(Term in Months/ Millions of Dollars) | Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | ||||||||||||||||||||||||
(Term in Months/Millions of Dollars) | Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | ||||||||||||||||||||||||
Energy Price Hedges | 18 | 18 | $36 | $2 | $35 | $1 | 38 | 11 | $ | (32 | ) | $ | — | $ | (29 | ) | $ | — |
The actual amounts that will be reclassified to earnings may vary from the expected amounts presented above as a result of changes in market prices. The effect of reclassification from accumulated OCI to earnings will generally be offset by the recognition of the hedged transaction in earnings.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
The unrealized net gains and losses relating to the hedge ineffectiveness of these cash flow hedges that were recognized in net earnings for the three and nine months ended September 30,March 31, 2006 and 2005 and 2004 were immaterial to the results of operations of the Companies for those periods.
Other Derivatives
The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under SFAS No. 133. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. The Utilities recoverare permitted by their respective
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
regulators to reflect in rates all reasonably incurred gains and losses on these instruments. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K. Con Edison’s unregulated subsidiariescompetitive energy businesses record unrealized gains and losses on these derivative contracts in earnings in the reporting period in which they occur. For the three months ended September 30,March 31, 2006 and 2005, and 2004, Con Edison recorded anin non-utility operating revenues unrealized losspre-tax losses of $22$51 million and an unrealized gain of $12$1 million, respectively. For the nine months ended September 30, 2005These losses reflect primarily lower prices on natural gas contracts employed as economic hedges used to support wholesale and 2004, Con Edison recorded an unrealized loss of $23 million and an unrealized gain of $11 million, respectively. In the 2005 period, the forward market price of electricity increased more than the forward market price of fuel, resulting in the recognition of mark-to-market unrealized losses in net income. In contrast,retail obligations that did not qualify for the 2004 period, the forward market price of electricity increased less than the forward market price of fuel resulting in the recognition of unrealized gains.cash flow hedge accounting.
Interest Rate Hedging
Con Edison’s subsidiaries use interest rate swaps to manage interest rate exposure associated with debt. The fair values of these interest rate swaps at September 30, 2005March 31, 2006 and December 31, 20042005 were as follows:
Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | ||||||||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||
Fair value of interest rate swaps | $ | (17 | ) | $ | (19 | ) | $ | (1 | ) | $ | 1 | $ | (18 | ) | $ | (18 | ) | $ | (5 | ) | $ | (3 | ) |
Fair Value Hedges
Con Edison of New York’s swap (related to its $225 million of Series 2001A tax-exempt debt) is designated as a fair value hedge, which qualifies for “short-cut” hedge accounting under SFAS No. 133. Under this method, changes in fair value of the swap are recorded directly against the carrying value of the hedged bonds and have no impact on earnings.
Cash Flow Hedges
Con Edison Development’s and O&R’s swaps are designated as cash flow hedges under SFAS No. 133. Any gain or loss on the hedges is recorded in OCI and reclassified to interest expense and
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
included in earnings during the periods in which the hedged interest payments occur. See “Interest Rate Hedging” in Note P to the financial statements in Item 8 of the Form 10-K for the contractual components of the interest rate swaps accounted for as cash flow hedges.
In January and February of 2005, Con Edison of New York entered into seven forward starting swap agreements to hedge a portion of anticipated interest payments associated with future debt issuance. The swaps are designated as cash flow hedges. At the inception of each hedge, the company locked in a swap rate that had a high correlation with the company’s total borrowing costs. The company intends to settle the swap agreements at the time of debt issuance. No cash payments will be made until the settlement date, although under some circumstances, collateral may be given to, or received from, the swap counterparty.
In June 2005, Con Edison of New York issued $125 million of 30-year debentures. Also, five related forward starting swap agreements, which were entered into in December 2004, were settled. A cumulative loss of $9 million with respect to the swap agreements was recorded in OCI. This loss will be reclassified to interest expense over the term of the debt issued.
The following table presents amounts related to these cash flow hedges that are included in accumulated OCI at September 30, 2005:
Accumulated Other Comprehensive Income/ (Loss) Net of Tax | Portion Expected to be Reclassified to Earnings during the Next 12 Months | ||||||||||||||
(Millions of Dollars) | Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | |||||||||||
Interest Rate Swaps | $ | (14 | ) | $ | (5 | ) | $ | (2 | ) | $ | — |
The actual amounts that will be reclassified may vary from the expected amounts presented above as a result of changes in interest rates. For the Utilities, these costs are recovered in rates and the reclassification will have no impact on results of operations.
Note ML - New Financial Accounting Standards
Reference is made to Note T to the financial statements in Item 8 of the Form 10-K.
In July 2005,April 2006, the FASB issued Exposure Draft titled “AccountingStaff Position No. FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (the FSP), which is effective prospectively for Uncertain Tax Positions,reporting periods beginning after June 15, 2006. The FSP clarifies that the variability to be considered in applying FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” should be based on an interpretationanalysis of FASB Statement No. 109, “Accounting for Income Taxes” (the Exposure Draft).the design of the entity. The proposed interpretation would clarify the accounting for uncertain tax positions in accordance with FASB Statement No. 109. Under the interpretation, an enterprise wouldapplication of this FSP is not be allowedexpected to recognize, in its financial statements, the benefit ofhave a tax position unless that position is probable of being sustained on audit by taxing authorities based solelymaterial impact on the technical meritsCompanies’ financial position, results of the position. The IRS has completed its audits of the Companies’ tax returns through 1996. The Companies’ tax returns foroperations or liquidity.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
subsequent years, whichIn March 2006, the IRSFASB issued a proposed Statement on Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefits. The proposed Statement requires an employer that sponsors one or more defined benefit pension or other postretirement plans to recognize an asset or liability for the overfunded or underfunded status of the plan. For a pension plan, the asset or liability is reviewing, reflect certain tax positions with which the IRS may not ultimately agree, including tax positions with respect to Con Edison’s leveraged lease transactionsdifference between the fair value of the plan’s assets and the deductionprojected benefit obligation. For any other postretirement benefit plan, the asset or liability is the difference between the fair value of certain construction-related costs. See “Lease In/Lease Out Transactions”the plan’s assets and “Timingthe accumulated postretirement benefit obligation. Employers must recognize all unrecognized prior service costs and credits and unrecognized actuarial gains and losses in accumulated other comprehensive income, net of Deductiontax. Such amounts would be adjusted as they are subsequently recognized as components of Construction-Related Costs” in Note G. Asnet periodic benefit cost or income pursuant to Con Edison’s other tax positions,the current recognition and amortization provisions of FASB Statements No. 87, “Employers’ Accounting for Pensions,” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” In general, under the Utilities’ rate plans, the difference between expenses recognized under these accounting standards and the rate allowance is deferred. For a description of the Companies are unable to predict whether the Exposure Draft, if adopted in its present form, would have a material impact on their financial position, results of operations or liquidity.
For information aboutpension plan and other recent financial accounting standards,postretirement benefit plans, see “Lease In/Lease Out Transactions” in Note GNotes E and see Note N to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q and Note M to the financial statements in Part I, Item 1 of the Second Quarter Form 10-Q.
Note N - Con Edison Communications (CEC)
For information about CEC, including the termination in May 2005 of an agreement to sell CEC, and the accounting for its assets and liabilities as “held for sale” and its results of operations as “discontinued operations,” see Note WF to the financial statements in Item 8 of the Form 10-K, 10-K. The Companies have not yet determined the impact of the proposed Statement on their financial position, results of operations or liquidity, but it could be material.
In March 2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140” (SFAS No. 156), which is effective for fiscal years beginning after September 15, 2006. The Statement clarifies the accounting for servicing rights, requires servicing rights to be initially measured at fair value, and provides the option to subsequently account for servicing rights at either fair value or under the amortization method previously required under FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The adoption of SFAS No. 156 is not expected to have a material impact on the Companies’ financial position, results of operations or liquidity.
In February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (SFAS No. 155), which is effective for fiscal years beginning after September 15, 2006. This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. It establishes a requirement to evaluate interests in securitized financial assets to determine whether they are freestanding derivatives or whether they contain embedded derivatives. The adoption of SFAS No. 155 is not expected to have a material impact on the Companies’ financial position, results of operations or liquidity.
NOTESTOTHE FINANCIAL STATEMENTS (UNAUDITED) —CONTINUED
Note OM - Con Edison Communications (CEC)
Reference is made to Note U to the financial statements in Part I, Item 18 of the First Quarter Form 10-Q10-K.
In March 2006, Con Edison completed the sale of CEC to RCN and Note Nreceived approximately $39 million in cash. Exit costs associated with the disposal activity include one-time termination benefits and other transaction costs of $5 million, of which $3 million has been incurred. The sale resulted in an estimated gain from discontinued operations of approximately $1 million for the three months ended March 31, 2006. At the date of the financial statements in Part I, Item 1 of the Second Quarter Form 10-Q. Con Edison remains committed to its plan to sell CEC. As of September 30, 2005,sale, CEC had assets and liabilities of $61$43 million and $18$3 million, respectively.
CEC’s total operating revenues were $10 million and $8 million for the three months ended September 30, 2005 and 2004, respectively, and $30 million and $24 million for the nine months ended September 30, 2005 and 2004, respectively.
This combined management’s discussion and analysis of financial condition and results of operations (MD&A) relates to the consolidated financial statements in Part I, Item 1 of this report (the ThirdFirst Quarter Financial Statements) included in this report of two separate registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (Con Edison of New York). and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers to Con Edison and Con Edison of New York. Con Edison of New York is a subsidiary of Con Edison and, as such, information in this MD&A about Con Edison of New York applies to Con Edison.
This MD&A should be read in conjunction with the ThirdFirst Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 20042005 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part I, Item 2 of their combined Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2005 and June 30, 2005 (File Nos. 1-14514 and 1-1217, the First Quarter Form 10-Q and the Second Quarter Form 10-Q, respectively).
Information in the notes to the Third Quarter Financial Statementsconsolidated financial statements referred to in this discussion and analysis is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.
CORPORATE OVERVIEW
Con Edison’s principal business operations are those of its utility subsidiariescompanies, Con Edison of New York and Orange and Rockland Utilities, Inc. (O&R), together known as the “Utilities.” Con Edison also has unregulated subsidiariescompetitive businesses that compete primarily in energy-related and communications businesses (see “Unregulated“Competitive Energy Subsidiaries,Businesses,” below).
Certain financial data of Con Edison’s subsidiariesbusinesses is presented below:
Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2005 | At September 30, 2005 | Three Months Ended March 31, 2006 | At March 31, 2006 | |||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Operating Revenues | Net Income | Operating Revenues | Net Income | Assets | Operating Revenues | Net Income | Assets | |||||||||||||||||||||||||||||||||||||||||||||
Con Edison of New York | $ | 2,637 | 78 | % | $ | 282 | 99 | % | $ | 6,871 | 80 | % | $ | 573 | 99 | % | $ | 21,070 | 85 | % | $ | 2,645 | 80 | % | $ | 202 | 111 | % | $ | 20,890 | 85 | % | |||||||||||||||||||||
O&R | 224 | 7 | % | 18 | 6 | % | 600 | 7 | % | 41 | 7 | % | 1,604 | 7 | % | 232 | 7 | % | 12 | 7 | % | 1,534 | 6 | % | |||||||||||||||||||||||||||||
Total Utilities | 2,861 | 85 | % | 300 | 105 | % | 7,471 | 87 | % | 614 | 106 | % | 22,674 | 92 | % | 2,877 | 87 | % | 214 | 118 | % | 22,424 | 91 | % | |||||||||||||||||||||||||||||
Con Edison Development | 164 | 5 | % | (12 | ) | (4 | )% | 350 | 4 | % | (17 | ) | (3 | )% | 1,241 | 5 | % | 199 | 6 | % | (17 | ) | (9 | )% | 1,218 | 5 | % | ||||||||||||||||||||||||||
Con Edison Energy | 12 | — | % | 1 | — | % | 29 | — | % | — | — | % | 261 | 1 | % | 20 | — | % | (1 | ) | (1 | )% | 321 | 1 | % | ||||||||||||||||||||||||||||
Con Edison Solutions | 338 | 10 | % | 3 | 1 | % | 740 | 9 | % | 4 | 1 | % | 233 | 1 | % | 253 | 8 | % | (1 | ) | (1 | )% | 98 | 1 | % | ||||||||||||||||||||||||||||
Other | — | — | % | (5 | ) | (2 | )% | (8 | ) | — | % | (15 | ) | (3 | )% | 298 | 1 | % | (32 | ) | (1 | )% | (15 | ) | (8 | )% | 415 | 2 | % | ||||||||||||||||||||||||
Total continuing operations | 3,375 | 100 | % | 287 | 100 | % | 8,582 | 100 | % | 586 | 101 | % | 24,707 | 100 | % | 3,317 | 100 | % | 180 | 99 | % | 24,476 | 100 | % | |||||||||||||||||||||||||||||
Discontinued operations | — | — | % | (2 | ) | — | % | — | — | % | (5 | ) | (1 | )% | 61 | — | % | — | — | % | 1 | 1 | % | — | — | % | |||||||||||||||||||||||||||
Total Con Edison | $ | 3,375 | 100 | % | $ | 285 | 100 | % | $ | 8,582 | 100 | % | $ | 581 | 100 | % | $ | 24,768 | 100 | % | $ | 3,317 | 100 | % | $ | 181 | 100 | % | $ | 24,476 | 100 | % |
(a) | Net income includes $19 million, $1 million and $11 million, respectively, of net mark-to-market losses. |
(b) | Represents inter-company and parent company accounting. See “Results of Operations,” below. |
Represents the discontinued operations of Con Edison Communications. |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Con Edison’s net income for common stock for the three months ended September 30, 2005March 31, 2006 was $285$181 million or $1.17$0.74 a share compared with earnings of $246$181 million or $1.02$0.75 a share for the three months ended September 30, 2004. Net income for common stock for the nine months ended September 30, 2005 was $581 million or $2.39 a share compared with earnings of $487 million or $2.08 a share for the nine months ended September 30, 2004. The three-month periods ended September 30, 2005 and 2004 reflect (after-tax) losses from the discontinued operations of Con Edison Communications of $2 million and $4 million, respectively. The nine-month periods ended September 30, 2005 and 2004 reflect (after-tax) losses from the discontinued operations of Con Edison Communications of $5 million and $10 million, respectively (see Note N to the Third Quarter Financial Statements).
March 31, 2005. See “Results of Operations – Summary,” below. For segment financial information, see Note I to the Third Quarter Financial Statements and “Results of Operations,” below.
REGULATED UTILITY SUBSIDIARIESTILITIES
Con Edison of New York provides electric service to approximately 3.2 million customers and gas service to over 1approximately 1.1 million customers in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries,businesses, provides electric service to approximately 0.3 million customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to over 0.1 million customers in southeastern New York and adjacent areas of eastern Pennsylvania.
The Utilities are primarily “wires and pipes” energy delivery companiesbusinesses that deliver energy in their service areas subject to extensive federal and state regulation. The Utilities’ customers buy this energy from the Utilities, or from other suppliers through the Utilities’ retail access programs. The Utilities purchase substantially all of the energy they sell to customers pursuant to firm contracts or through wholesale energy markets, and recover (generally on a current basis) the cost of the energy sold, pursuant to approved rate plans.
In April 2005, Con Edison of New York commenced commercial operation of its East River Repowering Project and retired its Waterside generating station, resulting in incremental summer electric capacity of 125 MW. Con Edison of New York’s generating facilities consist of plants located in New York City with an aggregate capacity of 690 MW, most of which are combined steam-electric generating facilities.
Con Edison anticipates that the Utilities will continue to provide substantially all of its earnings over the next few years. The Utilities’ earnings will depend on various factors including demand for utility service and the
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Utilities’ ability to charge rates for their services that reflect the costs of service, including a return on invested equity capital. The factors affecting demand for utility service include weather, market prices for energy and economic conditions.
Because the energy delivery infrastructure must be adequate to meet demand in peak periods with a high level of reliability, the Utilities’ capital investment plans reflect in great part actual growth in electric peak demand adjusted to summer design weather conditions, as well as forecast growth in peak loads.usage. The Utilities had estimatedestimate that, under design weather conditions, the 20052006 peak electric loaddemand in their respective service areas wouldwill be 13,02513,400 MW for Con Edison of New York and 1,5001,570 MW for O&R. On July 27, 2005, the electric loads served by the Utilities reached new record peaks, 13,059 MW for Con Edison of New York, and 1,539 MW for O&R. The higher than forecasted loads were primarily due to actual temperatures that were slightly higher than those used in developing the forecast. Also, on July 27, 2005, the New York Independent System Operator invoked load reduction programs. Without these reduction programs, the experienced peak loads would have been higher.
The average annual growth rate of the peak loadelectric demand over the next five years at design conditions is estimated to be approximately 1.5 percent for Con Edison of New York and 2.7 percent for O&R. Since loadDesign conditions do not include the potential impact of those demand reduction programs that are invoked only in specific circumstances, design conditions do not include their potential impact.circumstances. The Companies anticipate an ongoing need for substantial capital investment in order to meet this load growth in peak usage with the high level of reliability that the Utilitiesthey currently provide (see “Liquidity and Capital Resources -– Capital Requirements,” below).
The Utilities have rate plans approved by state utility regulators that cover the rates they can charge their customers. Con Edison of New York’s electric, gas and steam rate plans are effective through March 31, 2008, September 30, 2007 and September 30, 2006, respectively. O&R has rate plans for its electric and gas services in New York that extend through October 31, 2006. Pursuant to the Utilities’ rate plans, charges to customers may not be changed during the respective terms of the rate plans other than for the rate increases provided for in the plans, recovery of the costs incurred for energy supply and limited other exceptions. The rate plans generally require the Utilities to share with customers earnings in excess of specified rates of return on equity. Changes in delivery volumes are reflected in operating income (except to the extent that weather-normalization provisions apply to the gas businesses). See “Regulatory Matters” below and “Recoverable Energy Costs” and “Rate and Restructuring Agreements” in Notes A and B, respectively, to the financial statements in Item 8 of the Form 10-K.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
The Utilities have rate plans approved by state utility regulators that cover the rates they can charge their customers. Con Edison of New York’s electric, gas and steam rate plans are effective through March 31, 2008, September 30, 2007 and September 30, 2006, respectively. The company has filed a request for a new steam rate plan to be effective October 1, 2006. O&R has rate plans for its electric and gas services in New York that extend through October 31, 2006. O&R has filed a request for a new gas rate plan to be effective November 1, 2006. Pursuant to the Utilities’ rate plans, charges to customers may not be changed during the respective terms of the rate plans other than for recovery of the costs incurred for energy supply, for specified increases provided in the rate plans and for limited other exceptions. The rate plans generally require the Utilities to share with customers earnings in excess of specified rates of return on equity. Changes in delivery volumes are reflected in operating income (except to the extent that weather-normalization provisions apply to the gas businesses, and subject to provisions in the rate plans for sharing above-target earnings with customers). See “Regulatory Matters,” below.
Accounting rules and regulations for public utilities include Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation,” pursuant to which the economic effects of rate regulation are reflected in financial statements. See “Application of Critical Accounting Policies,” below.
UCNREGULATEDOMPETITIVE ENERGY SBUBSIDIARIESUSINESSES
Con Edison’s unregulatedcompetitive energy subsidiariesbusinesses participate in competitive businesses and are subject to different risks than the Utilities. See “Risk Factors,” below. At September 30, 2005,March 31, 2006, Con Edison’s investment in its unregulatedcompetitive energy subsidiariesbusinesses was $583$507 million and the unregulated energy subsidiaries’their assets amounted to $1.7$1.6 billion.
Consolidated Edison Solutions, Inc. (Con Edison Solutions) sells electricity to delivery customers of the Utilities and other utilities primarily in the Northeast and Mid-Atlantic regions and also offers energy-related services. The company sold approximately 7.42.5 million mWhrsmegawatt hours of electricity to customers over the nine-monththree-month period ended September 30, 2005.March 31, 2006.
Consolidated Edison Development, Inc. (Con Edison Development) owns and operates generating plants and participates in other infrastructure projects. At September 30, 2005,March 31, 2006, the company owned the equivalent of 1,668 MW of capacity in electric generating facilities of which 224203 MW is sold under long-term purchase power agreements. Theagreements and the balance is sold on the wholesale electricity markets.
Consolidated Edison Energy, Inc. (Con Edison Energy) provides energy and capacity to Con Edison Solutions and others and markets the output of plants owned or operated by Con Edison Development. The company also provides risk management services to Con Edison Solutions and Con Edison Development and offers these services to others.
DISCONTINUED OPERATIONS
In December 2004, Con Edison determined to sell Consolidated Edison Communications, LLC (Con Edison Communications). See Note N to the Third Quarter Financial Statements.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Consolidated Edison Energy, Inc. (Con Edison Energy) provides energy and capacity to Con Edison Solutions and others and markets the output of plants owned or operated by Con Edison Development. The company also provides risk management services to Con Edison Solutions and Con Edison Development and offers these services to others.
The competitive energy businesses intend to focus on increasing their customer base, gross margins and the value of their existing assets.
DISCONTINUED OPERATIONS
In March 2006, Con Edison completed the sale of Con Edison Communications, LLC (Con Edison Communications) to RCN Corporation. See Note M to the First Quarter Financial Statements.
RESULTSOF OPERATIONS - SUMMARY
Con Edison’s earnings per share for the three months ended September 30, 2005March 31, 2006 were $1.17 ($1.16 on a diluted basis)$0.74 (basic and diluted) compared to $1.02 ($1.01 on a diluted basis) for the 2004 period. Con Edison’s earnings per share for the nine months ended September 30, 2005 were $2.39 ($2.38 on a diluted basis) compared to $2.08with $0.75 (basic and diluted) for the 20042005 period.
EarningsNet income for the three and nine months ended September 30,March 31, 2006 and 2005 and 2004 werewas as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | 2005 | 2004 | 2006 | 2005 | ||||||||||||||||||
Con Edison of New York | $ | 282 | $ | 233 | $ | 573 | $ | 474 | $ | 202 | $ | 170 | ||||||||||||
O&R | 18 | 13 | 41 | 33 | 12 | 17 | ||||||||||||||||||
Con Edison Development | (12 | ) | 10 | (17 | ) | 2 | ||||||||||||||||||
Con Edison Energy | 1 | (1 | ) | — | — | |||||||||||||||||||
Con Edison Solutions | 3 | (1 | ) | 4 | 2 | |||||||||||||||||||
Other (a) | (5 | ) | (4 | ) | (15 | ) | (14 | ) | ||||||||||||||||
Competitive energy businesses (a) | (19 | ) | (1 | ) | ||||||||||||||||||||
Other (b) | (15 | ) | (5 | ) | ||||||||||||||||||||
Total continuing operations | 287 | 250 | 586 | 497 | 180 | 181 | ||||||||||||||||||
Discontinued operations (b) | (2 | ) | (4 | ) | (5 | ) | (10 | ) | ||||||||||||||||
Discontinued operations (c) | 1 | — | ||||||||||||||||||||||
CON EDISON | $ | 285 | $ | 246 | $ | 581 | $ | 487 | $ | 181 | $ | 181 |
(a) |
(b) | Other consists of inter-company and parent company accounting including interest expense on debt and |
Represents the discontinued operations of Con Edison Communications. See Note M to the First Quarter Financial Statements. |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Con Edison’s earningsThe Companies’ results of operations for the three and nine months ended September 30,March 31, 2006, as compared with the 2005 were $39period, reflect growth in weather-adjusted sales, milder winter weather, the Companies’ rate plans (including the electric rate plan that took effect in April 2005) and, $94 million higher, respectively, thanfor Con Edison, its competitive energy businesses’ mark-to-market losses on derivatives. The following table presents the 2004effect on earnings per share and net income for the 2006 period, reflectingas compared with the following factors (after tax, in millions):2005 period, resulting from these and other major factors:
Three Months Ended | Nine Months Ended | |||||||
Con Edison of New York: | ||||||||
Sales growth (estimated) | $ | 11 | $ | 27 | ||||
Impact of weather in 2005 versus 2004 (estimated) | 39 | 29 | ||||||
Electric rate plan (estimated) | 64 | 125 | ||||||
Gas rate plan (estimated) | 4 | 30 | ||||||
Steam rate plan (estimated) | 8 | 37 | ||||||
Increased pension and other postretirement benefit costs | (10 | ) | (31 | ) | ||||
Higher operations and maintenance expense | (14 | ) | (33 | ) | ||||
Higher depreciation, property tax and other taxes | (45 | ) | (77 | ) | ||||
Allowance for funds used during construction | (10 | ) | (17 | ) | ||||
Gas and steam 2004 rate plan charges | 15 | 15 | ||||||
Other | (13 | ) | (6 | ) | ||||
Total Con Edison of New York | 49 | 99 | ||||||
O&R | 5 | 8 | ||||||
Unregulated energy subsidiaries including parent company | (17 | ) | (18 | ) | ||||
Discontinued operations | 2 | 5 | ||||||
Total | $ | 39 | $ | 94 |
Variations | ||||||||
Earnings per Share | Net Income (Millions of Dollars) | |||||||
Con Edison of New York | ||||||||
Sales growth (estimated) | $ | 0.03 | $ | 7 | ||||
Impact of weather in 2006 versus 2005 (estimated) | (0.08 | ) | (19 | ) | ||||
Electric rate plan (estimated) | 0.31 | 73 | ||||||
Gas rate plan (estimated) | 0.03 | 7 | ||||||
Steam rate plan (estimated) | 0.03 | 8 | ||||||
Higher operations and maintenance expense | (0.04 | ) | (8 | ) | ||||
Stock-based compensation expense | (0.02 | ) | (6 | ) | ||||
Higher depreciation and property taxes | (0.11 | ) | (27 | ) | ||||
Other (includes effect of dilution) | (0.03 | ) | (3 | ) | ||||
Total Con Edison of New York | 0.12 | 32 | ||||||
Orange and Rockland Utilities | (0.02 | ) | (5 | ) | ||||
Competitive energy businesses | ||||||||
Earnings excluding mark-to-market losses (net) | 0.05 | 12 | ||||||
Mark-to-market losses (net) | (0.12 | ) | (30 | ) | ||||
Other (a) | (0.04 | ) | (10 | ) | ||||
Discontinued operations | — | 1 | ||||||
Total | $ | (0.01 | ) | $ | — |
(a) | Other consists of inter-company and parent company accounting including interest expense on debt and the related income tax expense. |
See “Results of Operations”Operations,” below for further discussion and analysis of results of operations.
RISK FACTORS
The CompaniesCompanies’ businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect our actual operating results, cash flows and financial condition. The factors include those described under “Risk Factors” in Item 7 of the Form 10-K. Additional risk factors include:
We Operate Energy Facilities in ProximityFORWARD-LOOKING STATEMENTS
This report includes forward-looking statements intended to the Public – The Utilities provide electricity, gas and steam service using energy facilities that are located either in, or close to, public places. A failure of, or damage to, these facilities could result in bodily injury or death, property damage, the release of hazardous substances or extended service interruptions. If this happens, the Utilities could incur substantial liability, higher costs and increased regulatory requirements. The Utilities have training, operating, security, maintenance and capital programs, which they believe are adequate to providequalify for the safesafe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and reliable operationSection 21E of their energy facilities.the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Energy Market Prices Have Increased Significantly – The market prices of electricity and gas have risen significantly in 2005. The impact of higher energy market prices on the Companies is mitigated by their energy management policies and rate provisions pursuant to which the Utilities recover energy supply costs. See “We Purchase The Energy We Sell To Customers” under “Risk Factors” in Item 7 of the Form 10-K. However, higher energy market prices are resulting in significant increases in energy costs billed to customers which could result in decreased energy usage. If this were to occur, the Companies would have decreased revenues for energy delivery. The higher prices of electricity, fuel oil and gas could also adversely affect the value of the unregulated subsidiaries’ generating facilities.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which reflect expectations and not facts. Words such as “expects,” “estimates,” “anticipates,” “intends,” “believes,” “plans,” “will” and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments maymight differ materially from those expectations included in the forward-looking statements because of various factors such as those discussed under “Risk Factors” in Item 7 of the Form 10-K.
APPLICATIONOF CRITICAL ACCOUNTING POLICIES
The Companies’ financial statements reflect the application of their accounting policies, which conform to accounting principles generally accepted in the United States of America. The Companies’ critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits, contingencies, long-lived assets, derivative instruments, goodwill and leases. See “Application of Critical Accounting Policies” in Item 7 of the Form 10-K.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
LIQUIDITYAND CAPITAL RESOURCES
The Companies’ liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows included in Part I, Item 1 of this report and as discussed below. See “Liquidity and Capital Resources” in Item 7 of the Form 10-K. Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the ninethree months ended September 30,March 31, 2006 and 2005 and 2004 are summarized as follows:
Con Edison | Con Edison of New York | Con Edison | Con Edison of New York | |||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | 2005 | 2004 | Variance | 2005 | 2004 | Variance | 2006 | 2005 | Variance | 2006 | 2005 | Variance | ||||||||||||||||||||||||||||||||||||
Operating activities | $ | 610 | $ | 797 | $ | (187 | ) | $ | 540 | $ | 704 | $ | (164 | ) | $ | 582 | $ | 386 | $ | 196 | $ | 454 | $ | 342 | $ | 112 | ||||||||||||||||||||||
Investing activities | (665 | ) | (1,109 | ) | 444 | (590 | ) | (1,015 | ) | 425 | (320 | ) | (98 | ) | (222 | ) | (339 | ) | (86 | ) | (253 | ) | ||||||||||||||||||||||||||
Financing activities | 148 | 333 | (185 | ) | 122 | 312 | (190 | ) | (166 | ) | 163 | (329 | ) | (61 | ) | 133 | (194 | ) | ||||||||||||||||||||||||||||||
Net change | $ | 93 | $ | 21 | $ | 72 | $ | 72 | $ | 1 | $ | 71 | $ | 96 | $ | 451 | $ | (355 | ) | $ | 54 | $ | 389 | $ | (335 | ) | ||||||||||||||||||||||
Balance at beginning of period | 26 | 49 | (23 | ) | 10 | 33 | (23 | ) | 81 | 26 | 55 | 61 | 10 | 51 | ||||||||||||||||||||||||||||||||||
Balance at end of period | $ | 119 | $ | 70 | $ | 49 | $ | 82 | $ | 34 | $ | 48 | $ | 177 | $ | 477 | $ | (300 | ) | $ | 115 | $ | 399 | $ | (284 | ) |
Cash Flows from Operating Activities
The Utilities’ cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries dependsis dependent primarily on factors external to the Utilities, such as weather energy market prices and economic conditions. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate plans approved by state public utility regulators.plans. In general, changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate plans. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K. For information on other items that could affect the Companies’ cash flows, see “Lease In/Lease Out Transactions” and “Timing of Deduction of Construction-Related Costs” in Note G to the Third Quarter Financial Statements.
Net income results from cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges and credits include depreciation, deferred income taxes and for Con Edison of New York, electric rate plan amortizations and accruals, and prepaid pension costs. The pension credits resulted primarily from past favorable performance of Con Edison of New York’s pension fund. See “Application of Critical Accounting Policies – Accounting for Pensions and Other Postretirement Benefits” in Item 7 of the Form 10-K and Notes E and F to the financial statements in Item 8 of the Form 10-K.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate plans. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K.
Net cash flows from operating activities for the ninethree months ended September 30, 2005March 31, 2006 for Con Edison and Con Edison of New York were $187 millionreflect net income and $164 million lower, respectively, thanchanges in certain assets and liabilities.
Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges include depreciation. For Con Edison of New York, principal non-cash credits include amortizations of certain net regulatory liabilities, including the tax effects, in accordance with its rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.
Changes in the 2004 period. following assets and liabilities at March 31, 2006, compared with December 31, 2005, have increased cash flows from operations as reported on the Companies’ consolidated statements of cash flows:
(Millions of Dollars) | Con Edison 2006 vs. 2005 Variance | Con Edison of New York 2006 vs. 2005 Variance | ||||||
Assets | ||||||||
Prepayments | $ | 178 | $ | 175 | ||||
Accounts receivable-net | 118 | 108 | ||||||
Recoverable energy costs | 115 | 101 | ||||||
Gas in storage, at average cost | 103 | 70 | ||||||
Liabilities | ||||||||
Accounts payable | (249 | ) | (252 | ) |
The change in prepayments for Con Edison of New York at March 31, 2006 as compared with year-end 2005 reflects primarily the amortization of property tax prepayments.
The variations in accounts receivable net of allowance for uncollectibles and recoverable energy costs at March 31, 2006 as compared with year-end 2005 were due primarily to the collection of higher energy market prices on full-service customers’ bills reflected in the December 31, 2005 balances.
The change in gas in storage for Con Edison and Con Edison of New York reflectsat March 31, 2006 as compared with year-end 2005 was due primarily prepaymentto lower volumes in inventory due to withdrawals during the winter heating season.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Accounts payable decreased at March 31, 2006 as compared with year-end 2005 due primarily to the impact of Con Edison of New York’s New York City property taxes and an increase in customer accounts receivable, offset in part by increases in accounts payable and accrued taxes. The increase in prepayments reflects a New York City program under which Con Edison of New York achieved a 1.5 percent reduction in its City property taxes for the fiscal year ending June 30, 2006 by prepaying the taxes on June 30, 2005 instead of paying them in semi-annual installments on their due dates (July 1, 2005 and January 1, 2006). The increase in customer accounts receivable and accounts payable reflect primarily higherlower energy market prices.
Cash Flows Used in Investing Activities
Net cash flows used in investing activities for Con Edison and Con Edison of New York were $444$222 million and $425$253 million lower,higher respectively, for the ninethree months ended September 30, 2005March 31, 2006 than in the 2004 period, reflecting2005 period. The results for Con Edison of New York reflect primarily $534lower net sale proceeds received in 2006 of $60 million from the sale of the West 24th Street property compared with $285 million of net sale proceeds received in 2005 for certain of the properties located on First Avenue in Manhattan. For Con Edison, the change was offset in part by $39 million of net proceeds from the completion in May 2005 of the sale of properties located on First AvenueCon Edison Communications in Manhattan, collectively referred to as the “First Avenue Properties” (see Note C to the Third Quarter Financial Statements), partially offset by increased utility construction expenditures.March 2006.
Cash Flows from Financing Activities
Net cash flows from financing activities for Con Edison and Con Edison of New York decreased $185$329 million and $190$194 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period, respectively. The decreases reflect primarily the need for less financing in the 2005 period as investing activities were funded in part in the 2005 period by $534 million of net proceeds from the completion of the sale of the First Avenue Properties. In the 2004 period, Con Edison issued 14 million of its common shares through a public offering resulting in net proceeds of $513 million. Con Edison invested those net proceeds in Con Edison of New York.
The Companies’ cashCash flows from financing activities forof the nine months ended September 30, 2005 and 2004, alsoCompanies in each of the periods reflect the issuance of Con Edison common shares through its dividend reinvestment and employee stock plans (2005: 2,344,711 shares for $70 million, 2004: 2,013,045 shares for $48 million). As a result of dividend reinvestment under the stock plans, stock instead of cash was used to pay common stock dividends of $29 million in both the 2005 and 2004 periods.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
In addition, Con Edison’s cash flows from financing activities reflect an increasereduction in commercial paper balances (included on the consolidated balance sheets as “Notes payable”). as compared with the balances at the end of the prior year. At September 30, 2005,March 31, 2006, Con Edison had $224$315 million of commercial paper outstanding, of which $122$179 million was outstanding under Con Edison of New York’s program. The weighted average interest rate for the nine-monththree-month period was 3.13 percent and 2.954.5 percent for Con Edison and Con Edison of New York, respectively.York.
Con Edison’s cash flows from financing activities for the three months ended March 31, 2006 and 2005 reflect the issuance of Con Edison common shares through its dividend reinvestment and employee stock plans (2006: 456,347 shares for $10 million, 2005: 476,235 shares for $10 million). In addition, as a result of the stock plan issuances, cash used to pay common stock dividends was reduced by $10 million in 2006 and $10 million in 2005.
Net cash flows from financing activities during the ninethree months ended September 30,March 31, 2006 and 2005 and 2004 also reflect the following Con Edison of New York transactions:
20052006
2004
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
2005
Con Edison’s net cash flows from financing activities also include O&R&R’s financings. In the 2005, period, O&R issued $40 million 5.3 percent5.3% 10-year debentures. In the 2004 period, O&R’s New Jersey utility subsidiary issued through a special purpose entity (which is included in the consolidated financial statements of Con Edison) $46.3 million of 5.22 percent Transition Bonds.
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 Companies’ credit ratings and certain financial ratios, see “Capital Resources,” below.
Other Changes in Assets and Liabilities
The following table shows changes in assets and liabilities at September 30, 2005,March 31, 2006, compared with December 31, 2004,2005, that have not impacted the Companies’ consolidated statements of cash flows. The changes in these balances are used to reconcile income to cash flow from operations. With respect to regulatory liabilities, see Note C to the Third Quarter Financial Statements.
(Millions of Dollars) | Con Edison 2005 vs. 2004 Variance | Con Edison of New York 2005 vs. 2004 | ||||||
Assets | ||||||||
Fair value of derivative assets | $ | 641 | $ | 416 | ||||
Prepayments | 539 | 533 | ||||||
Regulatory assets | (201 | ) | (219 | ) | ||||
Accounts receivable-net | 169 | 102 | ||||||
Other receivables-net | 110 | 103 | ||||||
Liabilities | ||||||||
Deferred derivative gains | 473 | 400 | ||||||
Other current liabilities | 216 | 177 | ||||||
Accounts payable | 269 | 203 | ||||||
Accrued taxes | 231 | 268 | ||||||
Fair value of derivative liabilities | 132 | — |
(Millions of Dollars) | Con Edison 2006 vs. 2005 Variance | Con Edison of New York Variance | ||||||
Assets | ||||||||
Fair value of derivative assets | $ | (242 | ) | $ | (166 | ) | ||
Deferred derivative losses | 50 | 45 | ||||||
Liabilities | ||||||||
Deferred derivative gains | (189 | ) | (155 | ) | ||||
Fair value of derivative liabilities | 65 | 45 |
In the context of increasingdecreasing energy market prices in the first quarter of 2006, the Companies’ energy management policies for itsmanaging their energy purchases resulted in an increasea decrease in the fair value of derivative assets (included in the consolidated balance sheets as a current asset) at September 30, 2005March 31, 2006 as compared with year-end 2004.2005. For the Utilities, the mark-to-market gainsactivity had no effect on net income as the gainsamounts were deferred as regulatory liabilities – deferred(deferred derivative gains.gains). In accordance with provisions approved by state regulators, the Utilities generally recover from customers their energy supply costs, net of gains and losses on derivative instruments used to hedge energy purchases. The mark-to-market accounting for Con Edison’s unregulatedcompetitive energy subsidiaries’ forward salesbusinesses’ resulted in a decrease in the fair value of electricity from their generating plantsderivative assets and an increase in the fair value of derivative liabilities. The competitive energy businesses record mark-to-market gains and losses on derivative instruments in earnings in the reporting period in which such changes occur for contracts that do not meet the requirements of cash flow hedge accounting or for which such accounting has not been elected.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
resulted in an increase in the fair value of derivative liabilities. See “Results of Operations – Three Months Ended September 30, 2005 Compared with Three Months Ended September 30, 2004 – Unregulated Subsidiaries and Other,” below.
The increase in the Companies’ prepayments at September 30, 2005 as compared with year-end 2004 reflects primarily the prepayment of New York City property taxes as discussed above in “Cash Flows from Operating Activities.”
Regulatory assets decreased for Con Edison and Con Edison of New York at September 30, 2005 as compared with year-end due principally to completion of the sale of the First Avenue Properties and amortizations in accordance with the electric rate case. See Note C to the Third Quarter Financial Statements for further detail on the changes in regulatory assets.
The increase in the Companies’ other receivables reflects Con Edison of New York’s purchase of accounts receivable from energy service companies pursuant to a program established in accordance with Con Edison of New York’s rate plans. The increase also reflects a property tax refund claim relating to the East River Repowering Project.
Accounts receivable net of allowance for uncollectibles increased at September 30, 2005 as compared with year-end 2004 due primarily to the impact of higher energy market prices on customers’ bills.
Other current liabilities increased at September 30, 2005 as compared with year-end 2004 due primarily to increases in the collateral received by the Companies in energy market transactions. See “Financial Commodity Market Risks – Credit Risk,” below. In addition, the increase reflects Con Edison of New York’s purchase of energy service companies’ accounts receivables from authorized electric and gas service providers in its service territory.
Accounts payable increased at September 30, 2005 as compared with year-end 2004 due primarily to the impact of higher energy market prices.
Accrued taxes increased for Con Edison and Con Edison of New York at September 30, 2005 as compared with year-end 2004 due primarily to higher pre-tax income in the period and the gain on the sale of the First Avenue Properties.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Capital Resources
At September 30, 2005,March 31, 2006, there was no material change in the Companies’ capital resources compared to those disclosed under “Capital Resources” in Item 7 of the Form 10-K, and in Part I, Item 2 of the First Quarter Form 10-Q and the Second Quarter Form 10-Q, other than as described below.
For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the nine-month periodsthree months ended September 30, 2005 and 2004 and yearMarch 31, 2006, the 12 months ended December 31, 20042005 and the three months ended March 31, 2005 was:
Earnings to Fixed Charges (Times) | Earnings to Fixed Charges (Times) | |||||||||||
For the Nine Months Ended September 30, 2005 | For the Twelve Months Ended December 31, 2004 | For the Nine Months Ended September 30, 2004 | For the Three Months Ended March 31, 2006 | For the Twelve Months Ended December 31, 2005 | For the Three Months Ended March 31, 2005 | |||||||
Con Edison | 3.3 | 2.6 | 3.1 | 3.1 | 3.1 | 3.3 | ||||||
Con Edison of New York | 4.0 | 3.1 | 3.6 | 4.1 | 3.7 | 3.8 |
For each of the Companies, the common equity ratio at September 30, 2005March 31, 2006 and December 31, 20042005 was:
Common Equity Ratio (Percent of total capitalization) | Common Equity Ratio (Percent of total capitalization) | |||||||
September 30, 2005 | December 31, 2004 | March 31, 2006 | December 31, 2005 | |||||
Con Edison | 50.2 | 51.0 | 48.0 | 49.0 | ||||
Con Edison of New York | 52.0 | 52.9 | 49.5 | 50.7 |
The commercial paper of the Companies is rated P-1, A-1 and F1, respectively, by Moody’s, S&P and Fitch. Con Edison’s unsecured debt is rated A2, A- and A, respectively, by Moody’s, S&P and Fitch. The unsecured debt of the Utilities is rated A1, A and A+, respectively, by Moody’s, S&P and Fitch. In May 2006, Moody’s announced that it is reviewing its ratings of O&R for possible downgrade. 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.
Capital Requirements
At September 30, 2005,March 31, 2006, there was no material change in the Companies’ capital requirements compared to those discussed under “Capital Requirements” in Item 7 of the Form 10-K and in Part I, Item 2 of the First Quarter Form 10-Q and the Second Quarter Form 10-Q other than an increase in10-K.
In May 2006, Con Edison of New York’s estimated 2005 utility construction expenditures to $1,560York called for redemption on June 1, 2006 its $100 million from $1,492 million.7 3/4% debentures due 2026.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Contractual Obligations
At September 30, 2005,March 31, 2006, there waswere no material changechanges in the Companies’ contractualmaterial obligations to make payments pursuant to contracts compared to those discussed under “Contractual Obligations” in Part I, Item 27 of the Second Quarter Form 10-Q,10-K, other than changes inthe issuance of long-term debt (described above) and the Utilities’ purchase obligations (described below).
(Millions of Dollars) | Payments Due by Period | ||||||||||||||
Contractual Obligations | Total | Less than 1 year | 2–3 years | 4-5 years | After 5 years | ||||||||||
Purchase obligations: | |||||||||||||||
Non-utility generator contracts and purchase power agreements – Utilities | |||||||||||||||
Con Edison of New York | |||||||||||||||
Energy (a) | $ | 15,141 | $ | 1,103 | $ | 1,751 | $ | 1,299 | $ | 10,988 | |||||
Capacity | 6,088 | 474 | 1,003 | 1,026 | 3,585 | ||||||||||
Total Con Edison of New York | $ | 21,229 | $ | 1,577 | $ | 2,754 | $ | 2,325 | $ | 14,573 | |||||
O&R | |||||||||||||||
Energy (a) | $ | 174 | $ | 83 | $ | 91 | $ | — | $ | — | |||||
Capacity | 22 | 11 | 10 | 1 | — | ||||||||||
Total O&R | $ | 196 | $ | 94 | $ | 101 | $ | 1 | $ | — | |||||
Total non-utility generator contracts and purchase power agreements – Utilities (b) | $ | 21,425 | $ | 1,671 | $ | 2,855 | $ | 2,326 | $ | 14,573 | |||||
Natural gas supply, transportation, and storage contracts – Utilities (c) | |||||||||||||||
Con Edison of New York | |||||||||||||||
Natural gas supply | $ | 2,210 | $ | 1,222 | $ | 831 | $ | 155 | $ | 2 | |||||
Transportation and storage | 550 | 151 | 206 | 141 | 52 | ||||||||||
Total Con Edison of New York | $ | 2,760 | $ | 1,373 | $ | 1,037 | $ | 296 | $ | 54 | |||||
O&R | |||||||||||||||
Natural gas supply | $ | 455 | $ | 251 | $ | 162 | $ | 41 | $ | 1 | |||||
Transportation and storage | 126 | 36 | 49 | 32 | 9 | ||||||||||
Total O&R | $ | 581 | $ | 287 | $ | 211 | $ | 73 | $ | 10 | |||||
Total natural gas supply, transportation and storage contracts | $ | 3,341 | $ | 1,660 | $ | 1,248 | $ | 369 | $ | 64 |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUEDdescribed above.
ELECTRIC POWER REQUIREMENTS
At September 30, 2005,March 31, 2006, there was no material change in the Companies’ electric power requirements compared to those discloseddiscussed under “Electric Power Requirements” in Item 7 of the Form 10-K and in Part I, Item 2 of the First Quarter 10-Q.10-K.
REGULATORY MATTERS
At September 30, 2005,March 31, 2006, there were no material changes in the Companies’ regulatory matters compared to those disclosed under “Regulatory Matters” in Item 7 of the Form 10-K, “Rate and Restructuring Agreements” in Note B to the financial statements in Item 8 of the Form 10-K and Note CB to the financial statements included in Part 1, Item 1 of the First Quarter Form 10-Q and the Second Quarter Form 10-Q other than as described in Note C to the Third Quarter Financial Statements.
In November 2005, Con Edison of New York filed a request with the PSC with respect to the rates it charges for steam service. See Note C to the Third Quarter Financial Statements.
FINANCIALAND COMMODITY MARKET RISKS
The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk. At September 30, 2005,March 31, 2006, there were no material changes in the Companies’ financial and commodity market risks compared to those disclosed under “Financial and Commodity Market Risks” in Item 7 of the Form 10-K, and in Part I, Item 2 of the First Quarter Form 10-Q and the Second Quarter Form 10-Q other than as described below and in Note LK to the ThirdFirst Quarter Financial Statements.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Commodity Price Risk
Con Edison’s commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and Con Edison’s competitive energy businesses have risk management strategies to mitigate their related exposures.
Con Edison estimates that, as of September 30, 2005, aMarch 31, 2006, each 10 percent declinechange in market prices would result in a declinechange in fair value of $174$142 million for the derivative instruments used by the Utilities to hedge purchases of electricity gas and steam,gas, of which $145$115 million is for Con Edison of New York.York and $27 million is for O&R. Con Edison estimatesexpects that any such change in fair value would be largely offset by directionally opposite changes in the value-at-risk using a delta-normal variance/covariance model with a 95 percent confidence level and assuming a one-day holding period for transactions associated with its unregulated energy subsidiaries’ hedges on generating assets and commodity contracts for the three months ended September 30, 2005 and 2004, respectively, was as follows:
2005 | 2004 | |||||
(Millions of Dollars) | ||||||
95% Confidence Level, One-Day Holding Period | ||||||
Average for the period | $ | 1 | $ | 1 | ||
High | 4 | 2 | ||||
Low | 1 | 1 |
Credit Risk
The Utilities had $306 million of credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at September 30, 2005, of which $239 million was with investment-grade counterparties and $67 million was with the New York Mercantile Exchange.
Con Edison’s unregulated energy subsidiaries had $132 million of credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at September 30, 2005, of which $101 million was with investment-grade counterparties and $29 million was with the New York Mercantile Exchange or independent system operators. The remainder was with entities which lacked ratings or whose ratings were not investment grade.
MATERIAL CONTINGENCIES
For information concerning potential liabilities arising from the Companies’ material contingencies, see Notes E through H to the Third Quarter Financial Statements.
RESULTSOF OPERATIONS
Results of operations reflect, among other things, the Companies’ accounting policies (see “Application of Critical Accounting Policies” in Item 7cost of the Form 10-K), rate plans that cover the rateselectricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities can chargegenerally recover from customers the costs they incur for energy purchased for their customers, (see “Regulatory Matters,” aboveincluding gains and in Item 7 of the Form 10-K) and demand for utility service. Demand for utility service is affected by weather, the market prices for energy, economic conditions and other factors.losses on certain derivative
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
The Companies’ resultsinstruments used to hedge energy purchased and related costs. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of operationsthe Form 10-K.
Con Edison’s competitive energy businesses use a value-at-risk (VaR) 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. VaR represents the potential change in fair value of instruments or the portfolio due to changes in market factors, for a specified time period and confidence level. These businesses estimate VaR across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for transactions associated with hedges on generating assets and commodity contracts, assuming a one-day holding period, for the three and nine months ended September 30,March 31, 2006 and 2005, reflect higherrespectively, was as follows:
2006 | 2005 | |||||
(Millions of Dollars) | ||||||
95% Confidence Level, One-Day Holding Period | ||||||
Average for the period | $ | 8 | $ | 1 | ||
High | 17 | 2 | ||||
Low | 4 | 1 |
Credit Risk
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements and collateral or prepayment arrangements. The Companies measure 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 revenues resultingof any unrealized losses where the company has a legally enforceable right of setoff.
The Utilities had $131 million of credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at March 31, 2006, of which $82 million was with investment-grade counterparties and $49 million was with the New York Mercantile Exchange.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Con Edison’s competitive energy businesses had $177 million of credit exposure in connection with energy supply and hedging activities, net of collateral and reserves, at March 31, 2006, of which $166 million was with investment grade counterparties. The remaining $11 million was with entities which lacked ratings or whose ratings were not investment grade.
MATERIAL CONTINGENCIES
For information concerning potential liabilities arising from the warmer than normal summer weather, growthCompanies’ material contingencies, see “Application of Critical Accounting Policies – Accounting for Contingencies” and Notes F, G and H to the First Quarter Financial Statements.
RESULTSOF OPERATIONS
Results of operations reflect, among other things, the Companies’ accounting policies (see “Application of Critical Accounting Policies” in energy deliveries andItem 7 of the Con Edison of New York electric rate plan that became effective April 1, 2005 and gas and steamForm 10-K), rate plans that became effective October 1, 2004. The numbercover the rates the Utilities can charge their customers (see “Regulatory Matters” in Item 7 of cooling degree days in the third quarter of 2005 was 15 percent higher than in the 2004 period. The higher net revenues were partially offsetForm 10-K) and demand for utility service. Demand for utility service is affected by higher operations and maintenance expenses, and a reduction in net credits for pensionsweather, economic conditions and other postretirement benefits. In addition, depreciation and property taxes were higher in 2005, reflecting large continuing investments in energy delivery infrastructure. The results of the unregulated energy subsidiaries reflect primarily the effect of mark-to-market unrealized losses for electricity sales. For Con Edison, results of operations for the 2005 periods also reflect, and the 2004 periods have been restated to reflect, accounting for the discontinued operations of Con Edison Communications. For additional information about major factors affecting earnings, see “Results of Operations – Summary,” above.factors.
In general, the Utilities recover on a current basis the fuel and purchased power and gas costs they incur in supplying energy to their full-service customers (see “Recoverable Energy Costs” in Note A and “Regulatory Matters” in Note B to the financial statements in Item 8 of the Form 10-K). Accordingly, such costs do not generally affect the Companies’ results of operations. Management uses the term “net revenues” (operating revenues less such costs) to identify changes in operating revenues that may affect the Companies’ results of operations. Management believes that, although “net revenues” may not be a measure determined in accordance with Generally Accepted Accounting Principles,accounting principles generally accepted in the United States of America, the measure facilitates the analysis by management and investors of the Companies’ results of operations.
Con Edison’s principal business segments are Con Edison of New York’s regulated electric, gas and steam utility activities, O&R’s regulated electric and gas utility activities and Con Edison’s competitive businesses. Con Edison of New York’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three and nine months ended September 30,March 31, 2006 and 2005 and 2004 follows. For additional business segment financial information, see Note IJ to the ThirdFirst Quarter Financial Statements.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
THREE MONTHS ENDED SMEPTEMBERARCH 30, 200531, 2006 COMPAREDWITH THREE MONTHS ENDED SMEPTEMBERARCH 30, 200431, 2005
The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 20052006 compared with 20042005 were:
Con Edison* | Con Edison of New York | O&R | Unregulated Subsidiaries and Other** | Con Edison* | Con Edison of New York | O&R | Competitive Businesses and Other** | |||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | ||||||||||||||||||||||||||||||||||||||||
Operating revenues | $ | 641 | 23 | % | $ | 379 | 17 | % | $ | 44 | 24 | % | $ | 218 | 74 | % | $ | 517 | 18.5 | % | $ | 354 | 15.5 | % | $ | 14 | 6.4 | % | $ | 149 | 51.2 | % | ||||||||||||||||||||||||
Purchased power | 323 | 27 | 130 | 14 | 35 | 47 | 158 | 80 | 244 | 26.0 | 68 | 9.6 | 8 | 13.6 | 168 | 96.6 | ||||||||||||||||||||||||||||||||||||||||
Fuel | 74 | 50 | 33 | 34 | — | — | 41 | 82 | 64 | 33.5 | 59 | 44.0 | — | — | 5 | 8.8 | ||||||||||||||||||||||||||||||||||||||||
Gas purchased for resale | 47 | 55 | 34 | 45 | 1 | 8 | 12 | Large | 104 | 23.0 | 81 | 21.4 | 13 | 21.3 | 10 | 83.3 | ||||||||||||||||||||||||||||||||||||||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) | 197 | 15 | 182 | 16 | 8 | 9 | 7 | 14 | 105 | 8.6 | 146 | 13.6 | (7 | ) | (7.1 | ) | (34 | ) | (70.8 | ) | ||||||||||||||||||||||||||||||||||||
Other operations and maintenance | 36 | 9 | 36 | 11 | (1 | ) | (2 | ) | 1 | 4 | 26 | 6.3 | 23 | 6.5 | 2 | 4.8 | 1 | 5.0 | ||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 7 | 5 | 9 | 8 | 1 | 13 | (3 | ) | (25 | ) | 10 | 7.1 | 11 | 9.0 | — | — | (1 | ) | (10.0 | ) | ||||||||||||||||||||||||||||||||||||
Taxes, other than income taxes | 45 | 16 | 44 | 17 | — | — | 1 | 20 | 48 | 17.8 | 46 | 18.2 | 1 | 8.3 | 1 | 20.0 | ||||||||||||||||||||||||||||||||||||||||
Income taxes | 20 | 13 | 27 | 20 | 3 | 30 | (10 | ) | Large | (5 | ) | (4.5 | ) | 15 | 15.3 | (5 | ) | (41.7 | ) | (15 | ) | Large | ||||||||||||||||||||||||||||||||||
Operating income | 89 | 27 | 66 | 22 | 5 | 28 | 18 | Large | 26 | 9.2 | 51 | 20.7 | (5 | ) | (21.7 | ) | (20 | ) | Large | |||||||||||||||||||||||||||||||||||||
Other income less deductions and related federal income tax | (41 | ) | Large | (7 | ) | (47 | ) | 1 | Large | (35 | ) | Large | (11 | ) | Large | (6 | ) | (50.0 | ) | 1 | Large | (6 | ) | Large | ||||||||||||||||||||||||||||||||
Net interest charges | 11 | 10 | 10 | 12 | 1 | 20 | — | — | 16 | 14.5 | 13 | 15.3 | 1 | 16.7 | 2 | 10.5 | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 37 | 15 | 49 | 21 | 5 | 38 | % | (17 | ) | Large | (1 | ) | (0.6 | ) | 32 | 18.8 | (5 | ) | (29.4 | ) | (28 | ) | Large | |||||||||||||||||||||||||||||||||
Discontinued operations | 2 | (50 | ) | N/A | N/A | N/A | N/A | 2 | (50 | ) | 1 | Large | N/A | N/A | N/A | N/A | 1 | Large | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 39 | 16 | % | $ | 49 | 21 | % | $ | 5 | 38 | % | $ | (15 | ) | Large | $ | — | — | % | $ | 32 | 18.8 | % | $ | (5 | ) | (29.4 | )% | $ | (27 | ) | Large |
* | Represents the consolidated financial results of Con Edison and its |
** | Includes inter-company and parent company accounting. |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
CON EDISONOF NEW YORK
Electric
Con Edison of New York’s electric sales and deliveries, excluding off-system sales, for the three months ended March 31, 2006 compared with the 2005 period were:
Millions of kWhs Delivered | Revenues in Millions | ||||||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||||||
Description | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | |||||||||||||||||
Residential/Religious | 2,972 | 3,081 | (109 | ) | (3.5 | )% | $ | 628 | $ | 571 | $ | 57 | 10.0 | % | |||||||||||
Commercial/Industrial | 3,442 | 3,831 | (389 | ) | (10.2 | ) | 619 | 594 | 25 | 4.2 | |||||||||||||||
Retail access customers | 4,255 | 3,769 | 486 | 12.9 | 185 | 140 | 45 | 32.1 | |||||||||||||||||
NYPA, Municipal Agency and other sales | 2,757 | 2,929 | (172 | ) | (5.9 | ) | 66 | 83 | (17 | ) | (20.5 | ) | |||||||||||||
Other operating revenues | — | — | — | — | 135 | 5 | 130 | Large | |||||||||||||||||
Total | 13,426 | 13,610 | (184 | ) | (1.4 | )% | $ | 1,633 | $ | 1,393 | $ | 240 | 17.2 | % |
Con Edison of New York’s electric operating revenues were $308$240 million higher in the three months ended September 30, 2005March 31, 2006 as compared with the 20042005 period, due primarily to increased recoverable purchased power and fuel costs ($171 million), warmer summer weather and sales growth ($81126 million), the April 2005 electric rate plan that took effect in April 2005 ($87107 million) and, recovery of costs relating to the East River Repowering Project ($19 million) and reversal of a portion of the provision for refund to customers of shared earnings above the target level accrued in 2005 ($15 million), offset in part by the recoveryimpact of lower amountsthe warmer winter weather ($10 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See Note B to the financial statements in Item 8 of revenuethe Form 10-K and Note B to the First Quarter Financial Statements.
Electric sales and delivery volumes in Con Edison of New York’s service area decreased 1.4 percent in the three months ended March 31, 2006 compared with the 2005 period, primarily reflecting warmer weather in the 2006 winter period compared with 2005. After adjusting for variations, principally weather and billing days in each period, electric sales and delivery volumes in Con Edison of New York’s service area increased 0.7 percent in the three months ended March 31, 2006 compared with the 2005 period.
Con Edison of New York’s electric purchased power costs increased $52 million in the three months ended March 31, 2006 compared with the 2005 period reflecting an increase in unit costs, partially
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
offset by decreased purchased volumes associated with additional customers obtaining their energy supply through competitive providers. Electric fuel costs increased $74 million, reflecting higher sendout volumes from the company’s generating facilities and an increase in unit costs.
Con Edison of New York’s electric operating income increased $31 million in the three months ended March 31, 2006 compared with the 2005 period. The increase reflects higher net revenues ($114 million) due principally to the electric rate plan, offset in part by higher operations and maintenance costs ($36 million, due primarily to East River Repowering Project costs, $19 million, severe storms in 2006, $10 million, and recognition of expense for stock-based compensation, $7 million), taxes other than income taxes ($3440 million, principally property taxes), income taxes ($5 million) and depreciation ($2 million).
Gas
Con Edison of New York’s gas sales and deliveries, excluding off-system sales, in the three months ended March 31, 2006 compared with the 2005 period were:
Thousands of DTHs Delivered | Revenues in Millions | |||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||
Description | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | ||||||||||||||||||
Residential | 20,563 | 24,296 | (3,733 | ) | (15.4 | )% | $ | 375 | $ | 347 | $ | 28 | 8.1 | % | ||||||||||||
General | 13,605 | 16,006 | (2,401 | ) | (15.0 | ) | 214 | 193 | 21 | 10.9 | ||||||||||||||||
Firm transportation | 8,931 | 7,447 | 1,484 | 19.9 | 39 | 26 | 13 | 50.0 | ||||||||||||||||||
Total firm sales and transportation | 43,099 | 47,749 | (4,650 | ) | (9.7 | ) | 628 | 566 | 62 | 11.0 | ||||||||||||||||
Interruptible sales | 5,098 | 4,188 | 910 | 21.7 | 70 | 47 | 23 | 48.9 | ||||||||||||||||||
NYPA | 8,208 | 4,226 | 3,982 | 94.2 | — | — | — | — | ||||||||||||||||||
Generation plants | 7,886 | 6,101 | 1,785 | 29.3 | 10 | 8 | 2 | 25.0 | ||||||||||||||||||
Other | 4,502 | 5,478 | (976 | ) | (17.8 | ) | 10 | 17 | (7 | ) | (41.2 | ) | ||||||||||||||
Other operating revenues | — | — | — | — | 19 | (7 | ) | 26 | Large | |||||||||||||||||
Total | 68,793 | 67,742 | 1,051 | 1.6 | % | $ | 737 | $ | 631 | $ | 106 | 16.8 | % |
Con Edison of New York’s gas operating revenues in the three months ended March 31, 2006 increased $106 million compared with the 2005 period, reflecting primarily an increase in recoverable gas costs ($81 million) and the gas rate plan ($12 million). Con Edison of New York’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans. See “State Income Tax” in Note AB to the financial statements in Item 8 of the Form 10-K.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Con Edison of New York’s electric sales and deliveries, excluding off-system sales, for the three months ended September 30, 2005 compared with the 2004 period were:
MILLIONSOFKWHS
Three Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Residential/Religious | 4,654 | 3,887 | 767 | 19.7 | % | |||||
Commercial/Industrial | 4,462 | 4,720 | (258 | ) | (5.5 | ) | ||||
Other | 67 | 85 | (18 | ) | (21.2 | ) | ||||
Total Full Service Customers | 9,183 | 8,692 | 491 | 5.6 | ||||||
Retail access customers | 5,000 | 4,051 | 949 | 23.4 | ||||||
Sub-total | 14,183 | 12,743 | 1,440 | 11.3 | ||||||
NYPA, Municipal Agency and Other Sales | 3,052 | 2,778 | 274 | 9.9 | ||||||
Total Service Area | 17,235 | 15,521 | 1,714 | 11.0 | % |
Electric sales and delivery volumes in Con Edison of New York’s service area increased 11.0 percent in the three months ended September 30, 2005 compared with the 2004 period primarily as a result of warmer weather in the 2005 period compared with the mild 2004 weather. After adjusting for variations, principally weather and billing days in each period, electric sales and delivery volumes in Con Edison of New York’s service area increased 2.7 percent in the three months ended September 30, 2005 compared with the 2004 period. Weather-adjusted sales represent an estimate of the sales that would have been made if historical average weather conditions had prevailed.
Con Edison of New York’s electric purchased power and fuel costs increased $129 million and $42 million, respectively, in the three months ended September 30, 2005 as compared with the 2004 period due to higher unit costs and higher sendout volumes.
Con Edison of New York’s electric operating income increased $40 million in the three months ended September 30, 2005 compared with the 2004 period. The increase reflects primarily higher net revenues ($137 million) due principally to warm weather and the new electric rate plan, partially offset by higher operations and maintenance costs ($48 million, due primarily to lower pension credits), taxes other than income taxes ($33 million, principally property taxes) income taxes ($13 million) and depreciation ($2 million).
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Gas
Con Edison of New York’s gas operating revenues in the three months ended September 30, 2005 increased $48 million compared with the 2004 period, reflecting primarily higher firm and non-firm revenues due principally to an increase in recoverable gas costs ($34 million) and the effect of the 2004 charge to resolve certain issues relating primarily to the treatment of prior period pension credits ($18 million).
Con Edison of New York’s gas sales and deliveries, excluding off-system sales, in the three months ended September 30, 2005 compared with the 2004 period were:
THOUSANDSOF DTHS
Three Months Ended | Variation | Percent Variation | |||||||
Description | September 30, 2005 | September 30, 2004 | |||||||
Firm Sales | |||||||||
Residential | 3,767 | 3,809 | (42 | ) | (1.1)% | ||||
General | 4,613 | 4,699 | (86 | ) | (1.8) | ||||
Firm Transportation | 2,654 | 2,147 | 507 | 23.6 | |||||
Total Firm Sales and Transportation | 11,034 | 10,655 | 379 | 3.6 | |||||
Off Peak/Interruptible Sales | 2,557 | 2,051 | 506 | 24.7 | |||||
Non-Firm Transportation of Gas | |||||||||
NYPA | 7,704 | 8,503 | (799 | ) | (9.4) | ||||
Generation Plants | 22,324 | 17,003 | 5,321 | 31.3 | |||||
Total NYPA and Generation Plants | 30,028 | 25,506 | 4,522 | 17.7 | |||||
Other | 4,638 | 3,674 | 964 | 26.2 | |||||
Total Sales and Transportation | 48,257 | 41,886 | 6,371 | 15.2% |
Con Edison of New York’s sales and transportation volumes for firm customers increased 3.6decreased 9.7 percent in the three months ended September 30, 2005March 31, 2006 compared with the 2004 period primarily reflecting increased new business and changes in service classification to firm from interruptible for certain customers that were no longer eligible for interruptible service. After adjusting for variations, principally billing days in each period, firm gas sales and transportation volumes in the company’s service area increased 3.5 percent in the 2005 period.
Con Edison of New York’s purchased gas cost increased $34 million in the three months ended September 30, 2005 compared with the 2004 period, due to higher unit costs and higher delivery volumes.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Con Edison of New York’s gas operating income decreased $1 million in the three months ended September 30, 2005 compared with the 2004 period, reflecting primarily higher taxes other than income taxes ($8 million, principally property taxes) and operations and maintenance expense ($7 million, due primarily to lower pension credits) partially offset by higher net revenues ($14 million) as a result of the gas rate plan.
Steam
Con Edison of New York’s steam operating revenues increased $23 million in the three months ended September 30, 2005 as compared with the 2004 period, due primarily to the recovery from customers of costs relating to the East River Repowering Project ($10 million), the effect of the 2004 charge to resolve certain issues relating primarily to the treatment of prior period pension credits ($6 million) and the net increase in rates under the steam rate plan ($3 million), an adjustment related to distribution losses ($4 million), the timing of recovery of fuel costs ($3 million), warmer summer weather ($2 million) and recovery of lower amounts of revenue taxes ($3 million). See “State Income Tax” in Note A to the financial statements in Item 8 of the Form 10-K. These increases were offset in part by lower recoverable fuel costs ($9 million).
Con Edison of New York’s steam sales and deliveries in the three months ended September 30, 2005 compared with the 2004 period were:
MILLIONSOF POUNDS
Three Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
General | 20 | 23 | (3 | ) | (13.0 | )% | ||||
Apartment house | 1,126 | 1,062 | 64 | 6.0 | ||||||
Annual power | 4,690 | 4,259 | 431 | 10.1 | ||||||
Total Sales | 5,836 | 5,344 | 492 | 9.2 | % |
Steam sales and delivery volumes increased 9.2 percent in the three months ended September 30, 2005 compared with the 2004 period reflecting primarily the impact of weather. After adjusting for variations, principally weather and billing days in each period, steam sales and deliveries increased 1.9 percent in the 2005 period.
Con Edison of New York’s steam purchased power costs increased $1 million in the three months ended September 30, 2005 as compared with the 2004 period, due primarily to increased unit costs and
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
lower purchased volumes. Steam fuel costs decreased $9 million, due primarily to the operation of the East River Repowering Project, offset in part by higher sendout.
Steam operating income increased $27 million in the three months ended September 30, 2005 compared with the 2004 period. The increase is due to higher net revenues ($41 million) and the recovery of costs related to the East River Repowering Project ($10 million), offset by higher income taxes ($14 million), depreciation ($7 million) and taxes other than income taxes ($3 million).
Other Income (Deductions)
Other income (deductions) decreased $7 million in the three months ended September 30, 2005 compared with the 2004 period due primarily to decreased allowance for equity funds used during construction related to the commencement of commercial operation of the East River Repowering Project.
Net Interest Charges
Net interest charges increased $10 million in the three months ended September 30, 2005 compared with the 2004 period due principally to higher interest rates on variable rate debt and additional interest expense on long-term debt issued in 2005.
O&R
Electric
Electric operating revenues increased $42 million in the three months ended September 30, 2005 compared with the 2004 period.
O&R’s electric sales and deliveries, excluding off-system sales, for the third quarter of 2005 compared with the 2004 period were:
MILLIONSOFKWHS
Three Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Residential/Religious | 637 | 531 | 106 | 20.0 | % | |||||
Commercial/Industrial | 632 | 521 | 111 | 21.3 | ||||||
Other | 33 | 28 | 5 | 17.9 | ||||||
Total Full Service Customers | 1,302 | 1,080 | 222 | 20.6 | ||||||
Retail access customers | 510 | 536 | (26 | ) | (4.9 | ) | ||||
Total Service Area | 1,812 | 1,616 | 196 | 12.1 | % |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Electric sales and delivery volumes in O&R’s service area increased 12.1 percent in the three months ended September 30, 2005 compared with 2004 primarily as a result of the warmer weather in the 2005 period. After adjusting for weather variations, electric sales and delivery volumes in O&R’s service area increased 2.6 percent in the 2005 period.
O&R’s purchased power cost increased $35 million in the three months ended September 30, 2005 as compared with the 2004 period due to an increase in the average unit cost and higher delivery volumes.
O&R’s electric operating income increased $4 million in the three months ended September 30, 2005 as compared with the 2004 as a result of higher net revenues ($8 million), offset in part by higher depreciation and amortization costs ($1 million), operations and maintenance expense ($1 million) and income taxes ($2 million).
Gas
O&R’s gas operating revenues increased $2 million during the three months ended September 30, 2005 compared with the 2004 period due principally to higher purchased power costs.
Gas sales and deliveries, excluding off-system sales, in the three months ended September 30, 2005 compared with the 2004 period were:
THOUSANDSOF DTHS
Three Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Firm Sales | ||||||||||
Residential | 594 | 651 | (57 | ) | (8.8 | )% | ||||
General | 161 | 212 | (51 | ) | (24.1 | ) | ||||
Firm Transportation | 800 | 861 | (61 | ) | (7.1 | ) | ||||
Total Firm Sales and Transportation | 1,555 | 1,724 | (169 | ) | (9.8 | ) | ||||
Off Peak/Interruptible Sales | 1,498 | 1,605 | (107 | ) | (6.7 | ) | ||||
Non-Firm Transportation of Gas | ||||||||||
Generation Plants | 624 | 171 | 453 | Large | ||||||
Other | 84 | 89 | (5 | ) | (5.6 | ) | ||||
Total Sales and Transportation | 3,761 | 3,589 | 172 | 4.8% |
Sales and transportation volumes for firm customers decreased 9.8 percent in the three months ended September 30, 2005 compared with the 2004 period primarily due to a decrease in customer usage in all service classifications and other variations.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Non-firm transportation of customer-owned gas to electric generating plants increased substantially in the three months ended September 30, 2005 as compared with the 2004 period because the relative prices of gas and fuel oil led generating plants in the company’s gas service area to use gas rather than fuel oil for a significant portion of their generation. The increase in gas usage had minimal impact on earnings due to the application of a fixed demand charge for local transportation.
Gas operating income increased by $1 million during the three months ended September 30, 2005 compared with the 2004 period, primarily due to lower operations and maintenance expenses.
UNREGULATED SUBSIDIARIESAND OTHER
Unregulated Energy Subsidiaries
The earnings of the unregulated energy subsidiaries were $17 million lower in the three months ended September 30, 2005 than in the 2004 period.
Operating revenues of the unregulated energy subsidiaries were $215 million higher in the three months ended September 30, 2005 than in the 2004 period, reflecting principally higher retail sales and prices of electricity.
Operating expenses excluding income taxes increased by $208 million, reflecting principally increased purchased power ($155 million), fuel ($41 million) and gas purchased for resale costs ($12 million).
Income taxes decreased $11 million in the three months ended September 30, 2005 as compared with 2004 reflecting principally lower income associated with unrealized mark-to-market losses.
Operating income for the three months ended September 30, 2005 was $18 million higher than in the 2004 period.
Other income (deductions) decreased $35 million in the three months ended September 30, 2005 as compared with 2004 primarily due to mark-to-market accounting for forward sales of electricity that will occur in the first-three months of 2006. For these transactions, electricity sales prices were fixed and fuel costs hedged through contracts to purchase a combination of gas and oil. In the 2005 period, the forward market price of electricity increased more than the forward market price of fuel, resulting in the recognition of mark-to-market unrealized losses in net income. In contrast, for the 2004 period, the forward market price of electricity increased less than the forward market price of fuel resulting in the recognition of unrealized gains. In both cases, upon reversal of the relative forward market prices or upon delivery of the electricity sold, any unrealized gains or losses previously recognized are effectively reversed.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Discontinued Operations
Losses from the discontinued operations of Con Edison Communications were $2 million less in the three months ended September 30, 2005 than in the 2004 period due primarily to reduced operating costs, including the cessation of depreciation. See Note N to the Third Quarter Financial Statements.
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPAREDWITH NINE MONTHS ENDED SEPTEMBER 30, 2004
The results of operations (which were discussed above under “Results of Operations – Summary”) in 2005 compared with 2004 were:
Con Edison* | Con Edison of New York | O&R | Unregulated Subsidiaries and Other** | |||||||||||||||||||||||||
(Millions of Dollars) | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | Increases (Decreases) Amount | Increases (Decreases) Percent | ||||||||||||||||||||
Operating revenues | $ | 1,005 | 13 | % | $ | 656 | 11 | % | $ | 51 | 9 | % | $ | 298 | 37 | % | ||||||||||||
Purchased power | 412 | 14 | 141 | 6 | 30 | 15 | 241 | 48 | ||||||||||||||||||||
Fuel | 86 | 18 | 42 | 13 | — | — | 44 | 29 | ||||||||||||||||||||
Gas purchased for resale | 143 | 22 | 130 | 24 | 4 | 4 | 9 | 56 | ||||||||||||||||||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) | 364 | 11 | 343 | 11 | 17 | 7 | 4 | 3 | ||||||||||||||||||||
Other operations and maintenance | 118 | 11 | 119 | 13 | 1 | 1 | (2 | ) | (3 | ) | ||||||||||||||||||
Depreciation and amortization | 21 | 5 | 22 | 6 | 1 | 4 | (2 | ) | (6 | ) | ||||||||||||||||||
Taxes, other than income taxes | 59 | 7 | 60 | 8 | (1 | ) | (3 | ) | — | — | ||||||||||||||||||
Income taxes | 16 | 5 | 18 | 6 | 6 | 26 | (8 | ) | Large | |||||||||||||||||||
Operating income | 150 | 19 | 124 | 18 | 10 | 21 | 16 | 59 | ||||||||||||||||||||
Other income less deductions and related federal income tax | (49 | ) | (96 | ) | (16 | ) | (41 | ) | — | — | (33 | ) | Large | |||||||||||||||
Net interest charges | 12 | 4 | 9 | 3 | 2 | 13 | 1 | 2 | ||||||||||||||||||||
Income from continuing operations | 89 | 18 | 99 | 21 | 8 | 24 | (18 | ) | Large | |||||||||||||||||||
Discontinued operations | 5 | (50 | ) | N/A | N/A | N/A | N/A | 5 | (50 | ) | ||||||||||||||||||
Net income | $ | 94 | 19 | % | $ | 99 | 21 | % | $ | 8 | 24 | % | $ | (13 | ) | 65 | % |
CON EDISONOF NEW YORK
Electric
Con Edison of New York’s electric operating revenues were $399 million higher in the nine months ended September 30, 2005 as compared with the 2004 period, due primarily to increased recoverable purchased power and fuel costs ($194 million), warmer summer weather and sales growth
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
($92 million), the April 2005 electric rate plan ($172 million) and recovery of costs relating to the East River Repowering Project ($37 million), offset in part by lower amounts of revenue taxes ($62 million), see “State Income Tax” in Note A to the financial statements in Item 8 of the Form 10-K, and a provision for a refund to customers of deferred taxes associated with the sale of the First Avenue Properties ($23 million).
Con Edison of New York’s electric sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2005 compared with the 2004 period were:
MILLIONSOFKWHS
Nine Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Residential/Religious | 10,554 | 9,719 | 835 | 8.6 | % | |||||
Commercial/Industrial | 11,815 | 13,099 | (1,284 | ) | (9.8 | ) | ||||
Other | 218 | 170 | 48 | 28.2 | ||||||
Total Full Service Customers | 22,587 | 22,988 | (401 | ) | (1.7 | ) | ||||
Retail access customers | 12,528 | 10,490 | 2,038 | 19.4 | ||||||
Sub-total | 35,115 | 33,478 | 1,637 | 4.9 | ||||||
NYPA, Municipal Agency and Other Sales | 8,408 | 8,077 | 331 | 4.1 | ||||||
Total Service Area | 43,523 | 41,555 | 1,968 | 4.7 | % |
Electric sales and delivery volumes in Con Edison of New York’s service area increased 4.7 percent in the nine months ended September 30, 2005 compared with the 2004 period, primarily reflecting warmer weather in the 2005 summer period compared with the mild 2004 weather, growth in usage by existing customers and increased new business. After adjusting for variations, principally weather and billing days in each period, electric sales and delivery volumes in Con Edison of New York’s service area increased 2.2 percent in the nine months ended September 30, 2005 compared with the 2004 period.
Con Edison of New York’s electric purchased power costs increased $138 million in the nine months ended September 30, 2005 as compared with the 2004 period reflecting an increase in unit costs, partially offset by decreased purchased volumes. Electric fuel costs increased $56 million, reflecting higher sendout volumes from the company’s generating facilities and an increase in unit costs.
Con Edison of New York’s electric operating income increased $61 million in the nine months ended September 30, 2005 compared with the 2004 period. The increase reflects higher net revenues
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
($205 million) due principally to warm weather and the new electric rate plan, and lower income taxes ($33 million, due to deferred income taxes associated with the sale of the First Avenue Properties and increased deductions for removal costs). This increase was partially offset by higher operations and maintenance costs ($126 million, due primarily to lower pension credits and higher costs addressed in the electric rate plan), taxes other than income taxes ($41 million, principally property taxes) and depreciation ($9 million).
Gas
Con Edison of New York’s gas operating revenues in the nine months ended September 30, 2005 increased $198 million compared with the 2004 period, reflecting primarily an increase in recoverable gas costs ($130 million), the gas rate plan ($51 million) and the effect of the 2004 charge to resolve certain issues relating primarily to the treatment of prior period pension credits ($18 million).
Con Edison of New York’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.
Con Edison of New York’s gas sales and deliveries, excluding off-system sales, in the nine months ended September 30, 2005 compared with the 2004 period were:
THOUSANDSOF DTHS
Nine Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Firm Sales | ||||||||||
Residential | 37,211 | 37,534 | (323 | ) | (0.9 | )% | ||||
General | 28,312 | 27,519 | 793 | 2.9 | ||||||
Firm Transportation | 14,065 | 12,628 | 1,437 | 11.4 | ||||||
Total Firm Sales and Transportation | 79,588 | 77,681 | 1,907 | 2.5 | ||||||
Off Peak/Interruptible Sales | 9,953 | 10,533 | (580 | ) | (5.5 | ) | ||||
Non-Firm Transportation of Gas | ||||||||||
NYPA | 17,796 | 14,918 | 2,878 | 19.3 | ||||||
Generation Plants | 43,057 | 31,361 | 11,696 | 37.3 | ||||||
Total NYPA and Generation Plants | 60,853 | 46,279 | 14,574 | 31.5 | ||||||
Other | 14,897 | 13,560 | 1,337 | 9.9 | ||||||
Total Sales and Transportation | 165,291 | 148,053 | 17,238 | 11.6 | % |
Con Edison of New York’s sales and transportation volumes for firm customers increased 2.5 percent in the nine months ended September 30, 2005 compared with the 2004 period primarily reflecting
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
increased new business and changes in service classification to firm from interruptible for certain customers that were no longer eligible for interruptible service, partially offset by the impact of the warmer winter in the 2005 period.2006. After adjusting for variations, principally weather and billing days in each period, firm gas sales and transportation volumes in the company’s service area increased 3.30.3 percent in the 20052006 period.
Con Edison of New York’s purchased gas cost increased $130$81 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period due to higher unit costs and higheroffset in part by lower sendout.
Con Edison of New York’s gas operating income increased $24$6 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period, reflecting primarily higher net revenues ($6825 million) as a result of the October 2004 gas rate plan. This increase was partially, offset by higher operations and maintenance expense ($166 million, partially due primarily to lower pension credits)the recognition of expense for stock-based compensation, $2 million), taxes other than income taxes ($145 million, principally property taxes) and income taxes ($136 million).
Steam
Con Edison of New York’s steam sales and deliveries in the three months ended March 31, 2006 compared with the 2005 period were:
Millions of Pounds Delivered | Revenues in Millions | |||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||
Description | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | ||||||||||||||||||
General | 321 | 408 | (87 | ) | (21.3 | )% | $ | 12 | $ | 12 | $ | — | — | % | ||||||||||||
Apartment house | 2,866 | 3,311 | (445 | ) | (13.4 | ) | 85 | 74 | 11 | 14.9 | ||||||||||||||||
Annual power | 5,568 | 6,746 | (1,178 | ) | (17.5 | ) | 181 | 168 | 13 | 7.7 | ||||||||||||||||
Other operating revenues | — | — | — | (3 | ) | 13 | (16 | ) | Large | |||||||||||||||||
Total | 8,755 | 10,465 | (1,710 | ) | (16.3 | )% | $ | 275 | $ | 267 | $ | 8 | 3.0 | % |
Con Edison of New York’s steam operating revenues increased $59$8 million in the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 20042005 period, due primarily to the net increase in rates under the steam rate plan ($464 million), recovery from customers of costs associated with the East River Repowering Project ($1610 million), the effect of the 2004 charge to resolve certain issues relating primarily to the treatment of prior period pension credits ($6 million),and higher purchased power costs ($316 million), an adjustment related to distribution losses ($4 million) and the timing for recovery of fuel costs ($4 million). These increases were offset in part by lower fuel costs ($14 million) andthe warmer winter weather in 20052006 ($620 million).
Con Edison of New York’s Other steam salesoperating revenues generally reflect changes in regulatory assets and deliveriesliabilities in the nine months ended September 30, 2005 comparedaccordance with the 2004 period were:company’s rate plans. See Note B to the financial statements in Item 8 of the Form 10-K.
MILLIONSOF POUNDS
Nine Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
General | 506 | 544 | (38 | ) | (7.0 | )% | ||||
Apartment house | 5,825 | 5,773 | 52 | 0.9 | ||||||
Annual power | 14,487 | 14,384 | 103 | 0.7 | ||||||
Total Sales | 20,818 | 20,701 | 117 | 0.6 | % |
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Steam sales and delivery volumes increased 0.6decreased 16.3 percent in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period, reflecting primarily the impact of weather. After adjusting for variations, principally weather and billing days in each period, steam sales and deliveries increased 2.3decreased 1.7 percent in the 20052006 period.
Con Edison of New York’s steam purchased power costs increased $3$16 million in the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 20042005 period due primarily to higher unit costs offset in part by lowerand increased purchased volumes. Steam fuel costs decreased $14$15 million due primarily to the operation of the East River Repowering Project.lower sendout volumes, offset in part by higher unit costs.
Steam operating income increased $39$14 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period. The increase is due to higher net revenues resulting from the steam rate plan ($54 million) andreflects the recovery of costs related to the East River Repowering Project ($5229 million), offset in part by higher income tax ($36 million), operations and maintenance expenses ($143 million), depreciation expense ($128 million) and, taxes other than income taxes ($51 million, principally property taxes) and lower net revenues ($3 million).
Other Income (Deductions)
Other income (deductions) decreased $16$6 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period, due primarily to decreased allowance for equity funds used during construction related to the commencement of commercial operation of the East River Repowering Project.Project in April 2005.
Net Interest Charges
Net interest charges increased $9$13 million in the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period, due principally to new debt issuances since March 31, 2005 and higher interest rates on variable ratevariable-rate debt and additional interest expense on long-term debt issued in 2005.
O&R
Electric
O&R’s electric operating revenues increased $46 million indecreased allowance for borrowed funds used during construction related to the nine months ended September 30, 2005 compared withcommencement of commercial operation of the 2004 period, due primarily to higher sales and deliveries in 2005 and a one-time adjustment for unbilled revenues recorded in March 2005, offset in part by the accrual (in accordance with its New York electric rate plan) of a regulatory liability for earnings in excess of target levels.East River Repowering Project.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
O&R
Electric
O&R’s electric sales and deliveries, excluding off-system sales, forin the ninethree months ended September 30, 2005March 31, 2006 compared with the 20042005 period were:
MILLIONSOFKWHS
Millions of kWhs Delivered | Revenues in Millions | ||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||
Description | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | |||||||||||||||||||
Residential/Religious | 415 | 456 | (41 | ) | (9.0 | )% | $ | 54 | $ | 52 | $ | 2 | 3.8 | % | |||||||||||||
Commercial/Industrial | 510 | 544 | (34 | ) | (6.3 | ) | 54 | 49 | 5 | 10.2 | |||||||||||||||||
Retail access customers | 406 | 464 | (58 | ) | (12.5 | ) | 16 | 18 | (2 | ) | (11.1 | ) | |||||||||||||||
Public authorities | 27 | 27 | — | — | 3 | 2 | 1 | 50.0 | % | ||||||||||||||||||
Other operating revenues | — | — | — | — | (1 | ) | (1 | ) | — | — | |||||||||||||||||
Total | 1,358 | 1,491 | (133 | ) | (8.9 | )% | $ | 126 | $ | 120 | $ | 6 | 5.0 | % |
Nine Months Ended | Variation | Percent Variation | |||||||
Description | September 30, 2005 | September 30, 2004 | |||||||
Residential/Religious | 1,506 | 1,341 | 165 | 12.3 | % | ||||
Commercial/Industrial | 1,723 | 1,576 | 147 | 9.3 | |||||
Other | 85 | 82 | 3 | 3.7 | |||||
Total Full Service Customers | 3,314 | 2,999 | 315 | 10.5 | |||||
Retail access customers | 1,426 | 1,384 | 42 | 3.0 | |||||
Total Service Area | 4,740 | 4,383 | 357 | 8.2 | % |
O&R’s electric operating revenues increased $6 million in the three months ended March 31, 2006 compared with the 2005 period due primarily to increased recoverable purchased power costs ($8 million), offset in part by adjustments in 2005 to the company’s accrual of unbilled revenues ($2 million). Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See Note B to the financial statements in Item 8 of the Form 10-K.
Electric sales and delivery volumes in O&R’s service area recordeddecreased 8.9 percent in the ninethree months ended September 30, 2005 increased 8.2 percentMarch 31, 2006 compared with the 20042005 period due primarily toas a result of the warmerwinter weather growth in the number of customers, and the 2005 unbilled revenue adjustment referenced above.in the preceding paragraph. Absent this adjustment and after adjusting for weather variations in each period, electric delivery volumes in O&R’s service area increased 2.9decreased 1.9 percent in the 20052006 period.
O&R’s purchased power costcosts increased $30$8 million in the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 20042005 period due to an increase in the average unit cost andresulting from higher delivery volumes.commodity prices.
Electric operating income increaseddecreased by $8$3 million in the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 2004 period due primarily to higher net revenues ($16 million), offset by higher depreciation and amortization costs ($1 million), operations and maintenance expenses ($2 million) and income taxes ($4 million).
Gas
O&R’s gas operating revenues increased $5 million in the nine months ended September 30, 2005 compared with 2004. The increase is due primarily to increased transportation volumes and higher costs for gas purchased for resale in 2005, offset by reduced energy sales, reflecting additional customers obtaining their energy supply through competitive providers.
O&R’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.period.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Gas
O&R’s gas sales and deliveries, excluding off-system sales, in the ninethree months ended September 30, 2005 periodMarch 31, 2006 compared with the 20042005 period were:
THOUSANDSOF DTHS
Thousands of DTHs Delivered | Revenues in Millions | ||||||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||||||
Description | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | March 31, 2006 | March 31, 2005 | Variation | Percent Variation | |||||||||||||||||
Residential | 3,744 | 4,712 | (968 | ) | (20.5 | )% | $ | 68 | $ | 60 | $ | 8 | 13.3 | % | |||||||||||
General | 907 | 1,172 | (265 | ) | (22.6 | ) | 16 | 15 | 1 | 6.7 | |||||||||||||||
Firm transportation | 4,142 | 4,818 | (676 | ) | (14.0 | ) | 13 | 14 | (1 | ) | (7.1 | ) | |||||||||||||
Total firm sales and transportation | 8,793 | 10,702 | (1,909 | ) | (17.8 | ) | 97 | 89 | 8 | 10.1 | |||||||||||||||
Interruptible sales | 1,793 | 1,753 | 40 | 2.3 | 9 | 7 | 2 | 28.6 | |||||||||||||||||
Generation plants | 62 | 190 | (128 | ) | (67.4 | ) | — | — | — | — | |||||||||||||||
Other | 423 | 536 | (113 | ) | (21.1 | ) | — | — | — | — | |||||||||||||||
Other gas revenues | — | — | — | — | — | 1 | (1 | ) | Large | ||||||||||||||||
Total | 11,071 | 13,181 | (2,110 | ) | (16.0 | )% | $ | 106 | $ | 97 | $ | 9 | 9.3 | % |
Nine Months Ended | Variation | Percent Variation | ||||||||
Description | September 30, 2005 | September 30, 2004 | ||||||||
Firm Sales | ||||||||||
Residential | 6,562 | 6,847 | (285 | ) | (4.2 | )% | ||||
General | 1,623 | 1,864 | (241 | ) | (12.9 | ) | ||||
Firm Transportation | 6,693 | 6,535 | 158 | 2.4 | ||||||
Total Firm Sales and Transportation | 14,878 | 15,246 | (368 | ) | (2.4 | ) | ||||
Off Peak/Interruptible Sales | 4,912 | 5,071 | (159 | ) | (3.1 | ) | ||||
Non-Firm Transportation of Gas | ||||||||||
Generation Plants | 1,323 | 553 | 770 | Large | ||||||
Other | 773 | 779 | (6 | ) | (0.8 | ) | ||||
Total Sales and Transportation | 21,886 | 21,649 | 237 | 1.1 | % |
O&R’s gas operating revenues increased $9 million in the three months ended March 31, 2006 compared with the 2005 period. The increase is due primarily to higher costs of gas purchased for resale in 2006.
Sales and transportation volumes for firm customers decreased 2.417.8 percent in the ninethree months ended September 30, 2005March 31, 2006 compared with 2004the 2005 period reflecting the impact of the milderwarmer winter and warmer spring weather. After adjusting for weather variations in each period, total firm sales and transportation volumes were 1.94.9 percent higher forlower in the three months ended March 31, 2006 compared with the 2005 period than in 2004.partially due to reduced customer usage. O&R’s revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.
Non-firm transportation of customer-owned gas to electric generating plants increaseddecreased substantially forin the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 20042005 period because the relative prices ofdue to certain facilities not burning gas and fuel oil led generating plantsto generate electricity in the company’s gas service area to use gas rather than fuel oil for a significant portion of their generation.first quarter. The increasedecrease in gas usage had minimal impact on earnings due to the application ofbecause most revenues from these customers result from a fixed demand charge for local transportation.
Gas operating income increaseddecreased by $2 million forin the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with the 2004 period due primarily to lower gas operations and maintenance expenses.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased $1 million during the nine months ended September 30, 2005 compared with 2004, reflecting principally lower gross receipts taxes.period.
MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS (COMBINEDFOR CON EDISONAND CON EDISONOF
NEW YORK) — CONTINUED
Net Interest Expense
O&R’s net interest expense increased by $2 million during the nine months ended September 30, 2005 compared with 2004, reflecting interest on the $40 million 5.3% 10-year debentures issued in March 2005 and $46 million 5.22% Transition Bonds associated with securitization of previously deferred purchase power costs of O&R’s New Jersey subsidiary issued in August 2004.
UCNREGULATEDOMPETITIVE SBUBSIDIARIESUSINESSESAND OTHER
UnregulatedCompetitive Energy SubsidiariesBusinesses
The earnings of the unregulatedcompetitive energy subsidiariesbusinesses were $17$18 million lower in the ninethree months ended September 30,March 31, 2006 compared with the 2005 thanperiod. Excluding mark-to-market losses on derivatives in both periods, the earnings of the competitive energy businesses were $12 million higher in the 2004 period.three months ended March 31, 2006 compared with the 2005 period, due primarily to higher revenues and improved gross margins.
Operating revenues of the unregulatedcompetitive energy subsidiariesbusinesses were $291$163 million higher in the ninethree months ended September 30,March 31, 2006 compared with the 2005 than in the 2004 period, reflecting principally higher wholesale and retail sales and prices of electricity.electricity, offset in part by mark-to-market losses on derivatives ($51 million in the 2006 period compared with $1 million in the 2005 period). These losses reflect primarily lower prices on natural gas contracts employed as economic hedges used to support wholesale and retail obligations that did not qualify for cash flow hedge accounting. Previously, mark-to-market gains and losses were reported in other income.
Operating expenses excluding income taxes increased by $281$199 million, reflecting principally increased purchased power ($232183 million), fuel ($455 million) and gas purchased for resale costs ($8 million), offset in part by lower other operations and maintenance costs ($310 million).
Income taxes decreased $10$12 million in the ninethree months ended September 30,March 31, 2006 as compared with the 2005 period, reflecting primarily lower income associated with unrealized mark-to-market losses.income.
Operating income for the ninethree months ended September 30, 2005March 31, 2006 was $20$24 million higherlower than in the 20042005 period.
Other income (deductions) decreased $37increased $6 million in the ninethree months ended September 30, 2005 asMarch 31, 2006 compared with 2004 due primarily to mark-to-market accounting for forward sales of electricity that will occur in the first-three months of 2006. See “Results of Operations – Three Months Ended September 30, 2005 Compared with Three Months Ended September 30, 2004 – Unregulated Subsidiaries and Other,” above.
Discontinued Operations
Losses from the discontinued operations of Con Edison Communications were $5 million less in the nine months ended September 30, 2005 than in the 2004 period due primarily to reduced operating costs, including the cessationrecognition in 2005 of depreciation. See Note Nlosses previously allocated to the Third Quarter Financial Statements.minority interest in the Con Edison subsidiary that owns the Newington generating plant.
Other
Other reflects a $9 million expense recognized in 2006 to effectively reclassify from retained earnings to additional paid-in capital the tax benefits from the exercise of options that had been recognized in income in prior years. Other also includes the activity of the parent company and inter-company eliminations relating to operating revenues and operating expenses.
ITEM3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information about the Companies’ primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see “Financial and Commodity Market Risks” in Part 1, Item 2 of this report, which information is incorporated herein by reference. Also, see Item 7A of the Form 10-K.
The Companies maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that they submit to the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. For each of the Companies, its management, with the participation of its principal executive officer and principal financial officer, has evaluated the company’s disclosure controls and procedures as of the end of the period covered by this report and, based upon such evaluation, has concluded that the controls and procedures were effective to provide such reasonable assurance. Reasonable assurance is not absolute assurance, however, and there can be no assurance that any design of controls or procedures would be effective under all potential future conditions.conditions, regardless of how remote.
There were no changes in the Companies’ internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companies’ internal control over financial reporting.
CON EDISON
Northeast Utilities Litigation
For information about legal proceedings relating to Con Edison’s October 1999 agreement to acquire Northeast Utilities, see Note F to the financial statements included in Part I, Item 1 of this report, which is incorporated herein by reference.
CON EDISON OF NEW YORK
Lower Manhattan Restoration Litigation
For information about legal proceedings relating to emergency response and restoration activities following the September 11, 2001 attack on the World Trade Center, see Note G to the financial statements included in Part I, Item 1 of this report, which is incorporated herein by reference.
Washington Heights Power OutageLease In/Lease Out Transactions
For information regardingabout Con Edison’s appeal of a proposed disallowance by the “Washington Heights Power Outage” and the May 2005 settlementInternal Revenue Service of certain lawsuits,tax losses recognized in connection with the company’s lease in/lease out transactions, see Item 3 ofNote H to the Form 10-K andfinancial statements included in Part II,I, Item 1 of the Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005.this report, which is incorporated herein by reference.
Electric System SafetyGenerating Assets Sold To Mirant
For information about the July 2005 settlement of the New York State Public Service Commission’slegal proceeding relating to whether the PSC should commence an action seeking penalties fromUtilities’ 1999 sale of generating assets (Mirant Corporation, et al. v. Consolidated Edison et al. (In re Mirant Corporation)), pending in the company,United States Bankruptcy Court for the Northern District of Texas, see “Electric System Safety”“Generating Assets Sold To Mirant” in Note H to the financial statements included in Part II, Item11, Item 1 of the Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005.this report, which is incorporated herein by reference.
(a) EXHIBITS
Con Edison
Exhibit 12.1 | Statement of computation of Con Edison’s ratio of earnings to fixed charges for the | |
Exhibit 31.1.1 | Rule 13a-14(a)/15d-14(a) Certifications—Chief Executive Officer. | |
Exhibit 31.1.2 | Rule 13a-14(a)/15d-14(a) Certifications—Chief Financial Officer. | |
Exhibit 32.1.1 | Section 1350 Certifications—Chief Executive Officer. | |
Exhibit 32.1.2 | Section 1350 Certifications—Chief Financial Officer. |
Con Edison of New York
Exhibit 12.2 | Statement of computation of Con Edison of New York’s ratio of earnings to fixed charges for the | |
Exhibit 31.2.1 | Rule 13a-14(a)/15d-14(a) Certifications—Chief Executive Officer. | |
Exhibit 31.2.2 | Rule 13a-14(a)/15d-14(a) Certifications—Chief Financial Officer. | |
Exhibit 32.2.1 | Section 1350 Certifications—Chief Executive Officer. | |
Exhibit 32.2.2 | Section 1350 Certifications—Chief Financial Officer. |
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: | By | / | ||
Robert N. Hoglund Senior Vice President, Chief Financial Officer and Duly Authorized Officer |
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