Edgar Filing: CONSOLIDATED EDISON CO OF NEW YORK 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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended JUNE 30, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


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, 2009, Con Edison had outstanding 274,985,240 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	80
ITEM 4	Controls and Procedures	80
ITEM 4T	Controls and Procedures	80

PART II—Other Information
ITEM 1	Legal Proceedings	81
ITEM 1A	Risk Factors	81
ITEM 4	Submission of Matters to a Vote of Security Holders	82
ITEM 6	Exhibits	84
Signatures		85

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, 2009
Fitch		Fitch Ratings
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2008
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, 2009
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, 2009		December 31, 2008
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	18,104	$	17,483
Gas		3,839		3,696
Steam		1,880		1,849
General		1,858		1,795
TOTAL		25,681		24,823
Less: Accumulated depreciation		5,222		5,079
Net		20,459		19,744
Construction work in progress		1,126		1,109
NET UTILITY PLANT		21,585		20,853
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $43 and $40 in 2009 and 2008, respectively		19		20
Construction work in progress		3		1
NET PLANT		21,607		20,874
CURRENT ASSETS
Cash and temporary cash investments		311		74
Accounts receivable—customers, less allowance for uncollectible accounts of $67 and $60 in 2009 and 2008, respectively		938		1,098
Accrued unbilled revenue		475		131
Other receivables, less allowance for uncollectible accounts of $4 in 2009 and 2008		155		194
Fuel oil, at average cost		28		37
Gas in storage, at average cost		170		325
Materials and supplies, at average cost		159		154
Prepayments		175		697
Fair value of derivative assets		203		162
Recoverable energy costs		36		172
Deferred derivative losses		263		288
Other current assets		84		37
TOTAL CURRENT ASSETS		2,997		3,369
INVESTMENTS		368		356
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Goodwill		413		411
Intangible assets, less accumulated amortization of $2 in 2009 and 2008		4		5
Regulatory assets		7,858		8,055
Other deferred charges and noncurrent assets		463		428
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		8,738		8,899
TOTAL ASSETS	$	33,710	$	33,498

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2009		December 31, 2008
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)	$	9,748	$	9,698
Preferred stock of subsidiary		213		213
Long-term debt		9,664		9,232
TOTAL CAPITALIZATION		19,625		19,143
NONCURRENT LIABILITIES
Obligations under capital leases		14		17
Provision for injuries and damages		175		169
Pensions and retiree benefits		4,322		4,511
Superfund and other environmental costs		227		250
Uncertain income taxes		123		118
Asset retirement obligations		118		115
Fair value of derivative liabilities		150		120
Other noncurrent liabilities		89		79
TOTAL NONCURRENT LIABILITIES		5,218		5,379
CURRENT LIABILITIES
Long-term debt due within one year		588		482
Notes payable		100		363
Accounts payable		939		1,161
Customer deposits		268		265
Accrued taxes		29		57
Accrued interest		155		139
Accrued wages		81		88
Fair value of derivative liabilities		217		192
Deferred derivative gains		10		23
Deferred income taxes—recoverable energy costs		15		70
Other current liabilities		333		365
TOTAL CURRENT LIABILITIES		2,735		3,205
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		5,206		4,999
Regulatory liabilities		891		737
Other deferred credits		35		35
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		6,132		5,771
TOTAL CAPITALIZATION AND LIABILITIES	$	33,710	$	33,498

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,
	2009			2008			2009			2008
	(Millions of Dollars/Except Share Data)
OPERATING REVENUES
Electric	$	1,955		$	1,957		$	3,758		$	3,830
Gas		334			426			1,222			1,272
Steam		113			133			444			418
Non-utility		443			633			845			1,205
TOTAL OPERATING REVENUES		2,845			3,149			6,269			6,725
OPERATING EXPENSES
Purchased power		1,065			1,362			2,205			2,653
Fuel		86			124			321			325
Gas purchased for resale		136			243			633			740
Other operations and maintenance		622			572			1,203			1,108
Depreciation and amortization		197			182			389			347
Taxes, other than income taxes		367			328			727			677
Income taxes		78			190			177			337
TOTAL OPERATING EXPENSES		2,551			3,001			5,655			6,187
Gain on sale of generation projects		—			260			—			260
OPERATING INCOME		294			408			614			798
OTHER INCOME (DEDUCTIONS)
Investment and other income		18			11			21			69
Allowance for equity funds used during construction		3			2			5			4
Other deductions		(5	)		(5	)		(8	)		(10	)
Income taxes		(2	)		(5	)		3			(21	)
TOTAL OTHER INCOME (DEDUCTIONS)		14			3			21			42
INTEREST EXPENSE
Interest on long-term debt		151			131			293			244
Other interest		6			—			10			16
Allowance for borrowed funds used during construction		(2	)		(3	)		(4	)		(6	)
NET INTEREST EXPENSE		155			128			299			254
INCOME FROM CONTINUING OPERATIONS		153			283			336			586
INCOME FROM DISCONTINUED OPERATIONS
Gain on sale of generation projects, net of tax expense of $174 in 2008		—			270			—			270
Income from discontinued operations, net of tax expense of $1 and $3 in 2008		—			2			—			4
TOTAL INCOME FROM DISCONTINUED OPERATIONS		—			272			—			274
NET INCOME	$	153		$	555		$	336		$	860
Preferred stock dividend requirements of subsidiary		(3	)		(3	)		(6	)		(6	)
NET INCOME FOR COMMON STOCK	$	150		$	552		$	330		$	854
EARNINGS PER COMMON SHARE—BASIC
Continuing operations	$	0.55		$	1.03		$	1.20		$	2.13
Discontinued operations		—			0.99			—			1.01
Net income for common stock	$	0.55		$	2.02		$	1.20		$	3.14
EARNINGS PER COMMON SHARE—DILUTED
Continuing operations	$	0.55		$	1.03		$	1.20		$	2.12
Discontinued operations		—			0.99			—			1.01
Net income for common stock	$	0.55		$	2.02		$	1.20		$	3.13
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.590		$	0.585		$	1.180		$	1.170
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)		274.5			272.7			274.2			272.5
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)		275.3			273.5			275.0			273.3

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,
	2009			2008			2009			2008
	(Millions of Dollars)						(Millions of Dollars)
NET INCOME	$	153		$	555		$	336		$	860
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension plan liability adjustments, net of taxes of $1 and $2 in 2009 and $1 and $1 in 2008, respectively		1			1			3			2
Unrealized losses on derivatives qualified as cash flow hedges, net of taxes of $(1) in 2008		—			—			—			(2	)
Less: Reclassification adjustment for losses included in net income, net of taxes of $0 in 2009 and $(1) and $(1) in 2008		(1	)		(2	)		—			(2	)
Less: Reclassification adjustment for unrealized losses included in regulatory assets, net of taxes of $(5) in 2008		—			—			—			(8	)
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES		2			3			3			10
COMPREHENSIVE INCOME		155			558			339			870
Preferred stock dividend requirements of subsidiary		(3	)		(3	)		(6	)		(6	)
COMPREHENSIVE INCOME FOR COMMON STOCK	$	152		$	555		$	333		$	864

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 Income/(Loss)			Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Shares	Amount			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
	(Millions of Dollars/Except Share Data)
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 for common stock							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 for common stock							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
BALANCE AS OF DECEMBER 31, 2008	273,721,686	$	29	$	4,112	$	6,685		23,210,700	$	(1,001	)	$	(60	)	$	(67	)	$	9,698

Net income for common stock							180													180
Common stock dividends							(162	)												(162	)
Issuance of common shares—dividend reinvestment and employee stock plans	532,533				20															20
Other comprehensive income																	1			1
BALANCE AS OF MARCH 31, 2009	274,254,219	$	29	$	4,132	$	6,703		23,210,700	$	(1,001	)	$	(60	)	$	(66	)	$	9,737

Net income for common stock							150													150
Common stock dividends							(162	)												(162	)
Issuance of common shares—dividend reinvestment and employee stock plans	584,916				21															21
Other comprehensive income																	2			2
BALANCE AS OF JUNE 30, 2009	274,839,135	$	29	$	4,153	$	6,691		23,210,700	$	(1,001	)	$	(60	)	$	(64	)	$	9,748

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,
	2009			2008
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	336		$	860
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		389			347
Deferred income taxes		159			202
Rate case amortization and accruals		(13	)		(105	)
Net transmission and distribution reconciliation		—			(52	)
Common equity component of allowance for funds used during construction		(5	)		(4	)
Pre-tax gain on sale of generation projects		—			(704	)
Net derivative losses		26			(106	)
Other non-cash items (net)		(13	)		(229	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		160			69
Materials and supplies, including fuel oil and gas in storage		159			(35	)
Other receivables and other current assets		(68	)		(148	)
Prepayments		522			16
Recoverable energy costs		128			(33	)
Accounts payable		(157	)		335
Pensions and retiree benefits		5			63
Accrued taxes		(28	)		257
Accrued interest		16			4
Deferred charges, noncurrent assets and other regulatory assets		(114	)		(124	)
Deferred credits and other regulatory liabilities		(19	)		638
Other assets		(1	)		133
Other liabilities		(45	)		(94	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,437			1,290
INVESTING ACTIVITIES
Utility construction expenditures		(1,034	)		(1,068	)
Cost of removal less salvage		(87	)		(90	)
Non-utility construction expenditures		(3	)		3
Common equity component of allowance for funds used during construction		5			4
Proceeds from sale of generation projects		—			1,477
Purchase of ownership interest in Hawkeye lease		—			(12	)
Purchase of ownership interest in Newington SCS		—			(20	)
NET CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES		(1,119	)		294
FINANCING ACTIVITIES
Net payments of short-term debt		(263	)		(763	)
Retirement of long-term debt		(278	)		(186	)
Issuance of long-term debt		750			1,200
Issuance of common stock		15			19
Debt issuance costs		(5	)		(9	)
Common stock dividends		(300	)		(298	)
NET CASH FLOWS USED IN FINANCING ACTIVITIES		(81	)		(37	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		237			1,547
BALANCE AT BEGINNING OF PERIOD		74			210
BALANCE AT END OF PERIOD	$	311		$	1,757
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	270		$	244
Income taxes	$	7		$	87

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2009		December 31, 2008
	(Millions of Dollars)
ASSETS
UTILITY PLANT AT ORIGINAL COST
Electric	$	17,055	$	16,460
Gas		3,407		3,273
Steam		1,880		1,849
General		1,707		1,646
TOTAL		24,049		23,228
Less: Accumulated depreciation		4,770		4,636
Net		19,279		18,592
Construction work in progress		1,071		1,051
NET UTILITY PLANT		20,350		19,643
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $20 and $19 in 2009 and 2008, respectively		10		11
NET PLANT		20,360		19,654
CURRENT ASSETS
Cash and temporary cash investments		290		37
Accounts receivable—customers, less allowance for uncollectible accounts of $60 and $53 in 2009 and 2008, respectively		793		937
Other receivables, less allowance for uncollectible accounts of $3 in 2009 and 2008		107		127
Accrued unbilled revenue		357		—
Accounts receivable from affiliated companies		44		272
Fuel oil, at average cost		28		37
Gas in storage, at average cost		137		261
Materials and supplies, at average cost		149		145
Prepayments		75		538
Fair value of derivative assets		54		71
Recoverable energy costs		—		146
Deferred derivative losses		207		247
Other current assets		71		22
TOTAL CURRENT ASSETS		2,312		2,840
INVESTMENTS		105		93
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Regulatory assets		7,308		7,486
Other deferred charges and noncurrent assets		359		342
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		7,667		7,828
TOTAL ASSETS	$	30,444	$	30,415

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	June 30, 2009		December 31, 2008
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder’s equity (See Statement of Common Shareholder’s Equity)	$	8,999	$	8,991
Preferred stock		213		213
Long-term debt		8,919		8,494
TOTAL CAPITALIZATION		18,131		17,698
NONCURRENT LIABILITIES
Obligations under capital leases		14		17
Provision for injuries and damages		168		163
Pensions and retiree benefits		3,859		4,059
Superfund and other environmental costs		175		196
Uncertain income taxes		107		108
Asset retirement obligations		118		115
Fair value of derivative liabilities		40		29
Other noncurrent liabilities		62		61
TOTAL NONCURRENT LIABILITIES		4,543		4,748
CURRENT LIABILITIES
Long-term debt due within one year		525		475
Notes payable		—		253
Accounts payable		726		952
Accounts payable to affiliated companies		10		26
Customer deposits		253		250
Accrued taxes		27		41
Accrued taxes to affiliated companies		23		25
Accrued interest		144		131
Accrued wages		76		80
Fair value of derivative liabilities		76		87
Deferred derivative gains		10		23
Deferred income taxes—recoverable energy costs		—		59
Other current liabilities		299		325
TOTAL CURRENT LIABILITIES		2,169		2,727
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		4,807		4,611
Regulatory liabilities		762		600
Other deferred credits		32		31
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,601		5,242
TOTAL CAPITALIZATION AND LIABILITIES	$	30,444	$	30,415

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,
	2009			2008			2009			2008
	(Millions of Dollars)
OPERATING REVENUES
Electric	$	1,812		$	1,778		$	3,469		$	3,492
Gas		295			383			1,077			1,124
Steam		113			133			444			418
TOTAL OPERATING REVENUES		2,220			2,294			4,990			5,034
OPERATING EXPENSES
Purchased power		609			704			1,256			1,425
Fuel		86			124			321			322
Gas purchased for resale		114			215			542			642
Other operations and maintenance		532			488			1,033			950
Depreciation and amortization		185			171			366			325
Taxes, other than income taxes		354			313			697			645
Income taxes		67			41			176			154
TOTAL OPERATING EXPENSES		1,947			2,056			4,391			4,463
OPERATING INCOME		273			238			599			571
OTHER INCOME (DEDUCTIONS)
Investment and other income		12			10			15			13
Allowance for equity funds used during construction		3			2			5			4
Other deductions		(4	)		(5	)		(7	)		(7	)
Income taxes		(5	)		(4	)		(4	)		(3	)
TOTAL OTHER INCOME (DEDUCTIONS)		6			3			9			7
INTEREST EXPENSE
Interest on long-term debt		137			121			265			227
Other interest		5			(2	)		7			10
Allowance for borrowed funds used during construction		(2	)		(2	)		(3	)		(5	)
NET INTEREST EXPENSE		140			117			269			232
NET INCOME		139			124			339			346
PREFERRED STOCK DIVIDEND REQUIREMENTS		3			3			6			6
NET INCOME FOR COMMON STOCK	$	136		$	121		$	333		$	340

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,
	2009		2008		2009		2008
	(Millions of Dollars)
NET INCOME	$	139	$	124	$	339	$	346
OTHER COMPREHENSIVE INCOME, NET OF TAXES		—		—		—		—
COMPREHENSIVE INCOME	$	139	$	124	$	339	$	346

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 Income/(Loss)			Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
	(Millions of Dollars/Except Share Data)
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

BALANCE AS OF DECEMBER 31, 2008	235,488,094	$	589	$	3,664	$	5,780		$	(962	)	$	(60	)	$	(20	)	$	8,991

Net income							200												200
Common stock dividend to parent							(163	)											(163	)
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF MARCH 31, 2009	235,488,094	$	589	$	3,664	$	5,814		$	(962	)	$	(60	)	$	(20	)	$	9,025

Net income							139												139
Common stock dividend to parent							(163	)											(163	)
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF JUNE 30, 2009	235,488,094	$	589	$	3,664	$	5,787		$	(962	)	$	(60	)	$	(20	)	$	8,998

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,
	2009			2008
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	339		$	346
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		366			325
Deferred income taxes		151			193
Rate case amortization and accruals		(13	)		(105	)
Net transmission and distribution reconciliation		—			(52	)
Common equity component of allowance for funds used during construction		(5	)		(4	)
Other non-cash items (net)		(52	)		(27	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		144			84
Materials and supplies, including fuel oil and gas in storage		129			(31	)
Other receivables and other current assets		71			(171	)
Prepayments		463			4
Recoverable energy costs		148			(42	)
Accounts payable		(242	)		129
Pensions and retiree benefits		(16	)		44
Accrued taxes		(16	)		12
Accrued interest		13			3
Deferred charges, noncurrent assets and other regulatory assets		(63	)		(119	)
Deferred credits and other regulatory liabilities		(45	)		473
Other liabilities		(45	)		3
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,327			1,065
INVESTING ACTIVITIES
Utility construction expenditures		(992	)		(1,031	)
Cost of removal less salvage		(85	)		(88	)
Common equity component of allowance for funds used during construction		5			4
Loan to affiliate		113			55
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(959	)		(1,060	)
FINANCING ACTIVITIES
Net payments of short-term debt		(253	)		(555	)
Retirement of long-term debt		(275	)		(180	)
Issuance of long-term debt		750			1,200
Capital contribution by parent		—			49
Debt issuance costs		(5	)		(9	)
Dividend to parent		(326	)		(284	)
Preferred stock dividends		(6	)		(6	)
NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES		(115	)		215
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		253			220
BALANCE AT BEGINNING OF PERIOD		37			121
BALANCE AT END OF PERIOD	$	290		$	341
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	244		$	223
Income taxes	$	15		$	70

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, 2008 (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, 2009 (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.

The Companies have, pursuant to Statement of Financial Accounting Standard (SFAS) No. 165, “Subsequent Events” (which is effective for periods ending after June 15, 2009), evaluated events or transactions that occurred after June 30, 2009 through the filing with the Securities and Exchange Commission of this Quarterly Report on Form 10-Q for potential recognition or disclosure in the consolidated financial statements.

Certain prior period amounts have been reclassified to conform to the current period presentation. Effective June 2009, the Companies are including receivables purchased from energy supply companies

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

within accounts receivable—customers, and to conform to this presentation, have reclassified receivables purchased from energy supply companies that were included in other receivables at December 31, 2008 ($148 million for Con Edison; $121 million for Con Edison of New York). This reclassification more appropriately reflects the Utilities’ customer operations’ practices, policies and procedures. 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 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 M.

Note A—Summary of Significant Accounting Policies

Revenues

The Utilities and Con Edison Solutions recognize revenues for electric, gas and steam service on a monthly billing cycle basis. The Utilities defer over a 12-month period net interruptible gas revenues, other than those authorized by the New York State Public Service Commission (PSC) to be retained by the Utilities, for refund to firm gas sales and transportation customers. O&R and Con Edison Solutions accrue revenues at the end of each month for estimated energy service not yet billed to customers. Prior to March 31, 2009, Con Edison of New York did not accrue revenues for estimated energy service not yet billed to customers except for certain unbilled gas revenues accrued in 1989. Effective March 31, 2009, the PSC authorized Con Edison of New York to accrue unbilled electric, gas and steam revenues. The adoption of this accounting for unbilled revenues had no effect on net income. See Note A to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q. Unbilled revenues included in Con Edison’s balance sheet at June 30, 2009 and December 31, 2008 were $475 million (including $357 million for Con Edison of New York) and $131 million, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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, 2009 and 2008, 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)	2009		2008		2009		2008
Income for common stock from continuing operations	$	150	$	280	$	330	$	580
Income for common stock from discontinued operations, net of tax		—		272		—		274
Net income for common stock	$	150	$	552	$	330	$	854
Weighted average common shares outstanding—Basic		274.5		272.7		274.2		272.5
Add: Incremental shares attributable to effect of potentially dilutive securities		0.8		0.8		0.8		0.8
Adjusted weighted average common shares outstanding—Diluted		275.3		273.5		275.0		273.3
EARNINGS PER COMMON SHARE—BASIC
Continuing operations	$	0.55	$	1.03	$	1.20	$	2.13
Discontinued operations		—		0.99		—		1.01
Net income for common stock	$	0.55	$	2.02	$	1.20	$	3.14
EARNINGS PER COMMON SHARE—DILUTED
Continuing operations	$	0.55	$	1.03	$	1.20	$	2.12
Discontinued operations		—		0.99		—		1.01
Net income for common stock	$	0.55	$	2.02	$	1.20	$	3.13

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

Con Edison of New York—Electric

In May 2009, Con Edison of New York filed a request with the PSC for a three-year electric rate plan with level annual rate increases of $695 million effective April 2010, 2011 and 2012. The filing reflects a return on common equity of 11.60 percent and a common equity ratio of 48.2 percent.

The filing also includes an alternative proposal for an electric rate increase of $854 million, effective April 2010, reflecting a return on common equity of 10.9 percent and a common equity ratio of 48.2 percent. Included in the increase would be recovery of increased property taxes ($127 million); additional operating costs and new and or expanded operating programs ($153 million); carrying

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

charges on additional infrastructure investments ($237 million); increased pension and other post-retirement benefit costs ($114 million); and an increased return on equity as compared to the return on equity reflected in current electric rates ($127 million).

The filing reflects continuation of the current provisions pursuant to which expenses for pension and other post-retirement benefits, property taxes, long-term debt and environmental site investigation and remediation are reconciled to amounts reflected in rates and avoided revenue requirements (as updated, $23 million) as a result of austerity measures (discussed below). The company is requesting reconciliation for municipal infrastructure support costs and the impact of new laws. As part of the three-year rate plan, the company is requesting that increases, if any, in certain expenses above a 4 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 also reflects continuation of the revenue decoupling mechanism that eliminates the direct relationship between the company’s level of delivery revenues and profits and the provisions pursuant to which the company recovers its purchased power and fuel costs from customers.

In April 2009, the PSC directed the company to file with the PSC in May 2009 the company’s plan with respect to austerity measures that would reduce the company’s revenue requirements during the rate year ending March 31, 2010 by $60 million. The PSC further directed the company to provide, in its next electric rate filing or within 30 days thereafter, the austerity program efforts it plans to continue beyond that rate year. The company has, as directed by the PSC, filed its austerity plans, which include reductions in labor costs, including compensation and other employee benefits, deferral of expenditures for capital projects and operating and maintenance programs and other initiatives. These reductions would collectively represent $47 million of the $60 million reduction sought by the PSC. The company will seek further opportunities for austerity when it prepares its 2010 budgets. In May 2009, the company filed with the PSC a request for rehearing of the PSC’s April 2009 order with respect to its austerity provisions and certain other matters.

The PSC’s April 2009 order covering Con Edison of New York’s electric rates, among other things, provided for the continuation of the collection of a portion (increased, to reflect higher capital costs, from $237 million collected in the rate year ended March 2009 to $254 million for the rate year ending March 2010) of the April 2008 rate increase subject to potential refund to customers following further PSC review and completion of an investigation by the PSC staff of the $1.6 billion of capital expenditures during the April 2005 through March 2008 period covered by the 2005 electric rate agreement for transmission and distribution utility plant that were above the amounts of such expenditures reflected in rates. The portion collected would also be subject to refund in the event the

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

PSC determined that some disallowance of costs the company has recovered is warranted to address potential impacts of alleged unlawful conduct by arrested employees and contractors (see “Investigation of Contractor Payments” in Note H). The company is unable to estimate the amount, if any, of any refund that might be required and, accordingly, has not established a regulatory liability for a refund.

Con Edison of New York—Gas and Steam

In June 2009, the PSC approved a Joint Proposal by Con Edison of New York, the PSC Staff and other parties under which, starting in July 2009, a portion of the company’s gas and steam revenues ($32 million and $6 million annually, respectively) would be subject to potential refund to customers in the event the PSC determined that some disallowance of costs the company has recovered is warranted to address potential impacts of alleged unlawful conduct by arrested employees and contractors (see “Investigation of Contractor Payments” in Note H). The company is unable to estimate the amount, if any, of any refund that might be required.

O&R—Gas

In June 2009, O&R entered into a settlement agreement with the staff of the PSC and other parties. The settlement agreement, which is subject to PSC approval, establishes a rate plan that covers the three-year period November 1, 2009 through October 31, 2012. The rate plan provides two rate increase alternatives for consideration by the PSC. The first alternative is for increases in base rates of $12.8 million in the first year, $5.2 million in the second year and $4.5 million in the third year. The second alternative is for increases in base rates of $9 million in each of the first two years and $4.6 million in the third year, with an additional $4.3 million to be collected though a surcharge in the third rate year.

The rate plan reflects the following major items:

•

an annual return on common equity of 10.4 percent;

•

most of any actual earnings above an 11.4 percent annual return on common equity (based upon the actual average common equity ratio, subject to a maximum 50 percent of capitalization) are to be applied to reduce regulatory assets;

•

deferral as a regulatory asset or liability, as the case may be, of differences between the actual level of certain expenses, including expenses for pension and other postretirement benefits, environmental remediation, property taxes and taxable and tax-exempt long-term debt, and amounts for those expenses reflected in rates;

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

•

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 average gas net plant balances are less than balances reflected in rates;

•

deferral as a regulatory asset of increases, if any over the course of the rate plan, in certain expenses above a 4 percent annual inflation rate, but only if the actual annual return on common equity is less than 10.4 percent;

•

implementation of a revenue decoupling mechanism;

•

continuation of the provisions pursuant to which the company recovers its cost of purchasing gas and the provisions pursuant to which the effects of weather on gas income are moderated; and

•

potential negative earnings adjustments of up to $1.4 million annually if certain operations and customer service requirements are not met.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2009 and December 31, 2008 were comprised of the following items:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2009		2008		2009		2008
Regulatory assets
Unrecognized pension and other postretirement costs	$	5,407	$	5,602	$	5,154	$	5,335
Future federal income tax		1,222		1,186		1,162		1,127
Environmental remediation costs		385		378		325		316
Revenue taxes		108		101		106		99
Pension and other postretirement benefits deferrals		106		92		50		38
Deferred derivative losses—long-term		112		94		70		54
Net electric deferrals		82		27		82		27
Electric property tax petition		73		41		73		41
World Trade Center restoration costs		60		140		60		140
O&R transition bond charges		58		59		—		—
Workers’ compensation		38		38		38		38
Gas rate plan deferral		28		30		28		30
Unbilled gas revenue		15		44		15		44
Other retirement program costs		13		14		13		14
Asbestos-related costs		10		10		9		9
Recoverable energy costs		—		42		—		42
Other		141		157		122		132
Regulatory assets		7,858		8,055		7,308		7,486
Deferred derivative losses—current		263		288		207		247
Recoverable energy costs—current		36		172		—		146
Total Regulatory Assets	$	8,157	$	8,515	$	7,515	$	7,879
Regulatory liabilities
Allowance for cost of removal less salvage	$	374	$	378	$	308	$	313
Refundable energy costs		152		104		105		47
Net unbilled revenue deferrals		96		—		96		—
Electric rate case deferral		57		—		57		—
Rate case amortizations		35		68		35		68
Gain on sale of First Avenue properties		17		30		17		30
Other		160		157		144		142
Regulatory liabilities		891		737		762		600
Deferred derivative gains—current		10		23		10		23
Total Regulatory Liabilities	$	901	$	760	$	772	$	623

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Other Regulatory Matters

Con Edison of New York expects that the PSC will be releasing a report on its management audit of the company. The PSC is required to audit New York utilities every five years. The company expects that the PSC consultant that performed the audit will identify areas for improvement, including with respect to the company’s construction program, planning and business processes and regulatory relationships.

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.

In June 2009, $49 million of the $55 million of O&R’s weekly-rate, tax-exempt debt insured by Financial Guaranty Insurance Company (Series 1994A Debt) that had been tendered was remarketed, and the proceeds from the remarketing were used to pay short-term borrowings that funded the purchased tendered bonds.

Note D—Short-Term Borrowing

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, 2009, Con Edison had $100 million of commercial paper outstanding, none of which was outstanding under Con Edison of New York’s program. The weighted average interest rate was 0.4 percent for Con Edison. At December 31, 2008, Con Edison had $363 million of commercial paper outstanding of which $253 million was outstanding under Con Edison of New York’s program. The weighted average interest rate was 2.4 percent and 3.2 percent for Con Edison and Con Edison of New York, respectively. At June 30, 2009 and December 31, 2008, no loans were outstanding under the Companies’ credit agreements and $282 million (including $126 million for Con Edison of New York) and $316 million (including $107 million for Con Edison of New York) of letters of credit were outstanding, respectively.

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.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and six months ended June 30, 2009 and 2008 were as follows:


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2009			2008			2009			2008
Service cost—including administrative expenses	$	40		$	34		$	37		$	32
Interest cost on projected benefit obligation		131			129			123			121
Expected return on plan assets		(173	)		(173	)		(165	)		(165	)
Amortization of net actuarial loss		75			48			68			42
Amortization of prior service costs		2			2			2			2
NET PERIODIC BENEFIT COST	$	75		$	40		$	65		$	32
Amortization of regulatory asset*		1			1			1			1
TOTAL PERIODIC BENEFIT COST	$	76		$	41		$	66		$	33
Cost capitalized		(27	)		(14	)		(25	)		(11	)
Cost deferred		(5	)		(5	)		(3	)		(7	)
Cost charged to operating expenses	$	44		$	22		$	38		$	15

*	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)	2009			2008			2009			2008
Service cost—including administrative expenses	$	80		$	69		$	74		$	64
Interest cost on projected benefit obligation		262			258			246			241
Expected return on plan assets		(346	)		(346	)		(330	)		(330	)
Amortization of net actuarial loss		150			96			136			85
Amortization of prior service costs		4			4			4			4
NET PERIODIC BENEFIT COST	$	150		$	81		$	130		$	64
Amortization of regulatory asset*		2			2			2			2
TOTAL PERIODIC BENEFIT COST	$	152		$	83		$	132		$	66
Cost capitalized		(54	)		(28	)		(50	)		(23	)
Cost deferred		(36	)		(25	)		(31	)		(28	)
Cost charged to operating expenses	$	62		$	30		$	51		$	15

*	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.

Expected Contributions

Based on current estimates, the Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2009. The Companies’ policy is to fund their accounting cost to the extent tax deductible, therefore, Con Edison and Con Edison of New York

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

expect to make discretionary contributions to the pension plan of $282 million and $244 million, respectively, of which Con Edison of New York contributed $184 million in the first half of 2009. Con Edison of New York expects to make discretionary contributions of $5 million to the non-qualified supplemental pension plan during 2009. The Companies are continuing to monitor changes to funding and tax laws that may impact future pension plan funding requirements.

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, 2009 and 2008 were as follows:


	For the Three Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2009			2008			2009			2008
Service cost	$	5		$	5		$	4		$	4
Interest cost on accumulated other postretirement benefit obligation		24			23			21			21
Expected return on plan assets		(21	)		(21	)		(20	)		(19	)
Amortization of net actuarial loss		18			17			16			14
Amortization of prior service cost		(3	)		(3	)		(3	)		(4	)
Amortization of transition obligation		1			1			1			1
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	24		$	22		$	19		$	17
Cost capitalized		(9	)		(7	)		(8	)		(6	)
Cost deferred		—			(4	)		—			(2	)
Cost charged to operating expenses	$	15		$	11		$	11		$	9


	For the Six Months Ended June 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2009			2008			2009			2008
Service cost	$	10		$	10		$	8		$	8
Interest cost on accumulated other postretirement benefit obligation		48			47			42			42
Expected return on plan assets		(42	)		(43	)		(40	)		(39	)
Amortization of net actuarial loss		36			34			32			29
Amortization of prior service cost		(6	)		(6	)		(6	)		(7	)
Amortization of transition obligation		2			2			2			2
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	48		$	44		$	38		$	35
Cost capitalized		(18	)		(15	)		(15	)		(12	)
Cost deferred		(1	)		(11	)		(2	)		(9	)
Cost charged to operating expenses	$	29		$	18		$	21		$	14

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, 2009 and December 31, 2008 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2009		2008		2009		2008
Accrued Liabilities:
Manufactured gas plant sites	$	180	$	207	$	129	$	155
Other Superfund Sites		47		43		46		41
Total	$	227	$	250	$	175	$	196
Regulatory assets	$	385	$	378	$	325	$	315

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.

There were no insurance recoveries received related to Superfund Sites for the three and six months ended June 30, 2009 and 2008. Environmental remediation costs incurred related to Superfund Sites during the three and six months ended June 30, 2009 and 2008 were as follows:


	For the Three Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2009		2008		2009		2008
Remediation costs incurred	$	24	$	31	$	23	$	31

	For the Six Months Ended June 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2009		2008		2009		2008
Remediation costs incurred	$	40	$	53	$	39	$	52

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 2008, 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 $9 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, 2009 and December 31, 2008 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2009		2008		2009		2008
Accrued liability—asbestos suits	$	10	$	10	$	9	$	9
Regulatory assets—asbestos suits	$	10	$	10	$	9	$	9
Accrued liability—workers’ compensation	$	114	$	114	$	108	$	109
Regulatory assets—workers’ compensation	$	38	$	38	$	38	$	38

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. Approximately 100 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 not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident 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.

Investigation of Contractor Payments

In January 2009, Con Edison of New York commenced an internal investigation relating to the arrests of certain employees and retired employees (most of whom have since been indicted or pleaded guilty) for accepting kickbacks from contractors that performed construction work for the company. The company has retained a law firm, which has retained an accounting firm, to assist in the company’s

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

investigation. The company is providing information to governmental authorities in connection with their investigation of the arrested employees and contractors. The company has terminated its employment of the arrested employees and its contracts with the contractors. In February 2009, the PSC commenced a proceeding that, among other things, will examine the prudence of certain of the company’s expenditures relating to the arrests and consider whether additional expenditures should also be examined (see Note B). The company, based upon its evaluation of its internal controls for 2008 and previous years, believes that the controls were effective to provide reasonable assurance that its financial statements have been fairly presented, in all material respects, in conformity with generally accepted accounting principles. Because the company’s investigation is ongoing, the company is unable to predict the impact of any of the employees’ unlawful conduct on the company’s internal controls, business, results of operations or financial position.

Permit Non-Compliance and Pollution Discharges

In March 2009, the New York State Department of Environmental Conservation (DEC) issued a proposed Administrative Order on Consent to Con Edison of New York with respect to non-compliance with certain laws, regulations and permit conditions and discharges of pollutants at the company’s steam generating facilities. The proposed order effectively institutes a civil enforcement proceeding against the company. In the proposed order, the DEC is seeking, among other things, the company’s agreement to pay a penalty in an amount the DEC has not yet specified, retain an independent consultant to conduct a comprehensive audit of the company’s generating facilities to determine compliance with federal and New York State environmental laws and regulations and recommend best practices, remove all equipment containing polychlorinated biphenyls from the company’s steam and electric facilities, remediate polychlorinated biphenyl contamination, install certain wastewater treatment facilities, and comply with additional sampling, monitoring, and training requirements. The company will seek to resolve this proceeding through a negotiated settlement with the DEC. It is unable to predict the impact of the proceeding on the company’s operations or the amount of the penalty and the additional costs, which could be substantial, to comply with the requirements resulting from this proceeding.

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 transactions). 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 SFAS No. 13, “Accounting for Leases,” Con Edison is accounting for the two LILO

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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 net investment in these leveraged leases was $(16) million at June 30, 2009 and $(8) million at December 31, 2008 and is comprised of a $235 million gross investment less $251 million of deferred tax liabilities at June 30, 2009 and $235 million gross investment less $243 million of deferred tax liabilities at December 31, 2008.

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, post trial briefs have been filed and oral argument took place on August 13, 2008. A decision is expected later this year.

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.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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). Following the verdict, the taxpayer reported that it had entered into a closing agreement with the IRS to settle all of its leveraged leases. Also, in a fourth LILO case, a jury verdict was rendered in favor of the government. See, Altria Group v. United States, Case No. 1:06-CV-09430-RJH-FM (S.D. New York July 9, 2009).

In connection with its audit of Con Edison’s federal income tax return for the tax years 2007 and 2006, the IRS disallowed $41 million and $43 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. Con Edison filed an appeal of the 2007 and 2006 audit level disallowances with the Appeals Office of the IRS. 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, 2009, in the aggregate, was $205 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 $85 million at June 30, 2009.

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.

Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $1.2 billion and $1.6 billion at June 30, 2009 and December 31, 2008, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2009 is as follows:


Guarantee Type	0 – 3 years		4 – 10 years		> 10 years		Total
	(Millions of Dollars)
Commodity transactions	$	713	$	43	$	189	$	945
Affordable housing program		—		9		—		9
Intra-company guarantees		39		—		1		40
Other guarantees		197		27		—		224
TOTAL	$	949	$	79	$	190	$	1,218

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

Note I—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)	2009			2008		2009			2008			2009		2008		2009			2008
Con Edison of New York
Electric	$	1,812		$	1,778	$	3		$	3		$	146	$	133	$	230		$	203
Gas		295			383		1			1			24		22		38			31
Steam		113			133		18			20			15		16		5			4
Consolidation adjustments		—			—		(22	)		(24	)		—		—		—			—
Total Con Edison of New York	$	2,220		$	2,294	$	—		$	—		$	185	$	171	$	273		$	238
O&R
Electric	$	144		$	180	$	—		$	—		$	8	$	7	$	8		$	10
Gas		39			43		—			—			3		3		1			—
Total O&R	$	183		$	223	$	—		$	—		$	11	$	10	$	9		$	10
Competitive energy businesses*	$	454		$	623	$	(1	)	$	(3	)	$	1	$	1	$	14		$	160
Other**		(12	)		9		1			3			—		—		(2	)		—
Total Con Edison	$	2,845		$	3,149	$	—		$	—		$	197	$	182	$	294		$	408

*	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


	For the Six Months Ended June 30,
	Operating revenues					Inter-segment revenues						Depreciation and amortization				Operating income
(Millions of Dollars)	2009			2008		2009			2008			2009		2008		2009			2008
Con Edison of New York
Electric	$	3,469		$	3,492	$	6		$	6		$	288	$	250	$	356		$	366
Gas		1,077			1,124		2			2			49		44		169			145
Steam		444			418		36			38			29		31		74			60
Consolidation adjustments		—			—		(44	)		(46	)		—		—		—			—
Total Con Edison of New York	$	4,990		$	5,034	$	—		$	—		$	366	$	325	$	599		$	571
O&R
Electric	$	289		$	338	$	—		$			$	15	$	14	$	14		$	15
Gas		145			148		—						6		6		15			15
Total O&R	$	434		$	486	$	—		$			$	21	$	20	$	29		$	30
Competitive energy businesses*	$	867		$	1,197	$	(3	)	$	4		$	2	$	2	$	(11	)	$	198
Other**		(22	)		8		3			(4	)		—		—		(3	)		(1	)
Total Con Edison	$	6,269		$	6,725	$	—		$	—		$	389	$	347	$	614		$	798

*	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.

Note J—Derivative Instruments and Hedging Activities

Derivative instruments and hedging activities are accounted for in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS No. 133). Under SFAS No. 133, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the standard. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under SFAS No. 133.

Effective January 1, 2009, the Companies adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

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 derivative instruments at June 30, 2009 and December 31, 2008 were as follows:


	Con Edison						Con Edison of New York
(Millions of Dollars)	2009			2008			2009			2008
Fair value of net derivative assets/(liabilities)—gross	$	(450	)	$	(428	)	$	(231	)	$	(259	)
Impact of netting of cash collateral		339			322			169			224
Fair value of net derivative assets/(liabilities)—net	$	(111	)	$	(106	)	$	(62	)	$	(35	)

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, 2009, Con Edison and Con Edison of New York had $309 million and $31 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $218 million with investment-grade counterparties and $91 million primarily with commodity exchange brokers or independent system operators. Con Edison of New York’s entire net credit exposure was with commodity exchange brokers.

Economic Hedges

The Companies enter into 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.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The fair values of the Companies’ commodity derivatives at June 30, 2009 were:


Fair Value of Commodity Derivatives^(a)
(Millions of Dollars)	Balance Sheet Location	Con Edison			Con Edison of New York
Asset Derivatives
Current	Fair value of derivative assets	$	812		$	359
Long term	Other deferred charges and non-current assets		496			299
Total asset derivatives		$	1,308		$	658
Impact of netting			(1,064	)		(604	)
Net asset derivatives		$	244		$	54
Liability Derivatives
Current	Fair value of derivative liabilities	$	1,137		$	515
Long term	Fair value of derivative liabilities		621			374
Total liability derivatives		$	1,758		$	889
Impact of netting			(1,403	)		(773	)
Net liability derivatives		$	355		$	116

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under SFAS No. 133 and, therefore, are excluded from the table.

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K. In accordance with SFAS No. 71, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2009:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives^(a) Deferred or Recognized in Income for the Three Months Ended June 30, 2009
(Millions of Dollars)	Balance Sheet Location	Con Edison			Con Edison of New York
Pre-tax gains/(losses) deferred in accordance with FAS71:
Current	Deferred derivative gains	$	(9	)	$	(9	)
Total deferred gains		$	(9	)	$	(9	)
Current	Deferred derivative losses	$	65		$	66
Current	Recoverable energy costs	$	(122	)	$	(102	)
Long term	Regulatory assets	$	25		$	15

Total deferred losses		$	(32	)	$	(21	)
Net deferred losses		$	(41	)	$	(30	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense	$	(144	)	$	—
	Gas purchased for resale		(1	)		—
	Non-utility revenue		139	^(b)		—
Total pre-tax gain/(loss) recognized in income		$	(6	)	$	—

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under SFAS No. 133 and, therefore, are excluded from the table.

(b)	For the three months ended June 30, 2009, Con Edison recorded in non-utility operating revenues an unrealized pre-tax gain of $31 million.


Realized and Unrealized Gains/(Losses) on Commodity Derivatives^(a) Deferred or Recognized in Income for the Six Months Ended June 30, 2009
(Millions of Dollars)	Balance Sheet Location	Con Edison			Con Edison of New York
Pre-tax gains/(losses) deferred in accordance with FAS71:
Current	Deferred derivative gains	$	(13	)	$	(13	)
Total deferred gains		$	(13	)	$	(13	)
Current	Deferred derivative losses	$	25		$	40
Current	Recoverable energy costs	$	(303	)	$	(259	)
Long term	Regulatory assets	$	(20	)	$	(16	)

Total deferred losses		$	(298	)	$	(235	)
Net deferred losses		$	(311	)	$	(248	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense	$	(255	)	$	—
	Gas purchased for resale		2			—
	Non-utility revenue		215	^(b)		—
Total pre-tax gain/(loss) recognized in income		$	(38	)	$	—

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under SFAS No. 133 and, therefore, are excluded from the table.

(b)	For the six months ended June 30, 2009, Con Edison recorded in non-utility operating revenues an unrealized pre-tax loss of $26 million.

As of June 30, 2009, Con Edison had 1,440 contracts, including 689 Con Edison of New York contracts, which were considered to be derivatives under SFAS No. 133 (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:


	Electric Derivatives				Gas Derivatives
	Number of Energy Contracts^(a)	MWhs^(b)	Number of Capacity Contracts^(a)	MWs^(b)	Number of Contracts^(a)	Dths^(b)	Total Number of Contracts^(a)
Con Edison	583	16,224,863	78	7,442	779	198,601,000	1,440
Con Edison of New York	95	3,124,200	—	—	594	194,890,000	689

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under SFAS No. 133 and, therefore, are excluded from the table.

(b)	Volumes are reported net of long and short positions.

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

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. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2009, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:


(Millions of Dollars)	Con Edison^(a)			Con Edison of New York^(a)
Aggregate fair value—net liabilities	$	499		$	135
Collateral posted	$	332		$	80	^(b)
Additional collateral⁽ ^c⁾ (downgrade one level from current ratings⁽^d⁾)	$	40		$	23
Additional collateral⁽^c⁾ (downgrade to below investment grade from current ratings⁽^d⁾)	$	325	⁽^e⁾	$	92

(a)

Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2009, would have amounted to an estimated $365 million for Con Edison, including $113 million for Con Edison of New York. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.

(b)	Across the Utilities’ energy derivative positions, credit limits for the same counterparties are generally integrated. At June 30, 2009, all collateral for these positions was posted by Con Edison of New York, including an estimated $41 million attributable to O&R.

(c)

The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.

(d)

The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), Con Edison of New York (A3/A-/A-) or O&R (Baa1/A-/A). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.

(e)	Derivative instruments that are net assets have been excluded from the table. At June 30, 2009, if Con Edison had been downgraded to below investment grade, its competitive energy businesses would have been required to post additional collateral for such derivative instruments of $123 million.

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 year ended December 31, 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. O&R pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2009 was an unrealized loss of $12 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2009 was $2 million and $3 million, respectively. In the event O&R’s credit rating was downgraded to BBB-/Baa3 or lower, the swap counterparty could elect to terminate the agreement and O&R would be required to settle immediately.

Note K—Fair Value Measurements

Reference is made to Note P 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 Form 10-Q.

FASB Statement No. 157, “Fair Value Measurements” (SFAS No. 157) 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

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 are summarized below under the three-level hierarchy established by SFAS No. 157. SFAS No. 157 defines the levels within the hierarchy as follows:

•

Level 1—Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date.

•

Level 2—Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date.

•

Level 3—Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date.

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 are summarized below:


	Level 1				Level 2				Level 3				Netting Adjustments⁽⁴⁾						Total
(Millions of Dollars)	Con Edison		Con Edison of New York		Con Edison		Con Edison of New York		Con Edison		Con Edison of New York		Con Edison			Con Edison of New York			Con Edison		Con Edison of New York
Derivative assets:
Energy⁽¹⁾	$	1	$	—	$	172	$	15	$	366	$	32	$	(271	)	$	32		$	268	$	79
Other assets⁽³⁾		26		26		—		—		82		74		—			—			108		100
Total	$	27	$	26	$	172	$	15	$	448	$	106	$	(271	)	$	32		$	376	$	179
Derivative liabilities:
Energy⁽¹⁾	$	22	$	22	$	516	$	226	$	451	$	30	$	(610	)	$	(137	)	$	379	$	141
Financial & other⁽²⁾		—		—		—		—		12		—		—			—			12		—
Total	$	22	$	22	$	516	$	226	$	463	$	30	$	(610	)	$	(137	)	$	391	$	141

(1)

A significant portion of the energy derivative contracts categorized in Level 3 is valued using either an industry acceptable model or an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note J.

(2)	Includes an interest rate swap. See Note J.

(3)	Other assets are comprised of assets such as life insurance contracts within the Deferred Income Plan and Supplemental Retirement Income Plans, held in rabbi trusts.

(4)	Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 are summarized below:


	Level 1				Level 2				Level 3				Netting Adjustments⁽⁴⁾						Total
(Millions of Dollars)	Con Edison		Con Edison of New York		Con Edison		Con Edison of New York		Con Edison		Con Edison of New York		Con Edison			Con Edison of New York			Con Edison		Con Edison of New York
Derivative assets:
Energy⁽¹⁾	$	1	$	—	$	150	$	38	$	206	$	16	$	(117	)	$	65		$	240	$	119
Other assets⁽³⁾		23		23		—		—		73		65		—			—			96		88
Total	$	24	$	23	$	150	$	38	$	279	$	81	$	(117	)	$	65		$	336	$	207
Derivative liabilities:
Energy⁽¹⁾	$	34	$	34	$	495	$	264	$	256	$	15	$	(439	)	$	(159	)	$	346	$	154
Financial & other⁽²⁾