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

Form 10-Q

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, 2008

OR

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

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.


Con Edison				Yes x No ¨

Con Edison of New York				Yes x No ¨

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


Con Edison


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨		Smaller reporting company ¨



Con Edison of New York


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x		Smaller reporting company ¨

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


Con Edison				Yes ¨ No x

Con Edison of New York				Yes ¨ No x

As of July 31, 2008, Con Edison had outstanding 273,190,866 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	47
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	81
ITEM 4	Controls and Procedures	81
ITEM 4T	Controls and Procedures	81

PART II—Other Information
ITEM 1	Legal Proceedings	82
ITEM 1A	Risk Factors	82
ITEM 4	Submission of Matters to a Vote of Security Holders	83
ITEM 6	Exhibits	85
Signatures		86

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
ALJs		Administrative Law Judges
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 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


Other
EMF		Electric and magnetic fields
ERRP		East River Repowering Project
FASB		Financial Accounting Standards Board
FIN		FASB Interpretation No.
First Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008
Fitch		Fitch Ratings
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2007
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
Net T&D Revenues		Revenue requirement impact resulting from the reconciliation pursuant to Con Edison of New York’s electric rate agreement of the differences between the actual amount of transmission and distribution utility plant, net of depreciation, to the amount reflected in electric rates
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, 2008
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, 2008		December 31, 2007
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	16,785	$	15,979
Gas		3,545		3,403
Steam		1,785		1,755
General		1,747		1,732
TOTAL		23,862		22,869
Less: Accumulated depreciation		4,922		4,784
Net		18,940		18,085
Construction work in progress		968		1,028
NET UTILITY PLANT		19,908		19,113
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $39 and $36 in 2008 and 2007, respectively		20		18
Non-utility property held for sale		—		778
Construction work in progress		1		5
NET PLANT		19,929		19,914
CURRENT ASSETS
Cash and temporary cash investments		1,757		210
Restricted cash		1		1
Accounts receivable—customers, less allowance for uncollectible accounts of $51 and $47 in 2008 and 2007, respectively		901		970
Accrued unbilled revenue		161		149
Other receivables, less allowance for uncollectible accounts of $6 in 2008 and 2007		425		288
Fuel oil, at average cost		50		44
Gas in storage, at average cost		245		215
Materials and supplies, at average cost		145		146
Prepayments		103		119
Fair value of derivative assets		385		98
Recoverable energy costs		345		213
Deferred derivative losses		2		45
Current assets held for sale		—		40
Other current assets		11		12
TOTAL CURRENT ASSETS		4,531		2,550
INVESTMENTS		380		378
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Goodwill		415		408
Intangible assets, less accumulated amortization of $1
in 2008 and 2007		2		2
Regulatory assets		4,381		4,511
Noncurrent assets held for sale		—		88
Other deferred charges and noncurrent assets		616		411
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		5,414		5,420
TOTAL ASSETS	$	30,254	$	28,262

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2008		December 31, 2007
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)	$	9,680	$	9,076
Preferred stock of subsidiary		213		213
Long-term debt		8,802		7,611
TOTAL CAPITALIZATION		18,695		16,900
MINORITY INTERESTS		—		43
NONCURRENT LIABILITIES
Obligations under capital leases		19		22
Provision for injuries and damages		162		161
Pensions and retiree benefits		1,049		938
Superfund and other environmental costs		290		327
Uncertain income taxes		147		155
Asset retirement obligations		116		110
Fair value of derivative liabilities		105		15
Noncurrent liabilities held for sale		—		61
Other noncurrent liabilities		88		95
TOTAL NONCURRENT LIABILITIES		1,976		1,884
CURRENT LIABILITIES
Long-term debt due within one year		582		809
Notes payable		77		840
Accounts payable		1,387		1,187
Customer deposits		260		249
Accrued taxes		283		26
Accrued interest		153		149
Accrued wages		81		82
Fair value of derivative liabilities		273		76
Deferred derivative gains		372		10
Deferred income taxes - recoverable energy costs		140		86
Current liabilities held for sale		—		28
Other current liabilities		341		309
TOTAL CURRENT LIABILITIES		3,949		3,851
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		4,660		4,465
Regulatory liabilities		940		1,097
Other deferred credits		34		22
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,634		5,584
TOTAL CAPITALIZATION AND LIABILITIES	$	30,254	$	28,262

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,
	2008			2007			2008			2007
	(Millions of Dollars/Except Share Data)
OPERATING REVENUES
Electric	$	1,957		$	1,896		$	3,830		$	3,683
Gas		426			422			1,272			1,271
Steam		133			128			418			422
Non-utility		633			511			1,205			937
TOTAL OPERATING REVENUES	$	3,149			2,957			6,725			6,313
OPERATING EXPENSES
Purchased power		1,362			1,254			2,653			2,372
Fuel		124			136			325			355
Gas purchased for resale		243			250			740			764
Other operations and maintenance		572			497			1,108			988
Depreciation and amortization		182			160			347			318
Taxes, other than income taxes		328			317			677			645
Income taxes		203			76			351			229
TOTAL OPERATING EXPENSES		3,014			2,690			6,201			5,671
Gain on sale of generation projects		295			—			295			—
OPERATING INCOME		430			267			819			642
OTHER INCOME (DEDUCTIONS)
Investment and other income		11			21			69			35
Allowance for equity funds used during construction		2			2			4			3
Preferred stock dividend requirements of subsidiary		(3	)		(3	)		(6	)		(6	)
Other deductions		(5	)		(13	)		(9	)		(17	)
Income taxes		(5	)		5			(21	)		10
TOTAL OTHER INCOME (DEDUCTIONS)		—			12			37			25
INTEREST EXPENSE
Interest on long-term debt		131			116			244			234
Other interest		—			14			16			29
Allowance for borrowed funds used during construction		(3	)		(2	)		(6	)		(5	)
NET INTEREST EXPENSE		128			128			254			258
INCOME FROM CONTINUING OPERATIONS		302			151			602			409
INCOME FROM DISCONTINUED OPERATIONS
Gain on sale of generation projects, net of tax expense of $160 in 2008		248			—			248			—
Income from discontinued operations, net of tax expense of $1 and $3 in 2008 and $3 and $0 in 2007, respectively		2			3			4			1
TOTAL INCOME FROM DISCONTINUED OPERATIONS		250			3			252			1
NET INCOME	$	552		$	154		$	854		$	410
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	1.10		$	0.57		$	2.21		$	1.56
Discontinued operations		0.92			0.01			0.93			0.01
Net income	$	2.02		$	0.58		$	3.14		$	1.57
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations	$	1.10		$	0.57		$	2.20		$	1.55
Discontinued operations		0.92			0.01			0.93			0.01
Net income	$	2.02		$	0.58		$	3.13		$	1.56
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.585		$	0.580		$	1.170		$	1.160
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)		272.7			264.9			272.5			261.9
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)		273.5			266.2			273.3			263.1

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,
	2008			2007			2008			2007
	(Millions of Dollars)
NET INCOME	$	552		$	154		$	854		$	410
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $1 and $1 in 2008 and $1 and $2 taxes 2007, respectively		1			2			2			3
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $0 and $(1) in 2008 and $(11) and $3 taxes in 2007, respectively		—			(19	)		(2	)		4
Less: Reclassification adjustment for unrealized losses included in regulatory assets, net of $(5) taxes in 2008		—			—			(8	)		—
Less: Reclassification adjustment for losses included in net income, net of $(1) and $(1) in 2008 and $(5) and $(14) taxes in 2007, respectively		(2	)		(8	)		(2	)		(20	)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		3			(9	)		10			27
COMPREHENSIVE INCOME	$	555		$	145		$	864		$	437

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

(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, 2006	257,456,303	$	28	$	3,314	$	5,804		23,210,700	$	(1,001	)	$	(58	)	$	(83	)	$	8,004
Net income			0				256													256
Common stock dividends							(150	)												(150	)
Issuance of common shares—dividend reinvestment and employee stock plans	1,327,669				61															61
Stock options																				—
Other comprehensive loss																	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 income																	(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
BALANCE AS OF DECEMBER 31, 2007	272,024,874	$	29	$	4,038	$	6,113		23,210,700	$	(1,001	)	$	(60	)	$	(43	)	$	9,076
Net income							303													303
Common stock dividends							(160	)												(160	)
Issuance of common shares—dividend reinvestment and employee stock plans	476,809				21															21
Other comprehensive income																	7			7
Adjustment for adoption of FASB Statement No. 157							17													17
BALANCE AS OF MARCH 31, 2008	272,501,683	$	29	$	4,059	$	6,273		23,210,700	$	(1,001	)	$	(60	)	$	(36	)	$	9,264
Net income							552													552
Common stock dividends							(162	)												(162	)
Issuance of common shares—dividend reinvestment and employee stock plans	493,092				23															23
Other comprehensive income																	3			3
BALANCE AS OF JUNE 30, 2008	272,994,775	$	29	$	4,082	$	6,663		23,210,700	$	(1,001	)	$	(60	)	$	(33	)	$	9,680

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,
	2008			2007
OPERATING ACTIVITIES
Net Income	$	854		$	410
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		347			331
Deferred income taxes		202			89
Rate case amortization and accruals		(105	)		(156	)
Net transmission and distribution reconciliation		(52	)		(98	)
Common equity component of allowance for funds used during construction		(4	)		(3	)
Prepaid pension costs (net of capitalized amounts)		—			71
Pre-tax gain on sale of generation projects		(704	)		—
Other non-cash items (net)		(223	)		(55	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		69			(42	)
Materials and supplies, including fuel oil and gas in storage		(35	)		85
Other receivables and other current assets		(148	)		143
Prepayments		16			32
Recoverable energy costs		(33	)		74
Accounts payable		335			(7	)
Pensions and retiree benefits		63			13
Accrued taxes		257			22
Accrued interest		4			(3	)
Deferred charges, noncurrent assets and other regulatory assets		(230	)		(257	)
Deferred credits and other regulatory liabilities		638			146
Other assets		133			(10	)
Other liabilities		(94	)		36

NET CASH FLOWS FROM OPERATING ACTIVITIES		1,290			821
INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $- and $(30) in 2008 and 2007, respectively)		(1,068	)		(891	)
Cost of removal less salvage		(90	)		(73	)
Non-utility construction expenditures		3			(3	)
Common equity component of allowance for funds used during construction		4			3
Increase in restricted cash		—			1
Proceeds from sale of generation projects		1,477			—
Proceeds from sale of properties		—			30
Purchase of ownership interest in Hawkeye lease		(12	)		—
Purchase of ownership interest in Newington SCS		(20	)		—

NET CASH FLOWS FROM/(USED) IN INVESTING ACTIVITIES		294			(933	)
FINANCING ACTIVITIES
Net proceeds from/(payments of) short-term debt		(763	)		198
Retirement of long-term debt		(186	)		(359	)
Issuance of long-term debt		1,200			—
Issuance of common stock		19			651
Debt issuance costs		(9	)		—
Common stock dividends		(298	)		(286	)

NET CASH FLOWS FROM/(USED) FINANCING ACTIVITIES		(37	)		204
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		1,547			92
BALANCE AT BEGINNING OF PERIOD		210			94

BALANCE AT END OF PERIOD	$	1,757		$	186
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	244		$	226
Income taxes	$	87		$	75

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2008		December 31, 2007
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	15,795	$	15,027
Gas		3,133		2,999
Steam		1,785		1,755
General		1,608		1,599
TOTAL		22,321		21,380
Less: Accumulated depreciation		4,485		4,360
Net		17,836		17,020
Construction work in progress		931		973
NET UTILITY PLANT		18,767		17,993
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $18 in 2008 and 2007		11		12
NET PLANT		18,778		18,005
CURRENT ASSETS
Cash and temporary cash investments		341		121
Accounts receivable - customers, less allowance for uncollectible accounts of $47 and $43 in 2008 and 2007, respectively		748		832
Other receivables, less allowance for uncollectible accounts of $3 and $4 in 2008 and 2007, respectively		190		159
Accounts receivable from affiliated companies		182		96
Fuel oil, at average cost		50		44
Gas in storage, at average cost		197		170
Materials and supplies, at average cost		136		138
Prepayments		77		81
Fair value of derivative assets		128		66
Recoverable energy costs		334		190
Deferred derivative losses		1		44
Other current assets		4		5
TOTAL CURRENT ASSETS		2,388		1,946
INVESTMENTS		114		111
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Regulatory assets		3,979		4,103
Other deferred charges and noncurrent assets		394		339
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		4,373		4,442
TOTAL ASSETS	$	25,653	$	24,504

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2008		December 31, 2007
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity (See Statement of Common Shareholder's Equity)	$	8,191	$	8,086
Preferred stock		213		213
Long-term debt		8,095		7,172
TOTAL CAPITALIZATION		16,499		15,471
NONCURRENT LIABILITIES
Obligations under capital leases		19		22
Provision for injuries and damages		155		154
Pensions and retiree benefits		740		638
Superfund and other environmental costs		234		271
Uncertain income taxes		134		142
Asset retirement obligations		116		110
Fair value of derivative liabilities		—		4
Other noncurrent liabilities		75		77
TOTAL NONCURRENT LIABILITIES		1,473		1,418
CURRENT LIABILITIES
Long-term debt due within one year		375		280
Notes payable		—		555
Accounts payable		1,015		899
Accounts payable to affiliated companies		32		19
Customer deposits		245		234
Accrued taxes		42		30
Accrued interest		137		134
Accrued wages		75		74
Fair value of derivative liabilities		47		20
Deferred derivative gains		263		5
Deferred income taxes—recoverable energy costs		136		77
Other current liabilities		309		276
TOTAL CURRENT LIABILITIES		2,676		2,603
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		4,214		4,018
Regulatory liabilities		760		976
Other deferred credits		31		18
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,005		5,012
TOTAL CAPITALIZATION AND LIABILITIES	$	25,653	$	24,504

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,
	2008			2007			2008			2007
	(Millions of Dollars)
OPERATING REVENUES
Electric	$	1,778		$	1,731		$	3,492		$	3,374
Gas		383			377			1,124			1,113
Steam		133			128			418			422
TOTAL OPERATING REVENUES		2,294			2,236			5,034			4,909
OPERATING EXPENSES
Purchased power		704			713			1,425			1,369
Fuel		124			123			322			335
Gas purchased for resale		215			216			642			650
Other operations and maintenance		488			431			950			863
Depreciation and amortization		171			147			325			292
Taxes, other than income taxes		313			303			645			615
Income taxes		41			61			154			197
TOTAL OPERATING EXPENSES		2,056			1,994			4,463			4,321
OPERATING INCOME		238			242			571			588
OTHER INCOME (DEDUCTIONS)
Investment and other income		10			15			13			25
Allowance for equity funds used during construction		2			2			4			3
Other deductions		(5	)		(3	)		(7	)		(7	)
Income taxes		(4	)		(2	)		(3	)		—
TOTAL OTHER INCOME (DEDUCTIONS)		3			12			7			21
INTEREST EXPENSE
Interest on long-term debt		121			105			227			209
Other interest		(2	)		9			10			23
Allowance for borrowed funds used during construction		(2	)		(2	)		(5	)		(4	)
NET INTEREST EXPENSE		117			112			232			228
NET INCOME		124			142			346			381
PREFERRED STOCK DIVIDEND REQUIREMENTS		3			3			6			6
NET INCOME FOR COMMON STOCK	$	121		$	139		$	340		$	375

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,
	2008		2007		2008		2007
	(Millions of Dollars)
NET INCOME	$	124	$	142	$	346	$	381
OTHER COMPREHENSIVE INCOME, NET OF TAXES		—		—		—		—
COMPREHENSIVE INCOME	$	124	$	142	$	346	$	381

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER'S EQUITY

(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, 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

BALANCE AS OF DECEMBER 31, 2007	235,488,094	$	589	$	2,912	$	5,616		$	(962	)	$	(60	)	$	(9	)	$	8,086

Net income							222												222
Common stock dividend to parent							(139	)											(139	)
Capital contribution by parent					23														23
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF MARCH 31, 2008	235,488,094	$	589	$	2,935	$	5,696		$	(962	)	$	(60	)	$	(9	)	$	8,189

Net income							124												124
Common stock dividend to parent							(145	)											(145	)
Capital contribution by parent					26														26
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF JUNE 30, 2008	235,488,094	$	589	$	2,961	$	5,672		$	(962	)	$	(60	)	$	(9	)	$	8,191

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,
	2008			2007
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	346		$	381
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		325			292
Deferred income taxes		193			86
Rate case amortization and accruals		(105	)		(156	)
Net transmission and distribution reconciliation		(52	)		(98	)
Common equity component of allowance for funds used during construction		(4	)		(3	)
Prepaid pension costs (net of capitalized amounts)		—			12
Other non-cash items (net)		(27	)		(32	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		84			(3	)
Materials and supplies, including fuel oil and gas in storage		(31	)		45
Other receivables and other current assets		(171	)		89
Prepayments		4			7
Recoverable energy costs		(42	)		69
Accounts payable		129			(18	)
Pensions and retiree benefits		44			(7	)
Accrued taxes		12			35
Accrued interest		3			1
Deferred charges, noncurrent assets and other regulatory assets		(119	)		(248	)
Deferred credits and other regulatory liabilities		473			156
Other assets		—			(1	)
Other liabilities		3			48

NET CASH FLOWS FROM OPERATING ACTIVITIES		1,065			655
INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $- and $(30) in 2008 and 2007, respectively)		(1,031	)		(852	)
Cost of removal less salvage		(88	)		(71	)
Common equity component of allowance for funds used during construction		4			3
Proceeds from loan to affiliate		55			—
Proceeds from sale of properties		—			30

NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,060	)		(890	)
FINANCING ACTIVITIES
Net payments of short-term debt		(555	)		—
Retirement of long-term debt		(180	)		—
Issuance of long-term debt		1,200			—
Debt issuance costs		(9	)		—
Capital contribution by parent		49			516
Dividend to parent		(284	)		(262	)
Preferred stock dividends		(6	)		(6	)

NET CASH FLOWS FROM FINANCING ACTIVITIES		215			248
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		220			13
BALANCE AT BEGINNING OF PERIOD		121			47
BALANCE AT END OF PERIOD	$	341		$	60
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	223		$	203
Income taxes	$	70		$	102

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

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, 2007 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (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 these notes 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 participates in infrastructure projects. During the second quarter of 2008, Con Edison Development and its subsidiary, CED/SCS Newington, LLC, completed the sale of their ownership interests in power generating projects with an aggregate capacity of approximately 1,706 megawatts. See Note N.

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, 2008 and 2007, 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)	2008		2007		2008		2007
Income from continuing operations	$	302	$	151	$	601	$	409
Income from discontinued operations, net of tax		250		3		253		1
Net income	$	552	$	154	$	854	$	410
Weighted average common shares outstanding - Basic		272.7		264.9		272.5		261.8
Add: Incremental shares attributable to effect of potentially dilutive securities		0.8		1.3		0.8		1.3
Adjusted weighted average common shares outstanding - Diluted		273.5		266.2		273.3		263.1
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	1.10	$	0.57	$	2.21	$	1.56
Discontinued operations		0.92		0.01		0.93		0.01
Net income	$	2.02	$	0.58	$	3.14	$	1.57
EARNINGS PER COMMON SHARE – DILUTED
Continuing operations	$	1.10	$	0.57	$	2.20	$	1.55
Discontinued operations		0.92		0.01		0.93		0.01
Net income	$	2.02	$	0.58	$	3.13	$	1.56

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.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Rate Agreements

Con Edison of New York - Electric

In May 2008, Con Edison of New York filed a proposal with the New York State Public Service Commission (PSC) for a three-year electric rate plan with level annual rate increases of $556.7 million effective April 2009, 2010 and 2011. The filing reflects a return on common equity of 10.0 percent and a common equity ratio of 48.0 percent.

The filing reflects efforts by Con Edison of New York to mitigate the impact on its customers of rate increases, including its proposed targeted energy efficiency programs and its proposal to begin to accrue revenues in the month electric service is provided instead of when it bills customers for the service.

The filing also includes an alternative proposal for an electric rate increase of $654 million, effective April 2009, to recover increased property taxes ($200 million); additional operating costs and new and/or expanded operating programs ($165 million); carrying charges on additional infrastructure investments ($230 million); and an increased return on equity as compared to the return on equity reflected in current electric rates ($115 million).

The company is requesting that expenses for pension and other post-retirement benefits, property taxes, municipal infrastructure support and environmental site investigation and remediation be reconciled to amounts reflected in rates and that increases, if any, in certain expenses above a four percent annual inflation rate be deferred as a regulatory asset if its annual return on common equity is less than the authorized return. The filing reflects continuation of the revenue decoupling mechanism that eliminates the direct relationship between the company’s level of delivery revenues and profits. It also reflects continuation of the provisions pursuant to which the company recovers its purchased power and fuel costs from customers.

O&R - Electric

In July 2008, the PSC approved a Joint Proposal among O&R, the PSC staff and other parties for the rates O&R can charge its New York customers for electric service from July 2008 through June 2011. The rate plan approved by the PSC provides for electric rate increases of $15.6 million, $15.6 million and $5.7 million effective July 1, 2008, 2009 and 2010, respectively, and the collection of an additional $9.9 million during the 12-month period beginning July 1, 2010.

The Joint Proposal reflected the following major items:

•

an annual return on common equity of 9.4 percent;

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

•

most of any actual earnings above a 10.2 percent return on equity (based on actual average common equity ratio, subject to a 50 percent maximum) are to be applied to reduce regulatory assets for pension and other post-retirement benefit expenses;

•

deferral as a regulatory asset or regulatory liability, as the case may be, of the difference between actual pension and other post-retirement benefit expenses, environmental remediation expenses, property taxes, tax-exempt debt costs and certain other expenses and amounts for those expenses reflected in rates;

•

deferral as a regulatory liability of the revenue requirement impact (i.e., return on investment, depreciation and income taxes) of the amount, if any, by which actual transmission and distribution related capital expenditures are less than amounts reflected in rates;

•

deferral as a regulatory asset of increases, if any, in certain expenses above a 4 percent annual inflation rate, but only if the actual annual return on common equity is less than 9.4 percent;

•

potential negative earnings adjustments of approximately $2 million to $3 million annually if certain customer service and system reliability performance targets are not met;

•

implementation of a revenue decoupling mechanism under which actual energy delivery revenues would be compared, on a periodic basis, with the authorized delivery revenues with the difference accrued, with interest, for refund to, or recovery from, customers, as applicable;

•

continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers; and

•

withdrawal of the litigation O&R commenced seeking to annul the PSC’s March and October 2007 orders relating to O&R’s electric rates.

Con Edison of New York - Steam

In June 2008, Con Edison of New York entered into a Joint Proposal with the PSC staff and other parties with respect to the rates the company can charge its customers for steam service. The Joint Proposal, which is subject to PSC approval, covers the period from October 1, 2008 through September 30, 2010. The Joint Proposal provides for steam rate increases of $43.7 million effective October 1, 2008 and 2009. The PSC is expected to consider the Joint Proposal in September 2008.

The Joint Proposal reflects the following major items:

•

an annual return on common equity of 9.3 percent;

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

•

any actual earnings above a 10.1 percent return on equity (based on actual average common equity ratio, subject to a 50 percent maximum) are to be shared as follows: half will be deferred for the benefit of customers and the other half is to be retained by the company (with half of the company’s share subject to offset to reduce any regulatory assets for under-collections of property taxes);

•

deferral as a regulatory asset or regulatory liability, as the case may be, of the difference between (i) actual costs for pension and other post-retirement benefits, environmental remediation, property taxes, tax-exempt debt, municipal infrastructure support and certain other costs and (ii) amounts for those costs reflected in rates (90 percent of the difference in the case of property taxes and interference costs);

•

deferral as a regulatory liability of the revenue requirement impact (i.e., return on investment, depreciation and income taxes) of the amount, if any, by which the actual capital expenditures related to steam production plant are less than amounts reflected in rates;

•

potential negative earnings adjustments (revenue reductions) of approximately $950,000 to $1 million annually if certain business development, customer service and safety performance targets are not met;

•

amortization of certain regulatory assets and liabilities, the net effect of which will be a non-cash increase in steam revenues of $20.3 million over the two-year period covered by the Joint Proposal; and

•

continuation of the rate provisions pursuant to which the company recovers its fuel and purchased steam costs from customers.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2008 and December 31, 2007 were comprised of the following items:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Regulatory assets
Unrecognized pension and other postretirement costs	$	2,097	$	2,106	$	1,959	$	1,956
Future federal income tax		1,168		1,112		1,112		1,057
Environmental remediation costs		385		378		319		312
World Trade Center restoration costs		149		154		149		154
Pension and other postretirement benefits deferrals		90		152		34		96
Revenue taxes		77		77		75		75
O&R transition bond charges		61		63		—		—
Unbilled gas revenue		44		44		44		44
Workers’ compensation		38		41		38		41
Net electric deferrals		36		—		36		—
Other retirement program costs		15		16		15		16
Asbestos-related costs		10		10		10		10
Deferred derivative losses - long-term		1		5		1		4
Net T&D reconciliation		—		142		—		142
Recoverable energy costs		—		50		—		50
Electric rate increase accrual		—		14		—		14
Other		210		147		187		132
Regulatory assets		4,381		4,511		3,979		4,103
Deferred derivative losses - current		2		45		1		44
Recoverable energy costs - current		345		213		334		190
Total Regulatory Assets	$	4,728	$	4,769	$	4,314	$	4,337
Regulatory liabilities
Allowance for cost of removal less salvage	$	398	$	422	$	336	$	362
Deferred derivative gains - long-term		152		21		78		8
Refundable energy costs		78		29		52		—
Net electric deferrals		57		33		57		33
Gain on sale of First Avenue properties		32		124		32		124
Gas excess earnings		15		10		15		10
Gas interruptible sales credits		10		10		10		10
Transmission congestion contracts		7		40		7		40
Net steam deferrals		7		21		7		21
EPA SO₂ allowance proceeds – electric and steam		6		18		6		18
Property tax reconciliation		5		41		5		41
Prior year deferred tax amortization		2		51		2		51
NYS tax law changes		1		42		—		41
DC service incentive		1		10		1		10
Interest on federal income tax refund		—		41		—		41
2004 electric, gas and steam one-time rate agreement charges		—		16		—		16
Gain on sale of W. 24^th St. property		—		10		—		10
Other		169		158		152		140
Regulatory liabilities		940		1,097		760		976
Deferred derivative gains – current		372		10		263		5
Total Regulatory Liabilities	$	1,312	$	1,107	$	1,023	$	981

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Power Outage Proceedings

In July 2008, the PSC approved a Joint Proposal among Con Edison of New York, the PSC staff and other parties with respect to the July 2006 Queens outage. The PSC order provides that (i) the company will make available $17 million for the benefit of the communities affected by the outage, including customer bill credits, and will not recover from customers $40 million of capital costs incurred to replace and repair electric delivery facilities and $6 million of related carrying charges; and (ii) the company will be released from all prudence-related claims that were or could have been asserted in any PSC proceeding relating to the outage other than with respect to any damage to the Long Island City network, or incremental costs, that are neither known nor reasonably foreseeable.

In June 2008, the PSC concluded that Con Edison of New York is not liable for food spoilage claims in connection with the September 2006 outage in Westchester resulting from Tropical Storm Ernesto.

Note C - Long-term Debt

Reference is made to Note C 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.

At June 30, 2008, $49 million of the $55 million of O&R’s weekly-rate, tax-exempt debt that is insured by Financial Guaranty Insurance Company (Series 1994A Debt), and $1 million of the $44 million of such debt insured by Ambac Assurance Company (Series 1995 A Debt), had been tendered by bondholders and purchased with funds drawn under letters of credit maintained as liquidity facilities for the tax-exempt debt. O&R reimbursed the bank for the funds used to purchase the tendered bonds, together with interest thereon.

In June 2008, Con Edison issued $326 million of 8.71 percent long-term unsecured notes due in 2022 in exchange for a like amount of secured project debt in connection with the purchase by a subsidiary of Con Edison Development of a 525 MW generating project in Newington, New Hampshire. Upon completion of the exchange, the project debt was cancelled. Previously, the project had been leased by the subsidiary and Con Edison had guaranteed the payment of certain obligations in connection with the project. See Notes H and P to the financial statements in Item 8 of the Form 10-K. The new notes are, and the project debt had been, included in Con Edison’s consolidated balance sheet. Con Edison Development subsequently completed the sale of its ownership interests in the project. See Note N.

The new notes mature, bear interest and are subject to substantially the same terms as the project debt (other than terms relating to the project being leased or security for the debt), including the payment of a make-whole premium in connection with any optional prepayment. There are no significant debt covenants applicable to the notes other than covenants requiring Con Edison to pay principal and

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

interest when due, not to consolidate with or merge into any other corporation and to continue its business unless certain conditions are met, and not to permit its ratio of consolidated debt to consolidated capital to exceed 0.675 to 1. The failure to comply with applicable covenants would, except as provided, constitute an event of default with respect to the notes. Events of default with respect to the notes also include events of default of other indebtedness of Con Edison or its material subsidiaries having a then outstanding principal balance in excess of $100 million. If an event of default with respect to the notes occurs and is continuing, the note holders may, subject to certain conditions, declare the unpaid principal amount of the notes, together with any accrued and unpaid interest and applicable make-whole premium, due and payable.

Note D - 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 D to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

At June 30, 2008, Con Edison had $77 million of commercial paper outstanding, none of which was outstanding under Con Edison of New York’s program. The weighted average interest rate at June 30, 2008 was 3.0 percent for Con Edison. At June 30, 2007, Con Edison had $314 million of commercial paper outstanding, none of which was outstanding under Con Edison of New York’s program. The weighted average interest rate at June 30, 2007 was 5.5 percent for Con Edison. At June 30, 2008 and 2007, no loans were outstanding under the Companies’ credit agreements and $115 million and $47 million of letters of credit were outstanding, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note E - Pension Benefits

Reference is made to Note E 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 benefit costs for the three and six months ended June 30, 2008 and 2007 were as follows:


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2008			2007			2008			2007
Service cost – including administrative expenses	$	34		$	33		$	32		$	31
Interest cost on projected benefit obligation		129			123			121			115
Expected return on plan assets		(173	)		(162	)		(165	)		(155	)
Amortization of net actuarial loss		48			40			42			34
Amortization of prior service costs		2			3			2			3
NET PERIODIC BENEFIT COST	$	40		$	37		$	32		$	28
Amortization of regulatory asset*		1			1			1			1
TOTAL PERIODIC BENEFIT COST	$	41		$	38		$	33		$	29
Cost capitalized		(14	)		(11	)		(11	)		(8	)
Cost deferred		(5	)		(20	)		(7	)		(18	)
Cost charged to operating expenses	$	22		$	7		$	15		$	3

*	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)	2008			2007			2008			2007
Service cost – including administrative expenses	$	69		$	66		$	64		$	61
Interest cost on projected benefit obligation		258			246			241			230
Expected return on plan assets		(346	)		(323	)		(330	)		(309	)
Amortization of net actuarial loss		96			80			85			69
Amortization of prior service costs		4			5			4			5
NET PERIODIC BENEFIT COST	$	81		$	74		$	64		$	56
Amortization of regulatory asset*		2			2			2			2
TOTAL PERIODIC BENEFIT COST	$	83		$	76		$	66		$	58
Cost capitalized		(28	)		(23	)		(23	)		(18	)
Cost deferred		(25	)		(49	)		(28	)		(45	)
Cost charged/(credited) to operating expenses	$	30		$	4		$	15		$	(5	)

*	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 F - Other Postretirement Benefits

Reference is made to Note F to the financial statements in Item 8 of the Form 10-K and Note F 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, 2008 and 2007 were as follows:


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2008			2007			2008			2007
Service cost	$	5		$	5		$	4		$	4
Interest cost on accumulated other postretirement benefit obligation		23			23			21			21
Expected return on plan assets		(21	)		(20	)		(19	)		(19	)
Amortization of net actuarial loss		17			16			14			14
Amortization of prior service cost		(3	)		(3	)		(4	)		(3	)
Amortization of transition obligation		1			1			1			1
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	22		$	22		$	17		$	18
Cost capitalized		(7	)		(8	)		(6	)		(6	)
Cost deferred		(4	)		(9	)		(2	)		(9	)
Cost charged to operating expenses	$	11		$	5		$	9		$	3


	For the Six Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2008			2007			2008			2007
Service cost	$	10		$	9		$	8		$	7
Interest cost on accumulated other postretirement benefit obligation		47			46			42			41
Expected return on plan assets		(43	)		(40	)		(39	)		(37	)
Amortization of net actuarial loss		34			33			29			29
Amortization of prior service cost		(6	)		(7	)		(7	)		(7	)
Amortization of transition obligation		2			2			2			2
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	44		$	43		$	35		$	35
Cost capitalized		(15	)		(15	)		(12	)		(12	)
Cost deferred		(11	)		(20	)		(9	)		(18	)
Cost charged to operating expenses	$	18		$	8		$	14		$	5

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note G - 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 and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the 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, 2008 and December 31, 2007 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Accrued Liabilities:
Manufactured gas plant sites	$	242	$	267	$	187	$	212
Other Superfund Sites		48		60		47		59
Total	$	290	$	327	$	234	$	271
Regulatory assets	$	385	$	378	$	319	$	312

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, 2008 and 2007 were as follows:


	For the Three Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Remediation payments	$	31	$	9	$	31	$	7
Insurance recoveries received		—		1		—		1

	For the Six Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Remediation payments	$	53	$	18	$	52	$	16
Insurance recoveries received		—		1		—		1

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 2007, 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 $115 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 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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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, 2008 and December 31, 2007 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Accrued liability – asbestos suits	$	10	$	10	$	10	$	10
Regulatory assets – asbestos suits	$	10	$	10	$	10	$	10
Accrued liability – workers’ compensation	$	114	$	116	$	108	$	111
Regulatory assets – workers’ compensation	$	38	$	41	$	38	$	41

Note H - Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a Con Edison of New York steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. As of June 30, 2008, with respect to the incident, the company incurred estimated operating costs of $35 million for property damage, clean up and other response costs, recorded $21 million in actual and expected insurance recoveries and invested $12 million in capital, retirement and other costs. Over 50 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. 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 the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

In August 2008, Con Edison of New York entered into a Joint Proposal with the PSC staff and the New York State Consumer Protection Board with respect to the PSC’s ongoing proceeding relating to the steam main rupture. (See “Regulatory Matters – Con Edison of New York – Steam” in Note B to

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

the financial statements in Item 8 of the Form 10-K.) Pursuant to the Joint Proposal, which is subject to PSC approval, among other things, the company (i) will not recover from customers the operating, capital and retirement costs it incurred as a result of the steam main rupture; (ii) will, in general, effectively be limited in its recovery from customers of premiums for its excess liability insurance policies for each of the policy years beginning April 2008 through April 2011 to amounts designed to prevent recovery of any premium increase resulting from the steam main rupture; and (iii) will be released from all prudence-related claims that were or could have been asserted in any PSC proceeding relating to the steam main rupture other than with respect to any damage to company facilities, or incremental costs, that are neither known nor reasonably foreseeable. The Joint Proposal does not preclude the PSC from pursuing a penalty action for any violations of the Public Service Law or the PSC’s regulations or orders.

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 electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with 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. The company’s investment in these leveraged leases was immaterial at June 30, 2008 and $9 million at December 31, 2007 and is comprised of a $235 million gross investment less $235 million of deferred tax liabilities at June 30, 2008 and $235 million gross investment less $226 million of deferred tax liabilities at December 31, 2007.

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. A trial was completed in November 2007 and post trial briefs have been filed. A decision is possible later this year.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Two cases involving LILO and sale in/lease out transactions have been decided in other courts, each of which was decided in favor of the government and one of which has been affirmed on appeal. See, BB&T Corp. v. United States, 523 F.3d 461 (4th Cir. 2008), and AWG Leasing Trust v. United States, 1:07-CV-857 (N.D. Ohio May 28, 2008). The court before which Con Edison stands, the Court of Federal Claims, has not previously rendered a decision with respect to such transactions and is not bound by these cases. Con Edison believes its tax deductions are proper and that its transaction is distinguishable on a number of grounds. For example, the two cases recently decided involved investments by banks in industrial assets, Swedish wood pulp mill equipment and a German waste-to-energy disposal facility respectively. In contrast, the facts surrounding Con Edison’s investment are quite different. Its investment was made in the context of the deregulation of the electric energy industry in New York. It involved an acquisition by Con Edison Development of a leasehold interest in an electric generating power plant in the Netherlands. The asset is consistent with Con Edison Development’s plan at the time to invest in a variety of international infrastructure projects. Moreover, in both BB&T and AWG the United States, as defendant, successfully argued that the counterparties in those cases were certain to exercise their early purchase options and, therefore, that those transactions did not qualify as leases. In contrast, Con Edison produced evidence that it is unclear whether the counterparty will exercise its early purchase option.

In a third LILO case, a jury verdict was rendered, partially favorable to the taxpayer and partially favorable to the government. See, Fifth Third Bancorp & Subsidiaries v. United States, 1:05-CV-350 (S.D. Ohio April 18, 2008). Post-verdict motions are pending in that case and a decision has not been rendered.

In connection with its audit of Con Edison’s federal income tax return for the tax year 2006, the IRS disallowed $43 million of net tax deductions taken with respect to both of the LILO transactions for the tax year. Con Edison filed an appeal of this audit level disallowance with the Appeals Office of the IRS, where consideration of this matter is pending. In connection with its audit of Con Edison’s federal income tax returns for the tax years 1998 through 2005, the IRS indicated that it intends to disallow $332 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. If and when these audit level disallowances become appealable, Con Edison intends to file appeals of the disallowances with the Appeals Office of the IRS.

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, 2008, in the aggregate, was $180 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 $71 million at June 30, 2008.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FASB Statement (FAS) 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,” which became effective for fiscal years beginning after December 15, 2006. This FSP requires the expected timing of income tax cash flows generated by Con Edison’s LILO transactions to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the company’s results of operations.

Uncertain Tax Positions

Reference is made to “Uncertain Tax Positions” in Note L to the financial statements included in Item 8 of the Form 10-K.

In July 2008, the IRS entered into a closing agreement with Con Edison covering the Companies use of the “simplified service cost method” (SSCM) to determine the extent to which construction-related costs could be deducted in 2002 through 2004. The closing agreement does not cover 2005, the last year for which SSCM is an uncertain tax position. The Companies do not expect the required repayment, with interest, to the IRS of their SSCM tax benefits for 2002 through 2005 to exceed the $160 million ($147 million of which is attributable to Con Edison of New York) the Companies paid to the IRS in June 2007 as a deposit for the repayment.

Other Contingencies

See “Power Outage Proceedings” in Note B.

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 $1.5 billion and $1.4 billion at June 30, 2008 and December 31, 2007, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2008 is as follows:


Guarantee Type	0 –3 years		4 –10 years		> 10 years		Total
	(Millions of Dollars)
Commodity transactions	$	857	$	41	$	273	$	1,171
Affordable housing program		—		15		—		15
Intra-company guarantees		39		—		1		40
Other guarantees		217		34		—		251
TOTAL	$	1,113	$	90	$	274	$	1,477

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

Note I - Stock-Based Compensation

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

In accordance with SFAS No. 123(R), “Share-Based Payment,” 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, 2008 and 2007:


	For the Three Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Stock options	$	—	$	—	$	—	$	—
Restricted stock units		—		1		—		1
Performance-based restricted stock		1		1		1		1
Total	$	1	$	2	$	1	$	2


	For the Six Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2008		2007		2008		2007
Stock options	$	1	$	1	$	1	$	1
Restricted stock units		—		1		—		1
Performance-based restricted stock		—		2		—		2
Total	$	1	$	4	$	1	$	4

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, 2008 and 2007 is as follows:


	Con Edison				Con Edison of New York
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
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
Outstanding at 12/31/07	6,596,850		$	43.072	5,531,850		$	43.187
Granted	—			—	—			—
Exercised	(26,500	)		39.658	(22,000	)		39.242
Forfeited	(75,550	)		43.028	(73,050	)		43.032
Outstanding at 3/31/08	6,494,800		$	43.087	5,436,800		$	43.205
Granted	—			—	—			—
Exercised	(5,000	)		36.988	(5,000	)		36.988
Forfeited	(36,600	)		43.648	(17,000	)		43.602
Outstanding at 6/30/08	6,453,200		$	43.088	5,414,800		$	43.209

The change in the fair value of all outstanding options from their grant dates to June 30, 2008 and 2007 (aggregate intrinsic value) for Con Edison was $(26) million and $15 million, respectively. The change in the fair value of all outstanding options from their grant dates to June 30, 2008 and 2007 (aggregate intrinsic value) for Con Edison of New York was $(22) million and $12 million, respectively. The aggregate intrinsic value of options exercised in the period ended June 30, 2008 and 2007 was $0.2 million and $6 million, respectively, and the cash received by Con Edison for payment of the exercise price was $1.2 million and $30 million, respectively. The weighted average remaining contractual life of options outstanding is four years as of June 30, 2008.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The following table summarizes stock options outstanding at June 30, 2008 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	8	1,624,300	$	45.173	—	1,394,700	$	45.194	—
2005	7	1,238,500		42.751	1,238,500	1,013,750		42.725	1,013,750
2004	6	920,300		43.765	920,300	739,850		43.762	739,850
2003	5	789,600		39.955	789,600	620,900		39.981	620,900
2002	4	848,550		42.510	848,550	712,550		42.510	712,550
2001	3	364,800		37.750	364,800	316,800		37.750	316,800
2000	2	124,150		32.500	124,150	88,650		32.500	88,650
1999	1	543,000		47.940	543,000	527,600		47.940	527,600
Total		6,453,200	$	43.088	4,828,900	5,414,800	$	43.209	4,020,100

There were no new awards granted in 2008 and 2007. The total expense to be recognized in future periods for unvested stock options outstanding as of June 30, 2008 is $0.5 million for Con Edison and Con Edison of New York.

Restricted Stock Units

At June 30, 2008 and 2007, there were 136,535 and 115,055 units outstanding, respectively, for Con Edison employees, of which 83,635 and 63,055 units outstanding, respectively, for Con Edison of New York. The weighted average fair value as of the grant date of the outstanding units other than Performance RSUs or awards under the directors’ deferred compensation plan for June 30, 2008 and 2007 was $42.28 and $42.87 per unit, respectively, for Con Edison. The weighted average fair value as of the grant date of the outstanding units for June 30, 2008 and 2007 was $44.22 and $45.88 per unit, respectively, for Con Edison of New York. The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of June 30, 2008 for Con Edison and Con Edison of New York was $1.4 million and $1.3 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, 2008 and 2007 is as follows:


	Con Edison				Con Edison of New York
	Units		Weighted Average Fair Value*		Units		Weighted Average Fair Value*
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
Non-vested at 12/31/07	195,980		$	33.398	146,033		$	33.048
Granted	159,950			36.270	115,758			36.270
Vested and Exercised	(5	)		31.370	—			—
Forfeited	(5,270	)		—	(200	)		—
Non-vested at 3/31/08	350,655		$	21.178	261,591		$	20.918
Granted	38,375			25.980	35,515			25.980
Vested and Exercised	—			—	—			—
Forfeited	(4,839	)		—	(2,814	)		—
Non-vested at 6/30/08	384,191		$	15.269	294,292		$	15.177

*	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, 2008 and 2007 is as follows:


	Con Edison				Con Edison of New York
	Units		Weighted Average Price		Units		Weighted Average Price
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
Non-vested at 12/31/07	195,980		$	48.850	146,033		$	48.850
Granted	159,950			46.440	115,758			46.440
Vested and Exercised	(20	)		43.570	—			—
Forfeited	(5,255	)		—	(200	)		—
Non-vested at 3/31/08	350,655		$	39.700	261,591		$	39.700
Granted	38,375			39.700	35,515			39.700
Vested and Exercised	—			—	—			—
Forfeited	(4,839	)		—	(2,814	)		—
Non-vested at 6/30/08	384,191		$	39.090	294,292		$	39.090

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of June 30, 2008 is $14 million, including $11 million for Con Edison of New York.

Stock Purchase Plan

In the three months ended June 30, 2008 and 2007, 150,558 shares and 155,415 shares were purchased under the Stock Purchase Plan at a weighted average price of $41.00 and $49.56 per share, respectively. In the six months ended June 30, 2008 and 2007, 311,914 shares and 304,812 shares were purchased under the Stock Purchase Plan at a weighted average price of $44.30 and $49.04 per share, respectively.

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.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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)	2008		2007			2008			2007			2008		2007		2008		2007
Con Edison of New York
Electric	$	1,778	$	1,731		$	3		$	3		$	133	$	111	$	203	$	191
Gas		383		377			1			1			22		21		31		43
Steam		133		128			20			23			16		15		4		8
Consolidation adjustments		—		—			(24	)		(27	)		—		—		—		—
Total Con Edison of New York	$	2,294	$	2,236		$	—		$	—		$	171	$	147	$	238	$	242
O&R
Electric	$	180	$	165		$	—		$	—		$	7	$	7	$	10	$	15
Gas		43		45			—			—			3		3		—		1
Total O&R	$	223	$	210		$	—		$			$	10	$	10	$	10	$	16
Competitive energy businesses*	$	623	$	513		$	(3	)	$	1		$	1	$	3	$	182	$	9
Other**		9		(2	)		3			(1	)		—		—		—		—
Total Con Edison	$	3,149	$	2,957		$	—		$	—		$	182	$	160	$	430	$	267

*	Operating income includes the gain on the sale of Con Edison Development’s generation projects within continuing operations.

**	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)	2008		2007			2008			2007			2008		2007		2008			2007
Con Edison of New York
Electric	$	3,492	$	3,374		$	6		$	5		$	250	$	220	$	366		$	363
Gas		1,124		1,113			2			2			44		42		145			155
Steam		418		422			38			40			31		30		60			70
Consolidation adjustments		—		—			(46	)		(47	)		—		—		—			—
Total Con Edison of New York	$	5,034	$	4,909		$	—		$	—		$	325	$	292	$	571		$	588
O&R
Electric	$	338	$	309		$			$	—		$	14	$	13	$	15		$	25
Gas		148		158						—			6		5		15			17
Total O&R	$	486	$	467		$			$	—		$	20	$	18	$	30		$	42
Competitive energy businesses*	$	1,197	$	945		$	4		$	3		$	2	$	8	$	219		$	15
Other**		8		(8	)		(4	)		(3	)		—		—		(1	)		(3	)
Total Con Edison	$	6,725	$	6,313		$	—		$	—		$	347	$	318	$	819		$	642

*	Operating income includes the gain on the sale of Con Edison Development’s generation projects within continuing operations.

**	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 and Note K to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

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, 2008 and December 31, 2007 were as follows:


	Con Edison						Con Edison of New York
(Millions of Dollars)	2008			2007			2008			2007
Fair value of net assets - gross	$	586		$	(70	)	$	301		$	(49	)
Impact of netting of cash collateral		(344	)		115			(178	)		92
Fair value of net assets - net	$	242		$	45		$	123		$	43

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.

At June 30, 2008, Con Edison and Con Edison of New York had $610 million and $203 million, respectively, of credit exposure in connection with energy supply and hedging activities, net of collateral and reserves of $450 million and $123 million, respectively. Con Edison’s net credit exposure consisted of $507 million with investment-grade counterparties (a portion of which is insured through credit insurance and hedged with credit default swaps), $100 million primarily with commodity exchange brokers or independent system operators and $3 million with non-investment grade counterparties. Con Edison of New York’s net credit exposure consisted of $135 million with investment-grade counterparties and $68 million with commodity exchange brokers.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” 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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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. For the three months ended June 30, 2008 and 2007, Con Edison recorded in non-utility operating revenues an unrealized pre-tax gain of $51 million and a pre-tax loss of $6 million, respectively. For the six months ended June 30, 2008 and 2007, Con Edison recorded in non-utility operating revenues an unrealized pre-tax gain of $106 million and a pre-tax loss of $14 million, respectively.

Interest Rate Swaps

In May 2008, Con Edison Development’s interest rate swaps that were designated as cash flow hedges under SFAS No. 133 were sold. The losses were classified to Income/(loss) from discontinued operations for the three and six months ended June 30, 2008 and were immaterial to Con Edison’s results of operations.

O&R has an interest rate swap related to its Series 1994A Debt. See Note C. At December 31, 2007, the swap was designated as a cash flow hedge, the fair value of which was an unrealized loss of $11 million that was recorded in OCI. In February 2008, the swap counterparty changed the method of calculating its payments under the swap and, as a result, the swap no longer qualified as a hedge under SFAS No. 133. In accordance with O&R’s July 2008 electric rate plan (see Note B), O&R is to defer as a regulatory asset or liability the difference between its actual interest and swap costs relating to its tax-exempt debt and the amount for such costs reflected in rates. Similar treatment is expected in O&R’s other services. The fair value of this interest rate swap at June 30, 2008 was an unrealized loss of $11 million, which has been deferred as a regulatory asset.

Note L - Fair Value Measurements

Reference is made to Note L to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

Effective January 1, 2008, the Companies adopted FASB Statement No. 157, “Fair Value Measurements” (SFAS No. 157). This Statement defines fair value, establishes a framework for measuring fair value and expands the disclosures about fair value measurements.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED