Edgar Filing: CONSOLIDATED EDISON INC

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

Consolidated Edison, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

Consolidated Edison Company of New York, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

Quarterly Report for the period ended June 30, 2007

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


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

For the quarterly period ended JUNE 30, 2007

OR

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

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

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


Con Edison


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨



Con Edison of New York


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

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


Con Edison				Yes ¨ No x

Con Edison of New York				Yes ¨ No x

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

Filing Format

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

TABLE OF CONTENTS


		PAGE
Glossary of Terms		4

PART I—Financial Information

Item 1	Financial Statements (Unaudited)
	Con Edison
	Consolidated Balance Sheet	6
	Consolidated Income Statement	8
	Consolidated Statement of Comprehensive Income	9
	Consolidated Statement of Common Shareholders’ Equity	10
	Consolidated Statement of Cash Flows	11
	Con Edison of New York
	Consolidated Balance Sheet	12
	Consolidated Income Statement	14
	Consolidated Statement of Comprehensive Income	15
	Consolidated Statement of Common Shareholder’s Equity	16
	Consolidated Statement of Cash Flows	17
	Notes to Financial Statements (Unaudited)	18
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4	Controls and Procedures	71

PART II—Other Information
Item 1	Legal Proceedings	72
Item 1a	Risk Factors	72
Item 4	Submission of Matters to a Vote of Security Holders	73
Item 6	Exhibits	75
Signatures		76

GLOSSARY OF TERMS

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


Con Edison Companies
Con Edison		Consolidated Edison, Inc.
Con Edison Communications		Con Edison Communications, LLC
Con Edison Development		Consolidated Edison Development, Inc.
Con Edison Energy		Consolidated Edison Energy, Inc.
Con Edison of New York		Consolidated Edison Company of New York, Inc.
Con Edison Solutions		Consolidated Edison Solutions, Inc.
O&R		Orange and Rockland Utilities, Inc.
Pike		Pike County Light & Power Company
RECO		Rockland Electric Company
The Companies		Con Edison and Con Edison of New York
The Utilities		Con Edison of New York and O&R

Regulatory and State Agencies
DEC		New York State Department of Environmental Conservation
EPA		Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
IRS		Internal Revenue Service
ISO-NE		ISO New England
NJBPU		New Jersey Board of Public Utilities
NJDEP		New Jersey Department of Environmental Protection
NYAG		New York Attorney General
NYISO		New York Independent System Operator
NYPA		New York Power Authority
NYSERDA		New York State Energy Research and Development Authority
NYSRC		New York State Reliability Council
PJM		PJM Interconnection
PSC		New York State Public Service Commission
PPUC		Pennsylvania Public Utility Commission
SEC		Securities and Exchange Commission

Other
ABO		Accumulated Benefit Obligation
APB		Accounting Principles Board
AFDC		Allowance for funds used during construction
CO₂		Carbon dioxide
COSO		Committee of Sponsoring Organizations of the Treadway Commission
DIG		Derivatives Implementation Group
District Court		The United States District Court for the Southern District of New York
dths		Dekatherms
EITF		Emerging Issues Task Force
EMF		Electric and magnetic fields


Other
ERRP		East River Repowering Project
FASB		Financial Accounting Standards Board
FIN		FASB Interpretation No.
First Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007
Fitch		Fitch Ratings
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2006
FSP		FASB Staff Position
GHG		Greenhouse gases
kV		Kilovolts
kWh		Kilowatt-hour
LILO		Lease In/Lease Out
LTIP		Long Term Incentive Plan
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
mdths		Thousand dekatherms
MGP Sites		Manufactured gas plant sites
mmlbs		Million pounds
Moody’s		Moody’s Investors Service
MVA		Megavolt amperes
MW		Megawatts or thousand kilowatts
MWH		Megawatt hour
NUGs		Non-utility generators
OCI		Other Comprehensive Income
PCBs		Polychlorinated biphenyls
PPA		Power purchase agreement
PRP		Potentially responsible party
S&P		Standard & Poor’s Rating Services
SFAS		Statement of Financial Accounting Standards
SO₂		Sulfur dioxide
SSCM		Simplified service cost method
Second Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes
VaR		Value-at-Risk
VIE		Variable interest entity

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2007		December 31, 2006
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	15,417	$	14,775
Gas		3,307		3,233
Steam		1,717		1,691
General		1,675		1,635
TOTAL		22,116		21,334
Less: Accumulated depreciation		4,684		4,583
Net		17,432		16,751
Construction work in progress		858		872
NET UTILITY PLANT		18,290		17,623
NON-UTILITY PLANT
Generating assets, less accumulated depreciation of $140 and $127 in 2007 and 2006, respectively		773		785
Non-utility property, less accumulated depreciation of $39 and $36 in 2007 and 2006, respectively		31		34
Construction work in progress		3		3
NET PLANT		19,097		18,445
CURRENT ASSETS
Cash and temporary cash investments		186		94
Restricted cash		17		18
Accounts receivable - customers, less allowance for uncollectible accounts of $45 in 2007 and 2006		867		825
Accrued unbilled revenue		138		122
Other receivables, less allowance for uncollectible accounts of $6 and $4 in 2007 and 2006, respectively		446		522
Fuel oil, at average cost		52		56
Gas in storage, at average cost		188		253
Materials and supplies, at average cost		141		157
Prepayments		125		157
Fair value of derivative assets		52		122
Recoverable energy costs		206		235
Deferred derivative losses		177		237
Other current assets		56		139
TOTAL CURRENT ASSETS		2,651		2,937
INVESTMENTS		381		366
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Goodwill		408		406
Intangible assets, less accumulated amortization of $39 and $34 in 2007 and 2006, respectively		75		80
Regulatory assets		4,110		4,179
Other deferred charges and noncurrent assets		428		286
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		5,021		4,951
TOTAL ASSETS	$	27,150	$	26,699

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2007		December 31, 2006
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)	$	8,806	$	8,004
Preferred stock of subsidiary		213		213
Long-term debt		7,778		8,298
TOTAL CAPITALIZATION		16,797		16,515
MINORITY INTERESTS		42		41
NONCURRENT LIABILITIES
Obligations under capital leases		24		26
Provision for injuries and damages		156		155
Pension and retiree benefits		857		737
Superfund and other environmental costs		330		292
Uncertain income taxes		147		—
Asset retirement obligations		99		97
Fair value of derivative liabilities		57		97
Other noncurrent liabilities		92		93
TOTAL NONCURRENT LIABILITIES		1,762		1,497
CURRENT LIABILITIES
Long-term debt due within one year		536		374
Notes payable		315		117
Accounts payable		1,119		1,126
Customer deposits		240		228
Accrued taxes		51		36
Accrued interest		136		139
Accrued wages		87		79
Fair value of derivative liabilities		185		395
Deferred derivative gains		9		6
Deferred income taxes - recoverable energy costs		84		96
Other current liabilities		252		276
TOTAL CURRENT LIABILITIES		3,014		2,872
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		4,104		4,095
Regulatory liabilities		1,411		1,657
Other deferred credits		20		22
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,535		5,774
TOTAL CAPITALIZATION AND LIABILITIES	$	27,150	$	26,699

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

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2007			2006			2007			2006
	(Millions of Dollars/Except Share Data)
OPERATING REVENUES
Electric	$	1,896		$	1,666		$	3,683		$	3,425
Gas		422			349			1,271			1,192
Steam		128			106			422			381
Non-utility		583			434			1,071			874
TOTAL OPERATING REVENUES		3,029			2,555			6,447			5,872
OPERATING EXPENSES
Purchased power		1,251			1,019			2,361			2,203
Fuel		181			145			450			400
Gas purchased for resale		250			189			764			745
Other operations and maintenance		504			437			1,002			877
Depreciation and amortization		167			153			331			305
Taxes, other than income taxes		318			299			647			617
Income taxes		78			65			229			172
TOTAL OPERATING EXPENSES		2,749			2,307			5,784			5,319
OPERATING INCOME		280			248			663			553
OTHER INCOME (DEDUCTIONS)
Investment and other income		21			8			36			20
Allowance for equity funds used during construction		2			1			3			2
Preferred stock dividend requirements of subsidiary		(3	)		(3	)		(6	)		(6	)
Other deductions		(13	)		(4	)		(18	)		(9	)
Income taxes		5			6			10			1
TOTAL OTHER INCOME (DEDUCTIONS)		12			8			25			8
INTEREST EXPENSE
Interest on long-term debt		126			119			254			232
Other interest		14			12			29			25
Allowance for borrowed funds used during construction		(2	)		(1	)		(5	)		(2	)
NET INTEREST EXPENSE		138			130			278			255
INCOME FROM CONTINUING OPERATIONS		154			126			410			306
INCOME FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)		—			(2	)		—			(1	)
NET INCOME	$	154		$	124		$	410		$	305
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	0.58		$	0.51		$	1.57		$	1.24
Discontinued operations		—			(0.01	)		—			—
Net income	$	0.58		$	0.50		$	1.57		$	1.24
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations	$	0.58		$	0.51		$	1.56		$	1.24
Discontinued operations		—			(0.01	)		—			—
Net income	$	0.58		$	0.50		$	1.56		$	1.24
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.580		$	0.575		$	1.160		$	1.150
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)		264.9			245.9			261.9			245.7
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)		266.2			246.7			263.1			246.7

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2007			2006			2007			2006
	(Millions of Dollars)
NET INCOME	$	154		$	124		$	410		$	305
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $1, $0, $2 and $(3) taxes in 2007 and 2006, respectively		2			—			3			(4	)
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $(11), $(8), $3 and $(40) taxes in 2007 and 2006, respectively		(19	)		(11	)		4			(57	)
Less: Reclassification adjustment for losses included in net income, net of $(5), $(10), $(14) and $(28) taxes in 2007 and 2006, respectively		(8	)		(14	)		(20	)		(40	)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		(9	)		3			27			(21	)
COMPREHENSIVE INCOME	$	145		$	127		$	437		$	284

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

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

(UNAUDITED)


	Common Stock			Additional Paid- In Capital			Retained Earnings			Treasury Stock				Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid- In Capital			Retained Earnings			Shares	Amount			Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	(Millions of Dollars/Except Share Data)
BALANCE AS OF DECEMBER 31, 2005	245,286,058	$	27	$	2,768		$	5,605		23,210,700	$	(1,001	)	$	(55	)	$	(34	)	$	7,310

Net income								181													181
Common stock dividends								(141	)												(141	)
Issuance of common shares—dividend reinvestment and employee stock plans	456,347				24																24
Stock options					(23	)		35													12
Other comprehensive loss																		(24	)		(24	)
BALANCE AS OF MARCH 31, 2006	245,742,405	$	27	$	2,769		$	5,680		23,210,700	$	(1,001	)	$	(55	)	$	(58	)	$	7,362

Net income								124													124
Common stock dividends								(142	)												(142	)
Issuance of common shares—dividend reinvestment and employee stock plans	491,822				28																28
Other comprehensive income																		3			3
BALANCE AS OF JUNE 30, 2006	246,234,227	$	27	$	2,797		$	5,662		23,210,700	$	(1,001	)	$	(55	)	$	(55	)	$	7,375

BALANCE AS OF DECEMBER 31, 2006	257,456,303	$	28	$	3,314		$	5,804		23,210,700	$	(1,001	)	$	(58	)	$	(83	)	$	8,004

Net income								256													256
Common stock dividends								(150	)												(150	)
Issuance of common shares—dividend reinvestment and employee stock plans	1,327,669				61																61
Other comprehensive income																		36			36
BALANCE AS OF MARCH 31, 2007	258,783,972	$	28	$	3,375		$	5,910		23,210,700	$	(1,001	)	$	(58	)	$	(47	)	$	8,207

Net income								154													154
Common stock dividends								(156	)												(156	)
Issuance of common shares—public offering	11,000,000		1		559										(2	)					558
Issuance of common shares—dividend reinvestment and employee stock plans	1,089,068				52																52
Other comprehensive loss																		(9	)		(9	)
BALANCE AS OF JUNE 30, 2007	270,873,040	$	29	$	3,986		$	5,908		23,210,700	$	(1,001	)	$	(60	)	$	(56	)	$	8,806

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,
	2007			2006
	(Millions of Dollars)
OPERATING ACTIVITIES
Net Income	$	410		$	305
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		331			305
Deferred income taxes		89			11
Rate case amortization and accruals		(254	)		(137	)
Common equity component of allowance for funds used during construction		(3	)		(2	)
Prepaid pension costs (net of capitalized amounts)		71			15
Other non-cash items (net)		(55	)		122
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less allowance for uncollectibles		(42	)		347
Materials and supplies, including fuel oil and gas in storage		85			22
Other receivables and other current assets		143			(104	)
Prepayments		32			286
Recoverable energy costs		74			89
Accounts payable		(7	)		(273	)
Pensions and retiree benefits		13			61
Accrued taxes		22			(63	)
Accrued interest		(3	)		23
Deferred charges, noncurrent assets and other regulatory assets		(257	)		(125	)
Deferred credits and other regulatory liabilities		146			(9	)
Other assets		(10	)		8
Other liabilities		36			(78	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		821			803

INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $(30) and $(22) in 2007 and 2006, respectively)		(891	)		(872	)
Cost of removal less salvage		(73	)		(83	)
Non-utility construction expenditures		(3	)		(2	)
Common equity component of allowance for funds used during construction		3			2
Restricted cash		1			(3	)
Proceeds from sale of properties		30			60
Proceeds from sale of Con Edison Communications		—			39
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(933	)		(859	)

FINANCING ACTIVITIES
Net proceeds from/(payments of) short-term debt		198			(403	)
Retirement of long-term debt		(359	)		(109	)
Issuance of long-term debt		—			800
Issuance of common stock		651			20
Debt issuance costs		—			(7	)
Common stock dividends		(286	)		(263	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		204			38

CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		92			(18	)
BALANCE AT BEGINNING OF PERIOD		94			81

BALANCE AT END OF PERIOD	$	186		$	63
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	226		$	212
Income taxes	$	75		$	171

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2007		December 31, 2006
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	14,479	$	13,872
Gas		2,915		2,848
Steam		1,717		1,691
General		1,546		1,510
TOTAL		20,657		19,921
Less: Accumulated depreciation		4,267		4,173
Net		16,390		15,748
Construction work in progress		833		832
NET UTILITY PLANT		17,223		16,580
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $17 in 2007 and 2006		13		15
NET PLANT		17,236		16,595
CURRENT ASSETS
Cash and temporary cash investments		60		47
Accounts receivable - customers, less allowance for uncollectible accounts of $41 and $40 in 2007 and 2006, respectively		719		716
Other receivables, less allowance for uncollectible accounts of $5 and $3 in 2007 and 2006, respectively		333		365
Accounts receivable from affiliated companies		104		138
Fuel oil, at average cost		45		47
Gas in storage, at average cost		149		193
Materials and supplies, at average cost		127		126
Prepayments		77		84
Fair value of derivative assets		3		—
Recoverable energy costs		185		213
Deferred derivative losses		167		213
Other current assets		3		14
TOTAL CURRENT ASSETS		1,972		2,156
INVESTMENTS		101		91
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Regulatory assets		3,710		3,764
Other deferred charges and noncurrent assets		340		210
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		4,050		3,974
TOTAL ASSETS	$	23,359	$	22,816

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2007		December 31, 2006
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder’s equity (See Statement of Common Shareholder’s Equity)	$	7,761	$	7,132
Preferred stock		213		213
Long-term debt		6,743		6,925
TOTAL CAPITALIZATION		14,717		14,270
NONCURRENT LIABILITIES
Obligations under capital leases		24		26
Provision for injuries and damages		150		148
Pensions and retiree benefits		553		449
Superfund and other environmental costs		282		243
Uncertain income taxes		134		—
Asset retirement obligations		99		96
Fair value of derivative liabilities		21		35
Other noncurrent liabilities		76		72
TOTAL NONCURRENT LIABILITIES		1,339		1,069
CURRENT LIABILITIES
Long-term debt due within one year		510		330
Accounts payable		852		866
Accounts payable to affiliated companies		15		14
Customer deposits		225		214
Accrued taxes		147		118
Accrued interest		122		121
Accrued wages		81		71
Fair value of derivative liabilities		83		193
Deferred derivative gains		7		5
Deferred income taxes - recoverable energy costs		75		87
Other current liabilities		215		233
TOTAL CURRENT LIABILITIES		2,332		2,252
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		3,680		3,682
Regulatory liabilities		1,274		1,524
Other deferred credits		17		19
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		4,971		5,225
TOTAL CAPITALIZATION AND LIABILITIES	$	23,359	$	22,816

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2007			2006			2007			2006
	(Millions of Dollars)
OPERATING REVENUES
Electric	$	1,731		$	1,543		$	3,374		$	3,176
Gas		377			316			1,113			1,052
Steam		128			106			422			381
TOTAL OPERATING REVENUES		2,236			1,965			4,909			4,609
OPERATING EXPENSES
Purchased power		713			642			1,369			1,417
Fuel		123			100			335			293
Gas purchased for resale		216			169			650			628
Other operations and maintenance		431			364			863			739
Depreciation and amortization		147			135			292			268
Taxes, other than income taxes		303			282			615			581
Income taxes		61			55			197			168
TOTAL OPERATING EXPENSES		1,994			1,747			4,321			4,094
OPERATING INCOME		242			218			588			515
OTHER INCOME (DEDUCTIONS)
Investment and other income		15			5			25			15
Allowance for equity funds used during construction		2			1			3			2
Other deductions		(3	)		(3	)		(7	)		(7	)
Income taxes		(2	)		3			—			2
TOTAL OTHER INCOME (DEDUCTIONS)		12			6			21			12
INTEREST EXPENSE
Interest on long-term debt		105			96			209			185
Other interest		9			10			23			20
Allowance for borrowed funds used during construction		(2	)		(1	)		(4	)		(2	)
NET INTEREST EXPENSE		112			105			228			203
NET INCOME		142			119			381			324
PREFERRED STOCK DIVIDEND REQUIREMENTS		3			3			6			6
NET INCOME FOR COMMON STOCK	$	139		$	116		$	375		$	318


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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	(Millions of Dollars)
NET INCOME	$	142	$	119	$	381	$	324
OTHER COMPREHENSIVE LOSS, NET OF TAXES
Pension plan liability adjustments, net of $0, $0, $0 and $(3) taxes in 2007 and 2006, respectively		—		—		—		(4	)
Unrealized losses on derivatives qualified as cash flow hedges		—		—		—		(1	)
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAXES		—		—		—		(5	)
COMPREHENSIVE INCOME	$	142	$	119	$	381	$	319


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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY

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

(UNAUDITED)


	Common Stock			Additional Paid- In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid- In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	(Millions of Dollars/Except Share Data)
BALANCE AS OF DECEMBER 31, 2005	235,488,094	$	589	$	1,802	$	5,074		$	(962	)	$	(55	)	$	(11	)	$	6,437

Net income							205												205
Common stock dividend to parent							(113	)											(113	)
Cumulative preferred dividends							(3	)											(3	)
Other comprehensive loss																(5	)		(5	)
BALANCE AS OF MARCH 31, 2006	235,488,094	$	589	$	1,802	$	5,163		$	(962	)	$	(55	)	$	(16	)	$	6,521

Net income							119												119
Common stock dividend to parent							(115	)											(115	)
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF JUNE 30, 2006	235,488,094	$	589	$	1,802	$	5,164		$	(962	)	$	(55	)	$	(16	)	$	6,522

BALANCE AS OF DECEMBER 31, 2006	235,488,094	$	589	$	2,252	$	5,320		$	(962	)	$	(58	)	$	(9	)	$	7,132

Net income							239												239
Common stock dividend to parent							(131	)											(131	)
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF MARCH 31, 2007	235,488,094	$	589	$	2,252	$	5,425		$	(962	)	$	(58	)	$	(9	)	$	7,237

Net income							142												142
Common stock dividend to parent							(131	)											(131	)
Capital contribution by parent					518								(2	)					516
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF JUNE 30, 2007	235,488,094	$	589	$	2,770	$	5,433		$	(962	)	$	(60	)	$	(9	)	$	7,761


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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	For the Six Months Ended June 30,
	2007			2006
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	381		$	324
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		292			268
Deferred income taxes		86			31
Rate case amortization and accruals		(254	)		(137	)
Common equity component of allowance for funds used during construction		(3	)		(2	)
Prepaid pension costs (net of capitalized amounts)		12			15
Other non-cash items (net)		(32	)		(1	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less allowance for uncollectibles		(3	)		308
Materials and supplies, including fuel oil and gas in storage		45			4
Other receivables and other current assets		89			(39	)
Prepayments		7			350
Recoverable energy costs		69			85
Accounts payable		(18	)		(289	)
Pensions and retiree benefits		(7	)		35
Accrued taxes		35			(94	)
Accrued interest		1			23
Deferred charges, noncurrent assets and other regulatory assets		(248	)		(125	)
Deferred credits and other regulatory liabilities		156			(4	)
Other assets		(1	)		—
Other liabilities		48			(67	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		655			685
INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $(30) and $(22) in 2007 and 2006, respectively)		(852	)		(823	)
Cost of removal less salvage		(71	)		(82	)
Common equity component of allowance for funds used during construction		3			2
Proceeds from sale of properties		30			60
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(890	)		(843	)
FINANCING ACTIVITIES
Net payments of short-term debt		—			(323	)
Retirement of long-term debt		—			(100	)
Issuance of long-term debt		—			800
Debt issuance costs		—			(7	)
Capital contribution by parent		516			—
Dividend to parent		(262	)		(228	)
Preferred stock dividends		(6	)		(6	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		248			136
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		13			(22	)
BALANCE AT BEGINNING OF PERIOD		47			61
BALANCE AT END OF PERIOD	$	60		$	39
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	203		$	161
Income taxes	$	102		$	183


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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

General

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

Note A - Earnings Per Common Share

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


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(Millions of Dollars, except per share amounts/Shares in Millions)	2007		2006			2007		2006
Income from continuing operations	$	154	$	126		$	410	$	306
Income from discontinued operations, net of tax		—		(2	)		—		(1	)
Net income	$	154	$	124		$	410	$	305
Weighted average common shares outstanding - Basic		264.9		245.9			261.8		245.7
Add: Incremental shares attributable to effect of potentially dilutive securities		1.3		0.8			1.3		1.0
Adjusted weighted average common shares outstanding - Diluted		266.2		246.7			263.1		246.7
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	0.58	$	0.51		$	1.57	$	1.24
Discontinued operations		—		(0.01	)		—		—
Net income	$	0.58	$	0.50		$	1.57	$	1.24
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations	$	0.58	$	0.51		$	1.56	$	1.24
Discontinued operations		—		(0.01	)		—		—
Net income	$	0.58	$	0.50		$	1.56	$	1.24

Note B - Regulatory Matters

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

Rate Agreements

O&R - Electric

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

Con Edison of New York - Gas

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

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

Additional provisions of the Joint Proposal include:

•

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

•

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

•

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

•

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

•

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

•

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

•

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Regulatory Assets and Liabilities

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


	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Regulatory assets
Unrecognized pension and other postretirement costs	$	1,935	$	1,929	$	1,799	$	1,776
Future federal income tax		1,034		995		978		941
Environmental remediation costs		367		318		304		255
World Trade Center restoration costs		148		147		148		147
Pension and other postretirement benefits deferrals		118		157		54		98
Revenue taxes		71		68		70		67
O&R transition bond charges		65		67		—		—
Net T&D reconciliation		53		94		53		94
Electric rate increase accrual		45		44		45		44
Unbilled gas revenue		44		44		44		44
Workers’ compensation		43		42		43		42
Other retirement program costs		18		20		18		20
Recoverable energy costs		14		55		14		55
Asbestos-related costs		10		10		10		10
Deferred derivative losses - long-term		5		18		4		15
Other		140		171		126		156
Regulatory assets		4,110		4,179		3,710		3,764
Deferred derivative losses - current		177		237		167		213
Recoverable energy costs - current		206		235		185		213
Total Regulatory Assets	$	4,493	$	4,651	$	4,062	$	4,190
Regulatory liabilities
Allowance for cost of removal less salvage	$	473	$	492	$	412	$	432
Gain on sale of First Avenue properties		144		144		144		144
Net electric deferrals		139		164		139		164
Prior year deferred tax amortization		81		81		81		81
2004 electric, gas and steam one-time rate agreement charges		53		85		53		85
NYS tax law changes		53		38		43		28
Interest on federal income tax refund		41		41		41		41
Net steam deferrals		35		48		35		48
O&R refundable energy costs		34		40		—		—
Gain on sale of W. 24^th St. property		32		46		32		46
Transmission congestion contracts		19		96		19		96
Deferred derivative gains - long-term		16		2		6		1
Property tax reconciliation		15		39		15		39
EPA SO₂ allowance proceeds - electric and steam		12		106		12		106
DC service incentive		11		13		11		13
Gas interruptible sales credits		10		8		10		8
Other		243		214		221		192
Regulatory liabilities		1,411		1,657		1,274		1,524
Deferred derivative gains - current		9		6		7		5
Total Regulatory Liabilities	$	1,420	$	1,663	$	1,281	$	1,529

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

Power Outage Proceedings

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

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

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

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

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

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

Note C - Short-Term Borrowing and Credit Agreements

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

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

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note D - Pension Benefits

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

Net Periodic Benefit Cost

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


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Service cost - including administrative expenses	$	33		$	33		$	31		$	31
Interest cost on projected benefit obligation		123			115			115			108
Expected return on plan assets		(162	)		(155	)		(155	)		(149	)
Amortization of net actuarial loss		40			32			34			26
Amortization of prior service costs		3			4			3			3
NET PERIODIC BENEFIT COST	$	37		$	29		$	28		$	19
Amortization of regulatory asset*		1			1			1			1
TOTAL PERIODIC BENEFIT COST	$	38		$	30		$	29		$	20
Cost capitalized		(11	)		(9	)		(8	)		(7	)
Cost deferred		(20	)		(28	)		(18	)		(24	)
Cost charged/(credited) to operating expenses	$	7		$	(7	)	$	3		$	(11	)

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


	For the Six Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Service cost - including administrative expenses	$	66		$	67		$	61		$	62
Interest cost on projected benefit obligation		246			229			230			215
Expected return on plan assets		(323	)		(310	)		(309	)		(298	)
Amortization of net actuarial loss		80			63			69			52
Amortization of prior service costs		5			7			5			6
NET PERIODIC BENEFIT COST	$	74		$	56		$	56		$	37
Amortization of regulatory asset*		2			2			2			2
TOTAL PERIODIC BENEFIT COST	$	76		$	58		$	58		$	39
Cost capitalized		(23	)		(17	)		(18	)		(13	)
Cost deferred		(49	)		(58	)		(45	)		(51	)
Cost charged/(credited) to operating expenses	$	4		$	(17	)	$	(5	)	$	(25	)

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note E - Other Postretirement Benefits

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

Net Periodic Benefit Cost

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


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Service cost	$	5		$	5		$	4		$	4
Interest cost on accumulated other postretirement benefit obligation		23			22			21			19
Expected return on plan assets		(20	)		(20	)		(19	)		(18	)
Amortization of net actuarial loss		16			15			14			12
Amortization of prior service cost		(3	)		(4	)		(3	)		(4	)
Amortization of transition obligation		1			1			1			1
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	22		$	19		$	18		$	14
Cost capitalized		(8	)		(5	)		(6	)		(4	)
Cost deferred		(9	)		(9	)		(9	)		(7	)
Cost charged to operating expenses	$	5		$	5		$	3		$	3

	For the Six Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Service cost	$	9		$	9		$	7		$	7
Interest cost on accumulated other postretirement benefit obligation		46			43			41			38
Expected return on plan assets		(40	)		(39	)		(37	)		(36	)
Amortization of net actuarial loss		33			29			29			24
Amortization of prior service cost		(7	)		(7	)		(7	)		(7	)
Amortization of transition obligation		2			2			2			2
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	43		$	37		$	35		$	28
Cost capitalized		(15	)		(11	)		(12	)		(9	)
Cost deferred		(20	)		(15	)		(18	)		(12	)
Cost charged to operating expenses	$	8		$	11		$	5		$	7

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note F - Environmental Matters

Superfund Sites

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

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

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

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


	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Accrued Liabilities:
Manufactured gas plant sites	$	268	$	228	$	221	$	180
Other Superfund Sites		62		64		61		63
Total	$	330	$	292	$	282	$	243
Regulatory assets	$	367	$	318	$	304	$	255

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

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


	For the Three Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Remediation payments	$	9	$	17	$	7	$	13
Insurance recoveries received		1		3		1		3

	For the Six Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Remediation payments	$	18	$	29	$	16	$	24
Insurance recoveries received		1		3		1		3

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

Asbestos Proceedings

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Accrued liability - asbestos suits	$	10	$	10	$	10	$	10
Regulatory assets - asbestos suits	$	10	$	10	$	10	$	10
Accrued liability - workers’ compensation	$	119	$	117	$	114	$	112
Regulatory assets - workers’ compensation	$	43	$	42	$	43	$	42

Note G - Other Material Contingencies

Manhattan Steam Main Rupture

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

Lease In/Lease Out Transactions

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

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

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

Northeast Utilities Litigation

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

Mirant Litigation

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

Guarantees

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

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


Guarantee Type	0–3 years		4–10 years		> 10 years		Total
	(Millions of Dollars)
Commodity transactions	$	893	$	33	$	211	$	1,137
Affordable housing program		—		22		—		22
Intra-company guarantees		45		—		1		46
Other guarantees		44		42		—		86
TOTAL	$	982	$	97	$	212	$	1,291

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

Note H - Income Tax

Uncertain Tax Positions

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

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


	For the Three Months Ended June 30, 2007				For the Six Months Ended June 30, 2007
(Millions of Dollars)	Con Edison		Con Edison of New York		Con Edison		Con Edison of New York
Interest expense	$	6	$	3	$	10	$	7

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

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

Note I - Stock-Based Compensation

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


	For the Three Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Stock options	$	—	$	3	$	—	$	2
Restricted stock units		1		1		1		1
Performance-based restricted stock		1		1		1		1
Total	$	2	$	5	$	2	$	4

	For the Six Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2007		2006		2007		2006
Stock options	$	1	$	6	$	1	$	5
Restricted stock units		1		1		1		1
Performance-based restricted stock		2		9		2		8
Total	$	4	$	16	$	4	$	14

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Stock Options

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


	Con Edison				Con Edison of New York
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at 12/31/05	7,867,151		$	41.913	6,697,401		$	42.000
Granted	804,000			46.880	699,000			46.880
Exercised	(67,500	)		37.560	(60,800	)		37.404
Forfeited	(20,900	)		42.691	(5,000	)		44.688
Outstanding at 3/31/06	8,582,751		$	42.412	7,330,601		$	42.503
Granted	859,900			43.500	711,700			43.500
Exercised	(64,725	)		35.935	(55,725	)		35.538
Forfeited	(19,000	)		44.353	(13,000	)		44.765
Outstanding at 6/30/06	9,358,926		$	42.553	7,973,576		$	42.637
Outstanding at 12/31/06	8,617,601		$	42.773	7,346,601		$	42.842
Granted	—			—	—			—
Exercised	(975,100	)		41.630	(907,050	)		41.634
Forfeited	(1,001	)		42.169	(1,001	)		42.169
Outstanding at 3/31/07	7,641,500		$	42.919	6,438,550		$	43.013
Granted	—			—	—			—
Exercised	(668,350	)		42.803	(587,500	)		42.829
Forfeited	(19,350	)		42.483	(7,500	)		41.870
Outstanding at 6/30/07	6,953,800		$	42.931	5,843,550		$	43.033

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


		Con Edison				Con Edison of New York
Plan Year	Remaining Contractual Life	Options Outstanding	Weighted Average Exercise Price		Options Exercisable	Options Outstanding	Weighted Average Exercise Price		Options Exercisable
2006	9	1,645,600	$	45.151	—	1,401,700	$	45.186	—
2005	8	1,262,400		42.740	—	1,022,750		42.721	—
2004	7	950,950		43.776	950,950	756,850		43.769	756,850
2003	6	810,600		39.916	810,600	637,900		39.941	637,900
2002	5	959,850		42.510	959,850	822,350		42.510	822,350
2001	4	506,050		37.750	506,050	438,050		37.750	438,050
2000	3	145,350		32.500	145,350	109,850		32.500	109,850
1999	2	561,450		47.938	561,450	544,050		47.938	544,050
1998/97	1	111,550		42.563	111,550	110,050		42.563	110,050
Total		6,953,800	$	42.931	4,045,800	5,843,550	$	43.033	3,419,100

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

Restricted Stock Units

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


	Con Edison				Con Edison of New York
	Units		Weighted Average Fair Value*		Units		Weighted Average Fair Value*
Non-vested at 12/31/05	204,425		$	31.461	171,950		$	31.581
Granted	99,300			43.830	87,400			43.830
Vested and Exercised	(156,450	)		46.477	(144,475	)		46.455
Forfeited	—			—	—			—
Non-vested at 3/31/06	147,275		$	29.313	114,875		$	29.530
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/06	147,275		$	31.250	114,875		$	44.440
Non-vested at 12/31/06	126,425		$	13.992	94,025		$	14.420
Granted	113,600			45.730	81,848			45.730
Vested and Exercised	(31,400	)		—	(21,475	)		—
Forfeited	—			—	—			—
Non-vested at 3/31/07	208,625		$	36.108	154,398		$	35.709
Granted	33,280			48.060	30,805			48.060
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/07	241,905		$	20.152	185,203		$	20.155

*	Fair value is determined using the Monte Carlo simulation.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


	Con Edison				Con Edison of New York
	Units		Weighted Average Price		Units		Weighted Average Price
Non-vested at 12/31/05	204,425		$	43.297	171,950		$	43.300
Granted	99,300			46.880	87,400			46.880
Vested and Exercised	(156,450	)		46.477	(144,475	)		46.455
Forfeited	—			—	—			—
Non-vested at 3/31/06	147,275		$	43.500	114,875		$	43.500
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/06	147,275		$	44.440	114,875		$	44.440
Non-vested at 12/31/06	126,425		$	48.070	94,025		$	48.070
Granted	113,600			47.815	81,848			47.807
Vested and Exercised	(31,400	)		47.530	(21,475	)		47.530
Forfeited	—			—	—			—
Non-vested at 3/31/07	208,625		$	51.060	154,398		$	51.060
Granted	33,280			51.060	30,805			51.060
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/07	241,905		$	45.120	185,203		$	45.120

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

Stock Purchase Plan

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note J - Financial Information By Business Segment

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

The financial data for the business segments are as follows:


	For the Three Months Ended June 30,
	Operating Revenues					Inter-segment revenues						Depreciation and amortization					Operating Income
(Millions of Dollars)	2007		2006			2007			2006			2007		2006			2007		2006
Con Edison of New York
Electric	$	1,731	$	1,543		$	3		$	2		$	111	$	103		$	191	$	180
Gas		377		316			1			1			21		20			43		30
Steam		128		106			23			19			15		12			8		8
Consolidation adjustments		—		—			(27	)		(22	)		—		—			—		—
Total Con Edison of New York	$	2,236	$	1,965		$	—		$	—		$	147	$	135		$	242	$	218
O&R
Electric	$	165	$	123		$	—		$	—		$	7	$	6		$	15	$	9
Gas		45		34			—			—			3		3			1		—
Total O&R	$	210	$	157		$	—		$	—		$	10	$	9		$	16	$	9
Competitive energy businesses	$	583	$	434		$	1		$	18		$	10	$	10		$	22	$	20
Other*		—		(1	)		(1	)		(18	)		—		(1	)		—		1
Total Con Edison	$	3,029	$	2,555		$	—		$	—		$	167	$	153		$	280	$	248

*	Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.


	For the Six Months Ended June 30,
	Operating Revenues				Inter-segment revenues						Depreciation and amortization				Operating Income
(Millions of Dollars)	2007		2006		2007			2006			2007		2006		2007			2006
Con Edison of New York
Electric	$	3,374	$	3,176	$	5		$	5		$	220	$	204	$	363		$	317
Gas		1,113		1,052		2			1			42		40		155			129
Steam		422		381		40			38			30		24		70			69
Consolidation adjustments		—		—		(47	)		(44	)		—		—		—			—
Total Con Edison of New York	$	4,909	$	4,609	$	—		$	—		$	292	$	268	$	588		$	515
O&R
Electric	$	309	$	249	$	—		$	—		$	13	$	12	$	25		$	18
Gas		158		140		—			—			5		5		17			10
Total O&R	$	467	$	389	$	—		$	—		$	18	$	17	$	42		$	28
Competitive energy businesses	$	1,071	$	874	$	3		$	34		$	20	$	20	$	36		$	10
Other*		—		—		(3	)		(34	)		1		—		(3	)		—
Total Con Edison	$	6,447	$	5,872	$	—		$	—		$	331	$	305	$	663		$	553

*	Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note K - Derivative Instruments and Hedging Activities

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

Energy Price Hedging

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


	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Fair value of net assets	$	(141	)	$	(319	)	$	(88	)	$	(206	)

Credit Exposure

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

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

Cash Flow Hedges

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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


	Maximum Term			Accumulated Other Comprehensive Income/ (Loss) Net of Tax					Portion Expected to be Reclassified to Earnings during the Next 12 Months
(Term in Months/Millions of Dollars)	Con Edison	Con Edison of New York		Con Edison			Con Edison of New York		Con Edison			Con Edison of New York
Energy Price Hedges	42	$	—	$	(16	)	$	—	$	(18	)	$	—

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

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

Other Derivatives

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

Interest Rate Hedging

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


	Con Edison						Con Edison of New York
(Millions of Dollars)	2007			2006			2007			2006
Fair value of interest rate swaps	$	(15	)	$	(15	)	$	(5	)	$	(3	)

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Fair Value Hedges

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

Cash Flow Hedges

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

Note L - New Financial Accounting Standards

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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

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

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


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

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

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

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

Corporate Overview

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


	Three Months Ended June 30, 2007						Six Months Ended June 30, 2007							At June 30, 2007
(Millions of Dollars)	Operating Revenues			Net Income			Operating Revenues			Net Income				Assets
Con Edison of New York	$	2,236	74 %	$	139	90 %	$	4,909	76 %	$	375	91 %		$	23,359	86 %
O&R		210	7 %		6	4 %		467	7 %		26	6 %			1,746	6 %
Total Utilities		2,446	81 %		145	94 %		5,376	83 %		401	97 %	<