CONSOLIDATED EDISON INC - 10-Q Quarterly Report

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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

/x/	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 2003
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
1-4315	Orange and Rockland Utilities, Inc. One Blue Hill Plaza, Pearl River, New York 10965 (845) 352-6000	New York	13-1727729

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

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

As of the close of business on July 31, 2003, Consolidated Edison, Inc. (Con Edison) had outstanding 224,955,797 Common Shares ($.10 par value). Con Edison owns all of the outstanding common equity of Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R).

Filing Format

This Quarterly Report on Form 10-Q is a combined report being filed separately by three different registrants: Consolidated Edison, Inc. (Con Edison), Consolidated Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R). Con Edison of New York and O&R are subsidiaries of Con Edison and together with Con Edison are referred to in this report as "the Companies." Neither Con Edison of New York nor O&R makes any representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

TABLE OF CONTENTS

				PAGE
Glossary of Terms				3
PART I—Financial Information
Item 1	Financial Statements
		Con Edison
			Consolidated Balance Sheet	4
			Consolidated Income Statement	6
			Consolidated Statement of Comprehensive Income	7
			Consolidated Statement of Retained Earnings	7
			Consolidated Statement of Cash Flows	8
		Con Edison of New York
			Consolidated Balance Sheet	9
			Consolidated Income Statement	11
			Consolidated Statement of Comprehensive Income	12
			Consolidated Statement of Retained Earnings	12
			Consolidated Statement of Cash Flows	13
		O&R
			Consolidated Balance Sheet	14
			Consolidated Income Statement	16
			Consolidated Statement of Comprehensive Income	17
			Consolidated Statement of Retained Earnings	17
			Consolidated Statement of Cash Flows	18
		Notes to Financial Statements		19
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3	Quantitative and Qualitative Disclosures About Market Risk			61
Item 4	Controls and Procedures			61
	Forward-Looking Statements			61
PART II—Other Information
Item 1	Legal Proceedings			62
Item 4	Submission of Matters to a Vote of Security Holders			62
Item 6	Exhibits and Reports on Form 8-K			64
Signatures				66

GLOSSARY OF TERMS

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

Con Edison Companies
Companies		Con Edison, Con Edison of New York and O&R, collectively
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.
RECO		Rockland Electric Company

Regulatory and State Agencies
NJBPU		New Jersey Board of Public Utilities
NYPA		New York Power Authority
PSC		New York State Public Service Commission
SEC		Securities and Exchange Commission

Other
AFDC		Allowance for Funds used During Construction
dth		Dekatherm
EITF		Emerging Issues Task Force
FASB		Financial Accounting Standards Board
Form 10-K		Companies' combined Annual Report on Form 10-K for the year ended December 31, 2002
kWh		Kilowatt-hour
MD&A		Management's Discussion and Analysis of Financial Condition and Results of Operations
MW		Megawatts or thousand kilowatts
NYISO		New York Independent System Operator
OCI		Other Comprehensive Income
PCBs		Polychlorinated biphenyls
SFAS		Statement of Financial Accounting Standards
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980
VaR		Value-at-Risk

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)


		June 30, 2003		December 31, 2002

		(Millions of Dollars)
ASSETS
UTILITY, PLANT, AT ORIGINAL COST
	Electric	$	11,850	$	11,568
	Gas		2,593		2,530
	Steam		777		768
	General		1,458		1,435

	TOTAL		16,678		16,301
	Less: Accumulated depreciation		4,752		4,660

	NET		11,926		11,641
	Construction work in progress		1,100		989

NET UTILITY PLANT			13,026		12,630

NON-UTILITY PLANT
	Unregulated generating assets, less accumulated depreciation of $35 and $30 in 2003 and 2002, respectively		556		222
	Non-utility property, less accumulated depreciation of $26 and $19 in 2003 and 2002, respectively		162		140
	Construction work in progress		39		347

NET PLANT			13,783		13,339

CURRENT ASSETS
	Cash and temporary cash investments		60		118
	Restricted cash		16		14
	Funds held for the redemption of long-term debt		—		275
	Accounts receivable - customers, less allowance for uncollectible accounts of $36 and $35 in 2003 and 2002, respectively		735		683
	Accrued unbilled revenue		55		54
	Other receivables, less allowance for uncollectible accounts of $5 and $1 in 2003 and 2002, respectively		172		169
	Fuel, at average cost		37		23
	Gas in storage, at average cost		105		81
	Materials and supplies, at average cost		97		92
	Prepayments		69		73
	Other current assets		136		125

TOTAL CURRENT ASSETS			1,482		1,707

INVESTMENTS			240		235

DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
	Goodwill		406		406
	Intangible assets, less accumulated amortization of $11 and $10 in 2003 and 2002, respectively		83		82
	Prepaid pension costs		1,106		1,024
	Regulatory assets		1,950		1,866
	Other deferred charges and noncurrent assets		231		196

TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS			3,776		3,574

TOTAL ASSETS		$	19,281	$	18,855

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)


			June 30, 2003			December 31, 2002

			(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
	Common stock, authorized 500,000,000 shares; outstanding 224,822,736 shares and 213,932,934 shares in 2003 and 2002, respectively		$	1,985		$	1,551
	Retained earnings			5,396			5,420
	Treasury stock, at cost: 23,210,700 shares in 2003 and 2002			(1,001	)		(1,001	)
	Capital stock expense			(39	)		(36	)
	Accumulated other comprehensive income (loss)			(17	)		(13	)

		TOTAL COMMON SHAREHOLDERS' EQUITY		6,324			5,921

	Preferred stock			213			213
	Long-term debt			6,211			6,168

TOTAL CAPITALIZATION				12,748			12,302

MINORITY INTERESTS				9			9
NONCURRENT LIABILITIES
	Obligations under capital leases			38			38
	Provision for injuries and damages			197			197
	Pension and benefits			226			206
	Superfund and other environmental costs			138			143
	Independent power producer buyout			32			33
	Other noncurrent liabilities			40			41

TOTAL NONCURRENT LIABILITIES				671			658

CURRENT LIABILITIES
	Long-term debt due within one year			164			473
	Notes payable			269			162
	Accounts payable			887			919
	Customer deposits			219			221
	Accrued taxes			98			100
	Accrued interest			102			94
	System benefits charge			27			27
	Accrued wages			81			82
	Other current liabilities			204			196

TOTAL CURRENT LIABILITIES				2,051			2,274

DEFERRED CREDITS AND REGULATORY LIABILITIES
	Deferred income taxes			2,683			2,598
	Deferred investment tax credits			109			112
	Regulatory liabilities			1,004			898
	Other deferred credits			6			4

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES				3,802			3,612

TOTAL CAPITALIZATION AND LIABILITIES			$	19,281		$	18,855

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

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT
(UNAUDITED)

		For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2003			2002			2003			2002

		(Millions of Dollars)
OPERATING REVENUES
	Electric	$	1,561		$	1,400		$	3,054		$	2,701
	Gas		326			242			946			716
	Steam		97			70			334			212
	Non-utility		192			136			412			276

TOTAL OPERATING REVENUES			2,176			1,848			4,746			3,905

OPERATING EXPENSES
	Purchased power		906			702			1,770			1,370
	Fuel		102			47			287			112
	Gas purchased for resale		192			119			556			350
	Other operations		280			229			575			468
	Maintenance		91			99			184			198
	Depreciation and amortization		130			122			259			243
	Taxes, other than income taxes		270			269			554			536
	Income taxes		41			61			141			170

TOTAL OPERATING EXPENSES			2,012			1,648			4,326			3,447

OPERATING INCOME			164			200			420			458

OTHER INCOME (DEDUCTIONS)
	Investment income		2			—			2			1
	Allowance for equity funds used during construction		4			2			6			6
	Other income		6			8			12			15
	Other deductions		(5	)		(6	)		(8	)		(15	)
	Income taxes		2			2			3			16

TOTAL OTHER INCOME (DEDUCTIONS)			9			6			15			23

INCOME BEFORE INTEREST CHARGES			173			206			435			481

	Interest on long-term debt		99			99			198			193
	Other interest		8			8			16			19
	Allowance for borrowed funds used during construction		(3	)		(2	)		(5	)		(2	)

NET INTEREST CHARGES			104			105			209			210

INCOME BEFORE PREFERRED STOCK DIVIDENDS			69			101			226			271

PREFERRED STOCK DIVIDEND REQUIREMENTS			3			3			6			7

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE			66			98			220			264

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF INCOME TAXES OF $14)			—			—			—			20

NET INCOME FOR COMMON STOCK		$	66		$	98		$	220		$	244

EARNINGS PER COMMON SHARE - BASIC
	Before cumulative effect of change in accounting principle	$	0.29		$	0.46		$	1.01		$	1.24

	Cumulative effect of change in accounting principle	$	—		$	—		$	—		$	0.10

	After cumulative effect of change in accounting principle	$	0.29		$	0.46		$	1.01		$	1.14

EARNINGS PER COMMON SHARE - DILUTED
	Before cumulative effect of change in accounting principle	$	0.29		$	0.46		$	1.01		$	1.24

	Cumulative effect of change in accounting principle	$	—		$	—		$	—		$	0.10

	After cumulative effect of change in accounting principle	$	0.29		$	0.46		$	1.01		$	1.14

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$	0.560		$	0.555		$	1.120		$	1.110

AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)			219.3			212.8			217.1			212.5

AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)			220.3			213.9			218.0			213.7

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)

		For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2003			2002			2003			2002

		(Millions of Dollars)
NET INCOME FOR COMMON STOCK		$	66		$	98		$	220		$	244
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
	Minimum pension liability adjustments, net of ($2) taxes in 2002		—			—			—			(3	)
	Unrealized gains (losses) on derivatives qualified as hedges, net of ($1), ($1), $8 and $7 taxes, respectively		(2	)		(1	)		11			10
	Less: Reclassification adjustment for gains (losses) included in net income, net of $3, $0, $11 and ($5) taxes, respectively		4			1			15			(8	)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES			(6	)		(2	)		(4	)		15

COMPREHENSIVE INCOME		$	60		$	96		$	216		$	259

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(UNAUDITED)

		For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2003		2002		2003		2002

		(Millions of Dollars)
BEGINNING BALANCE		$	5,453	$	5,278	$	5,420	$	5,251
	Less: Stock options exercised		3		2		4		3
	Income before preferred stock dividends		69		101		226		271
	Less: Cumulative effect of change in accounting principle		—		—		—		20

NET INCOME AFTER CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE			69		101		226		251

TOTAL			5,519		5,377		5,642		5,499

DIVIDENDS ON CAPITAL STOCK
	Cumulative preferred, at required annual rates		3		3		6		7
	Common, $.56, $.555, $1.12 and $1.11 per share, respectively		120		118		240		236

TOTAL DIVIDENDS			123		121		246		243

ENDING BALANCE		$	5,396	$	5,256	$	5,396	$	5,256

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

			For the Six Months Ended June 30,
			2003		2002

			(Millions of Dollars)
OPERATING ACTIVITIES
	Income before preferred stock dividends		$	226	$	271
	PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME
		Depreciation and amortization		259		243
		Deferred income taxes		46		157