FORM 10-KSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

|/x/                                         | Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended DECEMBER 31, 2002
|or                                         
|/ /                                         | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|                                            | For the transition period from 
to                                                      

|Commission
File Number |  | Exact name of registrant as specified in its charter and
principal office address and telephone number |  | State of
Incorporation |  | I.R.S. Employer
ID. Number
|---------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---------------------- |  | --------------------------
|1-14514                |  | Consolidated Edison, Inc.4 Irving Place, New York, New York 10003
(212) 460-4600                       |  | New York               |  | 13-3965100                
|1-1217                 |  | Consolidated Edison Company of New York, Inc.4 Irving Place, New York, New York 10003
(212) 460-4600   |  | New York               |  | 13-5009340                
|1-4315                 |  | Orange and Rockland Utilities, Inc.One Blue Hill Plaza, Pearl River, New York 10965
(914) 352-6000     |  | New York               |  | 13-1727729                

Securities Registered Pursuant to Section 12(b) of the Act:

|Title of each class                                                                                               |  | Name of each exchange on which registered
|----------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Consolidated Edison, Inc.,Common Shares ($.10 par value)                                                          |  | New York Stock Exchange                  
|7.25% Public Income NotES (7.25% Debentures, Series 2002A) due 2042                                               |  | New York Stock Exchange                  
|Consolidated Edison Company of New York, Inc.,7.35% Public Income NotES (7.35% Debentures, Series 1999A) due 2039 |  | New York Stock Exchange                  
|7.50% Public Income NotES (7.50% Debentures, Series 2001A) due 2041                                               |  | New York Stock Exchange                  
|$5 Cumulative Preferred Stock, without par value                                                                  |  | New York Stock Exchange                  
|Cumulative Preferred Stock, 4.65% Series C ($100 par value)                                                       |  | New York Stock Exchange                  

Securities Registered Pursuant to Section 12(g) of the Act:

Title of each class

Consolidated Edison Company of New York, Inc.

Cumulative Preferred Stock, 4.65% Series D ($100 par value)

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

Indicate
by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / /

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

The
aggregate market value of the common equity of Consolidated Edison, Inc. (Con Edison) held by non-affiliates of Con Edison, as of June 30, 2002, was approximately $8.9
billion.

As
of January 31, 2003, Con Edison had outstanding 214,106,624 Common Shares ($.10 par value).

All
of the outstanding common equity of Con Edison Company of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R) is held by Con Edison.

O&R meets the conditions specified in general instruction (i) (1) (a) and (b) of Form 10-K and
is therefore filing this form with the reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Con Edison's definitive joint proxy statement for its Annual Meeting of Stockholders to be held on May 19, 2003, to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after December 31, 2002, are incorporated in Part III of this report.

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Filing Format

This Annual Report on Form 10-K is a combined report being filed separately by the three different registrants: Con Edison, Con Edison of New York and O&R.
Neither Con Edison of New York nor O&R makes any representations 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 |  | 5                                                                                    
|Part I            |  |                                                                                       |  |                                                              |  |         
|Item 1.           |  | Business                                                                              |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 7       
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 9       
|                  |  |                                                                                       |  | O&R                                                          |  | 17      
|Item 2.           |  | Properties                                                                            |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 20      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 20      
|                  |  |                                                                                       |  | O&R                                                          |  | 21      
|Item 3.           |  | Legal Proceedings                                                                     |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 23      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 23      
|                  |  |                                                                                       |  | O&R                                                          |  | 30      
|Item 4.           |  | Submission of Matters to a Vote of Security Holders                                   |  | None                                                        
|                  |  | Executive Officers of the Registrant                                                  |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 31      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 32      
|                  |  |                                                                                       |  | O&R                                                          |  | Omitted*
|Part II           |  |                                                                                       |  |                                                              |  |         
|Item 5.           |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 34      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 34      
|                  |  |                                                                                       |  | O&R                                                          |  | 34      
|Item 6.           |  | Selected Financial Data                                                               |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 35      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 35      
|                  |  |                                                                                       |  | O&R                                                          |  | Omitted*
|Item 7.           |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |                                                             
|                  |  |                                                                                       |  | Con Edison                                                   |  | 36      
|                  |  |                                                                                       |  | Con Edison of New York                                       |  | 60      
|                  |  |                                                                                       |  | O&R                                                          |  | Omitted*
|                  |  |                                                                                       |  | O&R Management's Narrative Analysis of Results of Operations |  | 78      

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|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                           |  |                       
|-------------- |  | ------------------------------------------------------------------------------------ |  | ----------------------
|               |  |                                                                                      |  | Con Edison            
|               |  |                                                                                      |  | Con Edison of New York
|               |  |                                                                                      |  | O&R                   
|Item 8.        |  | Financial Statements and Supplementary Data                                          |  | 85                    
|               |  |                                                                                      |  | Con Edison            
|               |  |                                                                                      |  | Con Edison of New York
|               |  |                                                                                      |  | O&R                   
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |  |                       
|               |  |                                                                                      |  | Con Edison            
|               |  |                                                                                      |  | Con Edison of New York
|               |  |                                                                                      |  | O&R                   
|               |  | Forward-Looking Statements                                                           |  | 203                   
|Part III       |  |                                                                                      |  |                       
|Item 10.       |  | Directors and Executive Officers                                                     |  | 204                   
|Item 11.       |  | Executive Compensation                                                               |  | 204                   
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management                       |  | 204                   
|Item 13.       |  | Certain Relationships and Related Transactions                                       |  | 204                   
|               |  |                                                                                      |  | Con Edison            
|               |  |                                                                                      |  | Con Edison of New York
|               |  |                                                                                      |  | O&R                   
|Item 14.       |  | Controls and Procedures                                                              |  | 205                   
|Part IV        |  |                                                                                      |  |                       
|Item 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  | 206                   
|Signatures     |  | 213                                                                                 
|Certifications |  | 214                                                                                 

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Glossary of Terms

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

|Con Edison Companies         
|-----------------------------
|Con Edison                   
|Con Edison Communications    
|Con Edison Development       
|Con Edison Energy            
|Con Edison of New York       
|Con Edison Solutions         
|O&R                          
|Pike                         
|RECO                         
|Regulatory and State Agencies
|DEC                          
|EPA                          
|FERC                         
|NJBPU                        
|NYPA                         
|NYSERDA                      
|PSC                          
|PPUC                         
|SEC                          
|Other                        
|ABO                          
|APB                          
|AFDC                         
|ERISA                        
|FASB                         
|FIN                          
|EITF                         
|ENDRO                        
|KV                           
|kWh                          
|MD&A                         
|mdths                        
|MLBS                         
|MVA                          
|MW                           
|MWH                          
|NYISO                        
|NUGs                         
|OCI                          
|PCBs                         
|POLR                         
|PRP                          
|SFAS                         
|Superfund                    

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|        |  |                             |  |                                      |  | PAGE
|------- |  | --------------------------- |  | ------------------------------------ |  | ----
|Part I  |  |                             |  |                                      |  |     
|Item 1. |  | Business Contents of Item 1 |  |                                     
|        |  | Incorporation By Reference  |  |                                     
|        |  | Available Information       |  |                                     
|        |  | Con Edison                  |  | Corporate Overview                   |  | 7   
|        |  |                             |  | Operating Segments                   |  | 7   
|        |  |                             |  | Regulation                           |  | 7   
|        |  |                             |  | Competition                          |  | 8   
|        |  |                             |  | Unregulated Subsidiaries             |  | 8   
|        |  |                             |  | Capital Requirements                 |  | 8   
|        |  |                             |  | State Anti-takeover Law              |  | 8   
|        |  |                             |  | Employees                            |  | 8   
|        |  | Con Edison
of New York      |  | Corporate Overview                   |  | 9   
|        |  |                             |  | Operating Segments                   |  | 9   
|        |  |                             |  | Electric Operations                  |  | 9   
|        |  |                             |  | Gas Operations                       |  | 11  
|        |  |                             |  | Steam Operations                     |  | 12  
|        |  |                             |  | Regulation                           |  | 12  
|        |  |                             |  | Competition                          |  | 13  
|        |  |                             |  | Capital Requirements and Financing   |  | 13  
|        |  |                             |  | Environmental Matters                |  | 13  
|        |  |                             |  | Operating Statistics                 |  | 15  
|        |  | O&R                         |  | General Nature and Scope of Business |  | 17  
|        |  |                             |  | Operating Statistics                 |  | 18  

Incorporation by Reference

Information in other Items of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1. The use of terms such
as "see" or "refer to" shall be deemed to incorporate into this Item 1 the information to which such reference is made.

Available Information

Con Edison, Con Edison of New York and O&R file annual, quarterly and current reports, proxy or information statements and other information with the SEC. The
public may read and copy any materials that the companies file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. The address of
Con Edison's Internet website is http://www.conedison.com. Con Edison of New York's website address is at http://www.coned.com and O&R's website is at http://www.oru.com. The companies make available
free of charge on or through the Investor Information section of their websites their Annual Report on Form 10-K, quarterly reports on Form 10-Q, Current Reports
on Form 8-K and amendments to those reports as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the SEC. Information on the three
companies' websites is not incorporated herein.

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CON EDISON

Corporate Overview

Consolidated Edison, Inc. (Con Edison), incorporated in New York State in 1997, owns all of the outstanding common stock of Consolidated Edison Company
of New York, Inc. (Con Edison of New York) and Orange and Rockland Utilities, Inc. (O&R). Con Edison has no significant business operations other than those of its regulated utility
subsidiaries, Con Edison of New York and O&R, and its unregulated subsidiaries.

For
information about legal proceedings relating to Con Edison's October 1999 agreement to acquire Northeast Utilities, see Note P to the Con Edison financial statements in Item 8.

Operating Segments

Con Edison's principal business segments are the regulated electric, gas and steam businesses of its utility subsidiaries and the unregulated businesses of its
other subsidiaries. In 2002, the operating revenues of the regulated electric, gas and steam businesses and the unregulated businesses were 73.7 percent, 14.2 percent, 4.8 percent
and 7.3 percent, respectively, of Con Edison's operating revenues. For a discussion of operating revenues and operating income for each segment, see "Results of
Operations" in Con Edison's Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7. For additional segment information see Note N to the Con
Edison financial statements in Item 8 and the discussions of the businesses of Con Edison of New York and O&R below in this Item 1.

Regulation

Con Edison's utility subsidiaries are subject to extensive federal and state regulation, including by state utility commissions and the Federal Energy
Regulatory Commission (FERC). Con Edison, itself, is not subject to such regulation except to the extent that the rules or orders of these agencies impose restrictions on relationships between Con
Edison and its utility subsidiaries.

Con
Edison is a "holding company" under the Public Utility Holding Company Act of 1935 (PUHCA). Con Edison is exempt from all provisions of PUHCA, except Section 9(a)(2) (which requires SEC
approval for a direct or indirect acquisition of 5 percent or more of the voting securities of any other electric or gas utility company) on the basis that Con Edison and its utility
subsidiaries are organized and carry on their utility businesses substantially in the State of New York and that it does not derive any material part of its income from a public utility company
organized outside of the State of New York. This exemption is available even though Con Edison subsidiaries that are neither an "electric utility company" nor a "gas utility company" under PUHCA will
engage in interstate activities.

Con
Edison has been and is expected to continue to be impacted by legislative and regulatory developments. Con Edison's utility subsidiaries are subject to extensive regulation in New York, New Jersey
and Pennsylvania. Changes in regulation or legislation applicable to the company's subsidiaries could have a material adverse effect on the company and its subsidiaries. See "Regulatory Matters" in
the MD&A of Con Edison and Con Edison of New York in Item 7.

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Competition

Legislative and regulatory developments are promoting increased competition in Con Edison's businesses. For information about competition, see "Competition,"
below in the discussion of Con Edison of New York's business in this Item 1 and "Unregulated Subsidiaries," below.

Unregulated Subsidiaries

Con Edison has four unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells
electricity, gas and energy-related services to delivery customers of utilities, including Con Edison of New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale
energy supply company; Consolidated Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and energy and other infrastructure projects; and Con
Edison Communications, LLC (Con Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. The unregulated subsidiaries participate in
competitive energy supply and services businesses that are subject to different risks than those found in the businesses of the regulated utility subsidiaries. The unregulated subsidiaries accounted
for 7.3 percent of consolidated operating revenues and 2.9 percent of consolidated net income (before cumulative effect of change in accounting principle) in 2002, and 7.0 percent
of consolidated total assets at December 31, 2002.

For
additional information about Con Edison's unregulated subsidiaries, see "Results of OperationsUnregulated Business" in Con Edison's MD&A in Item 7.

Capital Requirements and Financing

For information about Con Edison's capital requirements, financing and securities ratings, see "Liquidity and Capital ResourcesCapital Resources,
Capital Requirements and Financial Market Risks" in Con Edison's MD&A in Item 7. Securities ratings assigned by rating organizations are expressions of opinion and are not recommendations to buy, sell
or hold securities. A securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

State Anti-takeover Law

New York State law provides that a "resident domestic corporation," such as Con Edison, may not consummate a merger, consolidation or similar transaction with
the beneficial owner of a 20 percent or greater voting stock interest in the corporation, or with an affiliate of the owner, for five years after the acquisition of voting stock interest,
unless the transaction or the acquisition of the voting stock interest was approved by the corporation's board of directors prior to the acquisition of the voting stock interest. After the expiration
of the five-year period, the transaction may be consummated only pursuant to a stringent "fair price" formula or with the approval of a majority of the disinterested stockholders.

Employees

Con Edison has no employees other than those of Con Edison of New York, O&R and Con Edison's unregulated subsidiaries (which at December 31, 2002 had
12,917, 1,015 and 361 employees, respectively).

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CON EDISON OF NEW YORK

Corporate Overview

Con Edison of New York, incorporated in New York State in 1884, is a subsidiary of Con Edison and has no significant subsidiaries of its own. Con Edison of New
York provides electric service in all of New York City (except part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than
8 million. It also provides gas service in Manhattan, the Bronx and parts of Queens and Westchester, and steam service in parts of Manhattan.

Operating Segments

Con Edison of New York's principal business segments are its regulated electric, gas and steam businesses. In 2002, electric, gas and steam operating revenues
were 79.9 percent, 14.5 percent and 5.6 percent, respectively, of its operating revenues. For a discussion of the company's operating revenues and operating income for each
segment, see "Results of Operations" in its MD&A in Item 7. For additional information about the segments, see Note N to the Con Edison of New York's financial statements in Item 8.

Electric Operations

There have been and are continuing to be significant changes in Con Edison of New York's electric operations, including the establishment of the company's
electric retail access program (under which all of the company's electric customers are able to purchase electricity from other suppliers) and the company's sale of most of its electric generating
capacity. See "Regulatory MattersElectric" in the MD&A of Con Edison and Con Edison of New York in Item 7 and "Rate and Restructuring Agreements" in Note A to the Con Edison and
Con Edison of New York financial statements in Item 8.

Electric Sales.Electric operating revenues were $5.8 billion in 2002 or 79.9 percent of Con Edison of New York's operating
revenues. The percentages were 78.2 and 80.8, respectively, in the two preceding years. In 2002, 58.9 percent of the electricity delivered by Con Edison of New York in its service areas was
sold by Con Edison of New York to its full-service customers, 22.0 percent was sold by other suppliers, including Con Edison Solutions, an unregulated subsidiary of Con Edison, to
the company's customers under its electric retail access program and the balance was delivered to the state and municipal customers of the New York Power Authority (NYPA) and the economic development
customers of municipal electric agencies. The company charges for the delivery of electricity sold by other suppliers to customers in its service area.

For
additional information about electricity sales, see "Operating Statistics," below, and "Results of OperationElectric" in the MD&As of Con Edison and Con Edison of New York in Item 7.

Electric Peak Load.The electric peak load in Con Edison of New York's service area occurs during the summer air conditioning season. The
2002 service area peak load, which occurred on July 3, was 12,086 thousand kilowatts (MW). The 2002 peak load included an estimated 7,874 MW for Con Edison of New York's
full-service customers, 2,483 MW for the company's customers participating in its electric retail access program and 1,729 MW for NYPA's customers and municipal electric agency customers.
If adjusted to historical design weather conditions, the 2002 peak load, would have been

9

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12,400 MW. Con Edison of New York estimates that, under design weather conditions, the 2003 service area peak load would be 12,650 MW, including an estimated 8,055 MW for the company's
full-service customers, 2,700 for its electric retail access program customers and 1,895 MW for NYPA's customers and municipal electric agency customers. "Design weather" for the electric
system is a standard to which the actual peak load is adjusted for evaluation and planning purposes.

Electric Supply.Most of the electricity sold by Con Edison of New York to its customers in 2002 was purchased under firm power contracts
or through the wholesale electricity market administered by the New York Independent System Operator (NYISO). The firm power contracts were with non-utility generators (NUGs) and utilities
(including Hydro-Quebec). The company has sold most of its electric generating capacity (see Note I to the Con Edison and Con Edison of New York financial statements in Item 8).

The
company plans to meet its continuing obligation to supply electricity to its customers with electric energy purchased under contracts with NUGs or others, generated from its electric generating
facilities (which have a capacity of 630 MW) or purchased through the NYISO's wholesale electricity market. For additional information about electric power purchases, see "Electric Power Requirements"
in Con Edison's and Con Edison of New York's MD&As in Item 7 and "Recoverable Energy Costs" in Note A to the Con Edison and Con Edison of New York financial statements in Item 8.

For
information about the company's contracts with NUGs for approximately 3,100 MW of electric generating capacity, see Note H to the Con Edison and Con Edison of New York financial statements
in Item 8.

For
the period ending March 2004, Con Edison of New York has an agreement with Hydro-Quebec (a government-owned Canadian electric utility) to purchase 400 MW of firm capacity during the months
of April through October. The amount and price of a "basic amount" of energy the company is entitled to purchase in each year is subject to negotiation with Hydro-Quebec. In accordance with the
agreement, the company can also purchase additional energy during the summer, which it would be obligated to return to Hydro-Quebec during the following winter.

For
information about the company's remaining electric generating facilities, see Item 2.

The
NYISO is a not-for-profit organization which controls and operates most of the electric transmission facilities in New York State as an integrated system and administers a
wholesale market for electricity in New York State. The NYISO, for reliability reasons, requires that entities supplying electricity to customers in New York State have generating capacity (either
owned or contracted for) in an amount that is 18 percent or more above the expected peak load for their customers. In addition, entities that serve customers in New York City must have enough
New York City-located capacity to cover 80 percent of their New York City customer peak load. Con Edison of New York met these requirements in 2002 with respect to its
full-service customers and expects to meet them in 2003.

For
additional information about the NYISO, see "Regulatory MattersElectric" in Con Edison's and Con Edison of New York's MD&A in Item 7.

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Gas Operations

There have been and are continuing to be significant changes in Con Edison of New York's gas operations in recent years, including the establishment of the
company's gas retail access program under which all of the company's gas customers are able to purchase gas from other suppliers, which Con Edison of New York would deliver.

Gas Sales.Gas operating revenues in 2002 were $1.04 billion or 14.5 percent of Con Edison of New York's operating revenues.
The percentages were 15.6 and 13.5, respectively, in the two preceding years. In 2002, 34 percent of the gas delivered by the company in its service area was sold by the company to its
full-service (firm and interruptible) customers and 66 percent was sold by other suppliers, including Con Edison Solutions. For additional information about gas sales, see
"Operating Statistics," below, and "Results of OperationsGas" in the MD&As of Con Edison and Con Edison of New York in Item 7.

Gas Requirements.Firm demand for gas in Con Edison of New York's service area peaks during the winter heating season. The "design
criteria" for the company's gas system assumes severe weather conditions, which have not occurred since the 1933-34 winter. Under these criteria, the company estimated that its
requirements to deliver gas to firm customers during the November 2002/March 2003 winter heating season would amount to 77,400 thousand dekatherms (mdths) (including 63,600 mdths
to its firm sales customers and 13,800 mdths to its firm transportation customers). For the period through January 31, 2003, the company's peak day occurred on January 7, 2003 when it
delivered 1,022 mdths of gas (including 558 mdths to its firm sales customers, 157 mdths to NYPA, 209 mdths to its other transportation customers and 98 mdths for use by the company in generating
electricity and steam).

Under
its design criteria, the company projects that for the November 2003/March 2004 winter heating season, its requirements for firm gas customers will amount to 79,300 mdths
(including 63,600 mdths to firm sales customers and 15,700 mdths to firm transportation customers) and that the peak day requirements for these customers will amount to 971 mdths. The company expects
to be able to meet these requirements.

Gas Supply.Con Edison of New York has contracts with suppliers for the firm purchase of natural gas. Charges under these contracts, which
are based on formulas or indexes or are subject to negotiation, are generally designed to approximate market prices. The contracts are for various terms extending to 2006. The company also has
contracts with interstate pipeline companies for the purchase of firm transportation and storage services. Charges under these contracts are approved by the FERC. The contracts are for various terms
extending to 2013. The company is required to pay certain charges under the supply, transportation and storage contracts whether or not it actually uses the contracted capacity. These fixed charges
amounted to approximately $145 million in 2002. See "Contractual Obligations and Commercial Commitments" in the Con Edison of New York MD&A in Item 7. In addition, Con Edison of New York
purchases gas on the spot market and has interruptible gas transportation contracts.

Con
Edison of New York recovers its gas supply, transportation and storage costs, less net proceeds of sales of excess capacity (excluding any incentive earned by the company for such sales), from
customers

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pursuant to rate provisions approved by the New York State Public Service Commission (PSC). See "Recoverable Energy Costs" in Note A to the Con Edison and Con Edison of New York financial
statements in Item 8.

Steam Operations

Steam Sales.Con Edison of New York sells steam in Manhattan south of 96th Street, mostly to large office buildings, apartment houses and
hospitals. In 2002, steam operating revenues were $404.0 million or 5.6 percent of the company's operating revenues. The percentages were 6.2 and 5.7, respectively, in the two preceding
years.

For
additional information about Con Edison of New York's steam operations, see "Regulatory MattersSteam" and "Results of OperationsSteam" in the MD&As of Con Edison and Con
Edison of New York in Item 7, the discussion of Con Edison of New York's steam facilities in Item 2 and "Operating Statistics," below.

Steam Peak Load and Capacity.Demand for steam in Con Edison of New York's service area peaks during the winter heating season. The
one-hour peak load during the winter of 2002/2003 (through January 31, 2003) occurred on January 24, 2003 when the load reached 9.7 million pounds per hour. The
company's estimate for the winter of 2003/2004 peak demand of its steam customers is 10.8 million pounds per hour under design criteria, which assume severe weather.

On
December 31, 2002, the steam system had the capability of delivering about 12.8 million pounds of steam per hour. Con Edison of New York estimates that the system will have the
capability to deliver 12.8 million pounds of steam per hour in the 2003/2004 winter.

Steam Supply.Forty-nine percent of the steam sold by Con Edison of New York in 2002 was produced in the company's
steam-only generating stations; 38 percent was produced in the company's steam/electric generating stations, where it is first used to generate electricity; and 13 percent
was purchased from others. See Item 2 for a discussion of Con Edison of New York's steam facilities (which information is incorporated herein by reference).

Regulation

The PSC regulates, among other things, Con Edison of New York's electric, gas and steam rates, the siting of its transmission lines and the issuance of its
securities. Certain activities of Con Edison of New York are subject to the jurisdiction of the FERC. In addition, various matters relating to the construction and operations of Con Edison of New
York's facilities are subject to regulation by other governmental agencies. Changes in regulation or legislation applicable to Con Edison of New York could have a material adverse effect on the
company. For additional information, including information about the company's electric, gas and steam rates, see "Regulatory Matters" in Con Edison of New York's MD&A in Item 7.

The
PSC is conducting a statewide proceeding to consider issues relating to electric and gas utilities' exiting the business of selling commodity (i.e., electric energy and gas, at retail) and related
retail services. In particular, the PSC is examining utility "provider of last resort" responsibilities and seeking to identify the consumer protections that will be needed as markets are opened to
competition. In March 2002, Con

12

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Edison of New York filed its cost of service studies for electric and gas service in a separate phase of this proceeding established to address the unbundling of rates into various services (e.g.,
meter reading, billing services), with a view to having these services provided by competitive markets. A "generic" PSC decision is expected in 2003, followed by a proceeding to apply the generic
principles to Con Edison of New York's electric and gas rates. In March 2002, the PSC rejected proposals for partial or total disallowance of "stranded costs" resulting from migration of
customers to competitive markets and directed the utilities to propose recovery mechanisms, which were filed in May 2002. However, there is disagreement regarding which costs would be
considered stranded and eligible for
recovery. In December 2002, the company asked the PSC to terminate or suspend the "unbundling" proceeding on the grounds that the objectives of the proceeding were not being accomplished.

Competition

For information about federal and state initiatives promoting the development of competition in the supply of electricity, see "Regulatory Matters" in the MD&As
of Con Edison and Con Edison of New York in Item 7. Competition from other suppliers of electricity or gas, suppliers of oil and other sources of energy, including distributed generation (such as fuel
cells and micro-turbines) may provide alternatives for Con Edison of New York customers. The company's electric, gas and steam rates are among the highest in the country.

Capital Requirements and Financing

For information about Con Edison of New York's capital requirements, financing and securities ratings, see "Liquidity and Capital ResourcesCapital
Resources, Capital Requirements and Financial Market Risks" in Con Edison of New York's MD&A in Item 7.

Securities
ratings assigned by rating organizations are expression of opinion and are not recommendations to buy, sell or hold securities. A securities rating is subject to revision or withdrawal at
any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Environmental Matters

General.Con Edison of New York's capital expenditures for environmental protection facilities and related studies were $69 million
in 2002 and are estimated to be $66 million in 2003.

Superfund.The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) by its terms imposes joint
and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. In the course of Con Edison of New York's
operations, materials are generated that are deemed to be hazardous substances under Superfund. The materials include asbestos and dielectric fluids containing polychlorinated biphenyls (PCBs). Other
hazardous substances are generated in Con Edison of New York's operations or may be present at company locations. Also, hazardous substances were generated at the manufactured gas plants that the
company and its predecessor companies used to operate. See "Superfund" in the discussion of Con Edison of New York's legal proceedings in Item 3 and Note F to the Con Edison and Con Edison of
New York financial statements in Item 8.

13

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Asbestos.Asbestos is present in numerous Con Edison of New York facilities and was present in facilities formerly owned by the company.
For information about asbestos, see "Asbestos Litigation" in the discussion of the company's legal proceedings in Item 3 and Note F to the Con Edison and Con Edison of New York financial
statements in Item 8.

Toxic Substances Control Act.Virtually all electric utilities, including Con Edison of New York, own equipment containing PCBs. PCBs are
regulated under the Federal Toxic Substances Control Act of 1976.

Water Quality.Certain governmental authorities are investigating contamination in the Hudson River and the New York Harbor. These waters
are along the shoreline of Con Edison of New York's service area. Governmental authorities could require entities that generated hazardous substances that contaminated these waters to bear the cost of
investigation and remediation, which could be substantial.

14

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Con Edison of New YorkOPERATING STATISTICS

|                                                     |                               | Year Ended December 31
|---------------------------------------------------- | ----------------------------- | ----------------------
|
|
|ELECTRIC ENERGY (MWH)                                |                               |                       
|Generated                                            |                               | 1,259,533             
|Purchased from others                                |                               | 32,712,723            
|                                                    
|TOTAL GENERATED AND PURCHASED                        |                               | 33,972,256            
|Less: Used by Company                                |                               | 172,873               
|Distribution losses and other variances              |                               | 2,008,530             
|                                                    
|NET GENERATED AND PURCHASED                          |                               | 31,790,853            
|Electric Energy Sold                                 |                               |                       
|                                                     | Residential                   |                       
|                                                     | Commercial and Industrial     |                       
|                                                     | Railroads and Railways        |                       
|                                                     | Public Authorities            |                       
|                                                    
|Con Edison of New York full service customers        |                               | 31,773,296            
|Off-System Sales (a)                                 |                               | 17,557                
|                                                    
|TOTAL ELECTRIC ENERGY SOLD                           |                               | 31,790,853            
|                                                    
|ELECTRIC ENERGY DELIVERED                            |                               |                       
|Con Edison of New York full service customers        |                               | 31,773,296            
|Delivery service for retail access customers         |                               | 11,861,981            
|Delivery service to NYPA                             |                               |                       
|                                                     | customers and others          |                       
|Delivery service for municipal agencies              |                               | 762,660               
|                                                    
|TOTAL DELIVERIES IN FRANCHISE AREA                   |                               | 53,902,463            
|                                                    
|AVERAGE ANNUAL KWHR USE PER RESIDENTIAL CUSTOMER (b) |                               | 4,652                 
|AVERAGE REVENUE PER KWHR SOLD (CENTS)                |                               |                       
|                                                     | RESIDENTIAL (b)               |                       
|                                                     | COMMERCIAL AND INDUSTRIAL (b) |                       

15

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Con Edison of New YorkOPERATING STATISTICS (CONTINUED)

|                                                         |                     | Year Ended December 31, |            
|-------------------------------------------------------- | ------------------- | ----------------------- | -----------
|
|
|GAS (DTH)                                                |                     |                         |            
|Purchased                                                |                     |                         | 134,126,768
|Storage - net change                                     |                     |                         | 5,728,684  
|Used as boiler fuel at Electric and Steam Stations       |                     |                         | (29,386,788
|                                                         |                    
|GAS PURCHASED FOR RESALE                                 |                     |                         | 110,468,664
|Less: Gas used by the company                            |                     |                         | 323,915    
|Off-System Sales & NYPA                                  |                     |                         | 16,120,307 
|Distribution losses and other variances                  |                     |                         | 4,555,763  
|                                                         |                    
|TOTAL GAS PURCHASED FOR CON EDISON OF NEW YORK CUSTOMERS |                     |                         | 89,468,679 
|GAS SOLD                                                 |                     |                         |            
|Firm Sales                                               |                     |                         |            
|                                                         | Residential         |                         |            
|                                                         | General             |                         |            
|                                                         |                    
|TOTAL FIRM SALES                                         |                     |                         | 76,844,846 
|Interruptible Sales                                      |                     |                         | 12,623,833 
|                                                         |                    
|TOTAL GAS SOLD TO CON EDISON OF NEW YORK CUSTOMERS       |                     |                         | 89,468,679 
|                                                         |                    
|Transportation of customer-owned gas                     |                     |                         |            
|                                                         | Firm transportation |                         |            
|                                                         | NYPA                |                         |            
|                                                         | Other               |                         |            
|Off-System Sales                                         |                     |                         | 8,354,940  
|                                                         |                    
|TOTAL SALES AND TRANSPORTATION                           |                     |                         | 255,938,505
|                                                         |                    
|AVERAGE REVENUE PER DTH SOLD                             |                     |                         |            
|                                                         | RESIDENTIAL         |                         | $          
|                                                         | GENERAL             |                         | $          
|STEAM SOLD (MLBS)                                        |                     |                         | 24,519,476 
|AVERAGE REVENUE PER MLB SOLD                             |                     | $                       | 15.52      
|CUSTOMERS - AVERAGE FOR YEAR                             |                     |                         |            
|Electric                                                 |                     |                         | 3,117,542  
|Gas                                                      |                     |                         | 1,054,312  
|Steam                                                    |                     |                         | 1,838      

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O & R

General Nature and Scope of Business

O & R, a subsidiary of Con Edison incorporated in New York State in 1926, two wholly-owned utility subsidiaries, Rockland Electric Company (RECO), a New
Jersey corporation, and Pike County Light & Power Company (Pike), a Pennsylvania corporation.

O&R
and its utility subsidiaries provide electric service in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service
area. They also provide gas service in southeastern New York and Pennsylvania. O&R's business is subject to regulation by the PSC, the New Jersey and Pennsylvania state utility commissions and the
FERC. Changes in regulation or legislation applicable to O&R could have a material adverse effect on the company's financial position, results of operations or liquidity.

O&R's
principal business segments are its regulated electric and gas utility businesses. In 2002, electric and gas operating revenues were 75.0 percent and 25.0 percent, respectively, of
its operating revenues.

For
additional information about O&R's business, see O&R Management's Narrative Analysis of the Results of Operations in Item 7 and the notes to the O&R financial statements in Item 8. For information
about O&R's legal proceedings, see Item 3.

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O&ROPERATING STATISTICS

|                                                |                           | Year Ended December 31,
|----------------------------------------------- | ------------------------- | -----------------------
|
|
|ELECTRIC ENERGY (MWH)                           |                           |                        
|Generated                                       |                           | -                      
|Purchased from others                           |                           | 4,506,217              
|                                               
|TOTAL GENERATED AND PURCHASED                   |                           | 4,506,217              
|Less: Used by Company                           |                           | 14,305                 
|Distribution losses and other variances         |                           | 172,374                
|                                               
|NET GENERATED AND PURCHASED                     |                           | 4,319,538              
|ELECTRIC ENERGY SOLD                            |                           |                        
|                                                | Residential               |                        
|                                                | Commercial and Industrial |                        
|                                                | Public Authorities        |                        
|                                               
|Total sales to Orange & Rockland customers      |                           | 4,319,538              
|Off-System Sales                                |                           | -                      
|                                               
|TOTAL ELECTRIC ENERGY SOLD                      |                           | 4,319,538              
|                                               
|Total sales to Orange & Rockland customers      |                           | 4,319,538              
|Delivery service for Retail Choice customers    |                           | 1,235,047              
|                                               
|TOTAL SALES IN FRANCHISE AREA                   |                           | 5,554,585              
|                                               
|AVERAGE ANNUAL KWH USE PER RESIDENTIAL CUSTOMER |                           | 8,801                  
|AVERAGE REVENUE PER KWH SOLD (CENTS)            |                           |                        
|                                                | RESIDENTIAL               |                        
|                                                | COMMERCIAL AND INDUSTRIAL |                        

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O&ROPERATING STATISTICS (CONTINUED)

|                                                        |                                                | Year Ended December 31, |           
|------------------------------------------------------- | ---------------------------------------------- | ----------------------- | ----------
|
|
|GAS (DTH)                                               |                                                |                         |           
|Purchased                                               |                                                |                         | 19,723,917
|Storage - net change                                    |                                                |                         | (2,195,456
|Used as boiler fuel at O&R electric generating stations |                                                |                         | -         
|                                                        |                                               
|GAS PURCHASED FOR RESALE                                |                                                |                         | 17,528,461
|Less: Gas used by the company                           |                                                |                         | 56,939    
|Distribution losses and other variances                 |                                                |                         | 799,625   
|                                                        |                                               
|TOTAL GAS PURCHASED FOR O&R CUSTOMERS                   |                                                |                         | 16,671,897
|                                                        |                                               
|GAS SOLD                                                |                                                |                         |           
|Firm Sales                                              |                                                |                         |           
|                                                        | Residential                                    |                         |           
|                                                        | General                                        |                         |           
|                                                        |                                               
|TOTAL FIRM SALES                                        |                                                |                         | 13,498,027
|Interruptible Sales                                     |                                                |                         | 3,173,870 
|Sales to Con Edison                                     |                                                |                         | -         
|                                                        |                                               
|TOTAL GAS SOLD TO O&R CUSTOMERS                         |                                                |                         | 16,671,897
|Transportation of customer-owned gas                    |                                                |                         |           
|                                                        | Firm transportation                            |                         |           
|                                                        | Interruptible transportation                   |                         |           
|                                                        | Sales for resale                               |                         |           
|                                                        | Sales to divested electric generating stations |                         |           
|Off-System Sales                                        |                                                |                         | 2,883,913 
|                                                        |                                               
|TOTAL SALES AND TRANSPORTATION                          |                                                |                         | 45,156,066
|                                                        |                                               
|AVERAGE REVENUE PER DTH SOLD                            |                                                |                         |           
|                                                        | RESIDENTIAL                                    |                         | $         
|                                                        | GENERAL                                        |                         | $         
|CUSTOMERS - AVERAGE FOR YEAR                            |                                                |                         |           
|Electric                                                |                                                |                         | 285,519   
|Gas                                                     |                                                |                         | 121,437   

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|ITEM 2. |  | PROPERTIES
|------- |  | ----------

CON EDISON

Con Edison has no significant properties other than those of Con Edison of New York, O&R and Con Edison's unregulated subsidiaries.

At
December 31, 2002, the capitalized cost of Con Edison's utility plant, net of accumulated depreciation, was as follows (in millions of dollars):

|                              |              | Con Edison of
New York |          | O&R     |     | Con Edison |  
|----------------------------- | ------------ | ---------------------- | -------- | ------- | --- | ---------- | -
|
|
|Electric                      |              |                        |          |         |     |            |  
|                              | Generation   |                        | $        | 326.6   |     | 3          | %
|                              | Transmission |                        |          | 1,082.1 |     | 9          | %
|                              | Distribution |                        |          | 6,303.8 |     | 53         | %
|Gas                           |              |                        | 1,663.9  |         | 14  | %          |  
|Steam                         |              |                        | 566.7    |         | 5   | %          |  
|General                       |              |                        | 938.0    |         | 8   | %          |  
|Held for Future Use           |              |                        | 3.5      |         | -   | %          |  
|Construction Work in Progress |              |                        | 965.5    |         | 8   | %          |  
|                              |             
|NET UTILITY PLANT             |              | $                      | 11,850.1 |         | 100 | %          | $

CON EDISON OF NEW YORK

Electric Facilities

Generating Facilities.Con Edison of New York has sold most of its electric generating facilities. See Note I to the Con Edison and
Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference). The company's remaining electric generating facilities consist of plants located in New
York City with an aggregate capacity of 630 MW. The company expects to have sufficient amounts of fuel available in 2003 for use in these facilities. The company intends to add incremental generating
capacity of approximately 200 MW based on a
winter nominal rating (or approximately 125 MW based on a summer nominal rating) through the repowering of its East River station and the closing of its Waterside station.

Transmission Facilities.Con Edison of New York's transmission facilities, other than those located underground, are controlled and
operated by the NYISO. See "Electric OperationsElectric Supply" in Item 1 (in which information is incorporated herein by reference). At December 31, 2002, Con Edison of New York's
transmission system had 432 miles of overhead circuits operating at 138, 230, 345 and 500 kV and 138 miles of underground circuits operating at 138 and 345 kV. There are 267 miles of radial
subtransmission circuits operating at 69 kV and above. The company's 14 transmission substations, supplied by circuits operated at 69kV and above, have a total transformer capacity of 15,731 MVA. The
company's transmission facilities are located in New York City and Westchester, Orange, Rockland, Putnam and Dutchess counties in New York State.

Con
Edison of New York has transmission interconnections with Niagara Mohawk, Central Hudson Gas & Electric Corporation, O&R, New York State Electric and Gas Corporation, Connecticut Light

20

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and Power Company, Long Island Power Authority, NYPA and Public Service Electric and Gas Company.

Distribution Facilities.Con Edison of New York owns various distribution substations and facilities located throughout New York City and
Westchester County. At December 31, 2002, the company's distribution system had a transformer capacity of 20,300 MVA, with 32,763 miles of overhead distribution lines and 89,910 miles of
underground distribution lines.

Gas Facilities

Natural gas is delivered by pipeline to Con Edison of New York at various points in its service territory and is distributed to customers by the company through
4,249 miles of mains and 372,083 service lines. The company owns a natural gas liquefaction facility and storage tank at its Astoria property in Queens, New York. The plant can store approximately
1,000 mdth of which a maximum of about 250 mdth can be withdrawn per day. The company has about 1,230 mdth of additional natural gas storage capacity at a field in upstate New York, owned and operated
by Honeoye Storage Corporation, a corporation 28.8 percent owned by Con Edison of New York.

Steam Facilities

Con Edison of New York generates steam for distribution at three steam/electric generating stations and five steam-only generating stations and
distributes steam to customers through approximately 87 miles of mains and 18 miles of service line. For information about the planned repowering of the East River steam-electric station, see
"Electric FacilitiesGenerating Facilities," above.

O&R

Electric Transmission and Distribution Facilities

O&R and its utility subsidiaries, RECO and Pike, own, in whole or in part, transmission and distribution facilities which include 602 circuit miles of
transmission lines, 14 transmission substations (with a total transformer capacity of 3,762 MVA), 58 distribution substations (with a transformer capacity of 1,997 MVA), 92,829 in-service
line transformers, 5,109 pole miles of overhead distribution lines and 2,630 miles of underground distribution lines.

Gas Facilities

O&R and Pike own their gas distribution systems, which include 1,795 miles of mains.

RECO & Pike Mortgages

Substantially all of the utility plant and other physical property of O&R's utility subsidiaries, RECO and Pike, is subject to the liens of the respective
indentures securing first mortgage bonds of each company.

UNREGULATED SUBSIDIARIES

For information about the unregulated subsidiaries' interests in electric generating facilities, see "Electric Power Requirements" in Con Edison's MD&A in Item
7 (which information is incorporated herein by reference). These interests, the capitalized cost of which at December 31, 2002 amounted to $526 million (net of accumulated depreciation),
are included in Con Edison's financial statements as unregulated generating assets and construction work in progress. In addition, Con Edison Development has an operating lease arrangement for a 525
MW generating facility which was placed in service in 2002. See

21

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Note S to the Con Edison financial statements in Item 8 (which information is incorporated herein by reference). The generating facilities, which use primarily natural gas for fuel, are
located primarily in New Hampshire, Massachusetts, New Jersey and Maryland.

Con
Edison Communications' properties, the capitalized cost of which at December 31, 2002 amounted to $123 million (net of accumulated depreciation), are included in Con Edison's
financial statements as non-utility property and construction work in progress. The properties include network facilities and approximately 130 miles of fiber optic cable that has been
installed in the New York City metropolitan area primarily through Con Edison of New York underground conduits and other rights of way. Con Edison Communications pays a fee for the use of such
conduits and rights of way.

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ITEM 3.    LEGAL PROCEEDINGS

Con Edison

Northeast Utilities

For information about legal proceedings relating to Con Edison's October 1999 agreement to acquire Northeast Utilities, see Note P to the Con
Edison financial statements in Item 8 (which information is incorporated herein by reference).

Newington Project

For a description of the Newington Project, see Note S to the Con Edison financial statements included in Item 8 (which information is incorporated
herein by reference). In September 2002, Duke/Fluor Daniel, the general contractor for the Newington Project, initiated an arbitration proceeding with respect to its contract claims for an
additional payment to it of $89 million for alleged project costs and a 176-day extension of the project's scheduled substantial completion date. In September 2002, Con
Edison Development commenced an action in the Supreme Court of the State of New York (Hawkeye Funding, Limited Partnership), seeking to adjudicate certain contract disputes with the general
contractor. Presently, the arbitration proceeding and Supreme Court action are stayed pending resolution of an appeal in the New York State Supreme Court, Appellate Division. In September 2002,
the general contractor commenced an action in Superior Court in the State of New Hampshire, and obtained a pre-judgment attachment on the project as security for the payment of its claim
for additional project costs. The New Hampshire Superior Court is presently reviewing a motion to reconsider the propriety of its earlier decision allowing the pre-judgment attachment.

Con Edison of New York

Nuclear Generation

For information about the PSC proceeding relating to the nuclear generating unit that Con Edison of New York sold in 2001, see Note G to the Con Edison
of New York financial statements in Item 8 (which information is incorporated herein by reference).

In
December 2002, the United States Supreme Court denied defendants request to review a June 2002 decision by the United States Court of Appeals for the Second Circuit which had
unanimously affirmed the October 2000 decision by the United States District Court for the Northern District of New York, in an action entitled Consolidated Edison Company of New
York, Inc. v. Pataki, et al. In its decision, the district court determined that the New York State law that directed the PSC to prohibit Con Edison of New York from recovering replacement
power costs for the outage from customers was unconstitutional and granted the company's motion for a permanent injunction to prevent its implementation.

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note F to the Con Edison of New York financial statement in Item 8 (which
information is incorporated herein by reference).

Superfund

The following is a discussion of significant proceedings pending under Superfund or similar statutes involving sites, including manufactured gas sites, for
which Con Edison of New York has been asserted

23

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to have a liability. See "Environmental MattersSuperfund" in Item 1. Additional such proceedings may arise in the future.

Under
Con Edison of New York's current electric, gas and steam rate agreements, site investigation and remediation costs in excess of $5 million annually are to be deferred and subsequently
reflected in rates.

For
a further discussion of claims and possible claims against Con Edison of New York under Superfund, its estimated liability accrued for Superfund claims and recovery from customers of site
investigation and remediation costs, see Note F to Con Edison of New York's financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites.Con Edison of New York and its predecessors formerly manufactured gas and maintained storage holders for
manufactured gas at sites in New York City and Westchester County, New York (MGP Sites). Many of these sites are now owned by parties other than Con Edison of New York and have been redeveloped by
them for other uses, including schools, residential and commercial developments and hospitals. The New York State Department of Environmental Conservation (DEC) is requiring the company to investigate
and, if necessary,
develop and implement remediation programs for the MGP Sites, which include 33 manufactured gas plant sites and 17 storage holder sites.

The
information available to Con Edison of New York for most of the MGP Sites is incomplete as to the extent of contamination and remediation and monitoring methods, if any, to be used. Investigation
at most of the MGP Sites has not yet started and has been completed at only two of the MGP Sites. Coal tar and/or other manufactured gas plant-related environmental contaminants have been detected at
nine other MGP Sites, including sites in Manhattan and other parts of New York City and in Westchester County.

For
additional information about MGP Sites, see Note F to the Con Edison of New York financial statements in Item 8 (which information is incorporated herein by reference).

Astoria Site.Con Edison of New York is permitted by the DEC to operate a PCB storage facility on property the company owns in the Astoria
section of Queens, New York. The company has submitted to the DEC and the New York State Department of Health a report indicating PCB contamination of a portion of the site. As a condition of its DEC
permit, the company is required, where necessary, to conduct a remediation program. The company is investigating the extent of contamination at the Astoria site. The company estimates that its
undiscounted potential liability for the cleanup of PCB contamination at the site will be at least $7 million.

Maxey Flats Nuclear Disposal Site.In 1986, the EPA designated Con Edison of New York a potentially responsible party (PRP) under Superfund
for the investigation and cleanup of the Maxey Flats Nuclear Disposal Site in Morehead, Kentucky. The site is owned by the State of Kentucky and was operated as a disposal facility for low level
radioactive waste from 1963 through 1977 by the Nuclear Engineering Corporation (now known as U.S. Ecology Corporation). In 1995, the United States, the State of Kentucky and various de minimisPRPs,
large private party PRPs (including Con Edison of New York) and large federal agency PRPs entered into consent decrees with respect to
the funding and

24

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implementation of the cleanup program required by EPA for the site. Under the consent decrees, the large private party PRPs are responsible for implementing phase one of the program and any
corrective actions required during the first 10 years following completion of phase one. The costs of those activities are being shared with the large federal agency PRPs. Also, if during this
ten-year
period the EPA determines that horizontal flow barriers are required, the large private party PRPs will construct the barriers and share the cost of that work with the large federal agency PRPs and
the State of Kentucky. The large private party PRPs are not responsible for any costs after the ten-year period expires. The State of Kentucky will implement and fund the remainder of the
cleanup program. Construction work for the phase one program is expected to end this year. Con Edison of New York's share of the cleanup costs is estimated to be between $600,000 and $700,000.

Curcio Scrap Metal Site.In 1987, the EPA designated Con Edison of New York a Superfund PRP for the Curcio Scrap Metal, Inc. Site in
Saddle Brook, New Jersey, because the company had previously sold PCB-contaminated scrap electric transformers to a metal broker who in turn sold them to the owner of the site for
salvaging. In 1991, the EPA issued a Unilateral Administrative Order which required Con Edison of New York and three other PRPs to implement a soil and sediment cleanup program at and around the site.
In 1997, the EPA issued a Record of Decision in which it concluded that the soil and sediment cleanup had successfully remediated the principal threats associated with the site and required periodic
groundwater monitoring at the site for five years. Con Edison of New York is conducting the required groundwater monitoring program, which is expected to cost between $500,000 and $600,000 to
complete, under an EPA Administrative Consent Order. Depending on the results of the monitoring, the EPA could extend the monitoring program for an additional five years or require remedial measures,
such as groundwater treatment or cleanup work.

Metal Bank of America Site.In 1987, the EPA designated Con Edison of New York a Superfund PRP for the Metal Bank of America Site in
Philadelphia. The site, a former metal recycling facility, was placed on the EPA's national priority list in 1983. PCBs have been found in the site soil and groundwater and in the sediment from areas
of tidal mudflat and the Delaware River along the site's shoreline. During the 1970's, Con Edison of New York sold approximately 125 transformers to scrap metal dealers who salvaged or may have
salvaged the transformers at the site. In 1997, the EPA issued a Record of Decision that calls for, among other things, the removal and disposal of contaminated sediments in the areas of the tidal
mudflat and the Delaware River along the site's shoreline. In 1998, the EPA ordered the current and former site owners and operators and various electric utility PRPs, including Con Edison of New
York, to design and implement the cleanup program. The cost of the required cleanup program is estimated at between $24 million and $30 million. Con Edison of New York's share of the
costs allocated to the electric utilities is 0.97 percent. The utilities are pursuing Superfund cost contribution litigation against current and former site owners and operators.

Narrowsburg Site.In 1987, the New York State Attorney General notified Con Edison of New York that it is a Superfund PRP for the Cortese
Landfill Site in Narrowsburg, New York, because during 1974 the company had disposed of waste oil at the landfill. The Cortese Landfill is listed on the EPA's Superfund National Priorities List. In
1983, the Attorney General commenced an action under Superfund in the United States District Court for the Southern District of New York against the Cortese

25

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Landfill site owner and operator and SCA Services (SCA), the successor in interest of an alleged transporter of hazardous substances to the site. In 1989, SCA commenced a third-part
action for contribution against Con Edison of New York and various other parties whose chemical waste was allegedly disposed of at the site. Con Edison of New York and SCA have reached a settlement of
the third-party action under which Con Edison of New York paid $114,485 toward the cost of the site environmental studies and will pay six percent of the first $25 million of remedial costs for
the sites. SCA has agreed to indemnify Con Edison of New York for any other remedial costs and natural resource damages that it has to pay. The EPA has selected a cleanup program for the site that is
estimated to cost $12 million and the court has approved a consent decree under which SCA, Con Edison of New York and various other site PRPs have agreed to implement the cleanup program, pay
the EPA's oversight costs for the site, and pay approximately $220,000 for natural resource damages.

Carlstadt Site.In 1990, Con Edison of New York was served with a third-party complaint in a Superfund cost contribution action for a
former waste solvent and oil recycling facility located in Carlstadt, New Jersey. The complaint in the action, which is pending before the United States District Court for the District of New Jersey,
alleges that Con Edison of New York is one of several hundred parties who are responsible under Superfund for the study and cleanup of the facility. The plaintiffs in the action, which include a group
of former customers of the facility, have completed a $3 million remedial investigation and feasibility study for the site. Plaintiffs estimate that seven to 15 million gallons of waste
solvents and oil were recycled at the site. Based on this estimate, Con Edison of New York's share of the cleanup costs is estimated at about 0.8 to 1.7 percent. The costs of the cleanup
alternatives that were evaluated in the remedial investigation and feasibility study range from $8 million to $321 million. Plaintiffs have completed an interim remedy, which plaintiffs
claim cost more than $10 million, to control releases from the site while the EPA evaluates and develops a final cleanup remedy.

Global Landfill Site.Con Edison of New York is a PRP under Superfund and the New Jersey Spill Compensation and Control Act (Spill Act) for
the Global Landfill Site in Old Bridge, New Jersey. The site, a former sanitary landfill that was authorized to accept municipal refuse and industrial waste, is included on the Superfund National
Priorities List and is being administered by
the New Jersey Department of Environmental Protection (NJDEP) pursuant to an agreement between the EPA and the State of New Jersey. In 1993, a group of site PRPs, including Con Edison of New York,
entered into a consent decree with the NJDEP to implement, with partial funding from NJDEP, a Phase I remedy, estimated to cost $30 million. In 1997, the EPA issued a Record of Decision in
which it selected a Phase II remedy. The site PRP group and the NJDEP are currently negotiating a consent decree under which the site PRP group would also design and implement the Phase II remedy. Con
Edison of New York's share of the costs of the Phase I and Phase II remedies is not expected to exceed $150,000.

Chemsol Site.In 1991, the EPA advised Con Edison of New York that it had documented the release of hazardous substances at the Chemsol
Site in Piscataway, New Jersey and that it had reason to believe that the company sent waste materials to the site during the period from 1960 through 1965. In response to the EPA's demand for records
relating to Con Edison of New York's dealings with the site and various specified companies, including Cenco Instruments Corporation, the company submitted to

26

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the EPA records of payments to Central Scientific Company, a Division of Cenco Instruments Corporation. Con Edison of New York is unable at this time to determine either the purpose of the payments
to the Central Scientific Company or the connection of that company to the site. The EPA has not designated Con Edison of New York as a PRP and has not yet selected a final cleanup program for the
site. However, the EPA has selected an interim remedy, expected to cost about $8 million, for the site groundwater contamination and has ordered several designated PRPs to implement that
remedy.

PCB Treatment, Inc. Sites.In 1994, the EPA designated Con Edison of New York as a Superfund PRP for the PCB Treatment, Inc.
(PTI) Sites in Kansas City, Kansas and Kansas City, Missouri, because during the mid-1980's it shipped almost 2.9 million pounds of PCB-containing oil and electric
equipment to two buildings that PTI used at the sites for the storage, processing, and treatment of PCB-containing electric equipment, dielectric oils, and materials. Con Edison of New
York is member of a PRP steering committee that, in May 2000, completed environmental studies and engineering evaluations for the sites under an EPA administrative consent order. The results of
the studies indicate that portions of the buildings' floor slabs, support columns and walls and the soil around the buildings' outdoor loading dock areas are contaminated with PCBs. In
August 2000, EPA selected a removal action program for the contaminated buildings and soil at the sites. Under the program, which EPA projects will cost $21 million to complete, the
buildings will be demolished and the contaminated soil will be excavated and shipped to off-site disposal facilities. EPA, the members of the PRP steering committee (including Con Edison
of New York) and the federal agencies that shipped PCB-containing waste materials to the sites are entering into an administrative
order on consent under which the members of the PRP steering committee will design and implement EPA's removal action program with funding from both EPA and the settling federal agencies. Based on
allocation information recently developed by EPA, Con Edison of New York believes that its share of the investigation and remediation costs for the sites could range between $1.5 and
$3 million.

Borne Chemical Site.In 1997, Con Edison of New York was named as an additional third-party defendant in a private cost recovery action in
the New Jersey Superior Court (Union County) under the New Jersey Spill Compensation and Control Act for the Borne Chemical site in Elizabeth, New Jersey. Borne Chemical used the site for the
processing and blending of various types of petroleum, dyes and chemical products from approximately 1917 until 1985 when it became bankrupt and abandoned the site. Between 1971 and 1981, a portion of
the site was occupied by a waste transporter and oil spill cleanup contractor that did work for Con Edison of New York at various times. Con Edison of New York and four other third-party defendants in
the lawsuit have entered into a settlement with the third-party plaintiffs under which the company paid approximately $70,000 towards the cost of certain work that plaintiffs had already completed and
agreed to assume responsibility for approximately 0.67 percent of the expenses that the third-party plaintiffs incurred conducting the site investigation study ordered by the NJDEP and any soil
or groundwater cleanup program that the NJDEP may require after the site investigation study is completed.

Capasso Site.In 1997, Con Edison of New York was served with a complaint by DMJ Associates seeking to compel Con Edison of New York and 16
other defendants to clean up contamination at the Capasso property located in Long Island City, New York. The complaint alleges that Con Edison of

27

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New York sent waste to the Quanta Resources facility (Quanta) and that contamination, including PCB contamination, has migrated from Quanta to the Capasso property and is contributing to the
contamination on or about the Capasso property. Con Edison of New York is continuing to investigate whether it sent any waste to Quanta. Con Edison of New York is defending this action pursuant to a
joint defense agreement with the other generator defendants.

Arthur Kill Transformer Site.Following a September 1998 transformer fire at Con Edison of New York's former Arthur Kill generating
station, it was determined that oil containing high levels of PCBs was released to the environment during the incident. The company has completed DEC-approved cleanup programs for the
station's facilities and various soil and pavement areas of the site affected by the PCB release. Pursuant to a July 1999 DEC consent order, the company is also
carrying out a DEC-approved Remedial Investigation/Feasibility Program to assess the nature and extent of the contamination in, and to recommend a proposed remediation program for the
waterfront area of the station. After soliciting public comments, the DEC will select the remedial program to be implemented. In 1999, Con Edison of New York completed the sale of the generating
station pursuant to an agreement in which the buyer generally agreed to assume all environmental liabilities relating to the assets sold other than those for prior offsite disposal of hazardous waste
and liabilities arising out of the transformer fire. In April 2000, Con Edison of New York entered into a Stipulation and Order of Consent with the United States Attorney for the Southern
District of New York pursuant to which the United States Attorney agreed not to prosecute the company in connection with its response to the release of PCBs during the September 1998
transformer fire and, among other things, the company agreed to continue to develop, implement and maintain an effective environmental compliance program and to submit the program to an examination
and evaluation by a person selected by the United States Attorney.

BCF Oil Refining Site.In May 2000, the EPA designated Con Edison of New York and numerous other parties as PRPs for the BCF oil
refining site in Brooklyn, New York. The site was operated as a waste oil reprocessing facility from the late 1970's until August 1994, when the facility was forced to close down because its
storage and processing tank had become contaminated with elevated concentrations of PCBs. In November 1994, the owners of the site sued Con Edison of New York, alleging that its shipments of
waste oil and oily wastewater to the facility were the source of the high concentration of PCBs that had contaminated the facility's tanks. The action was dismissed after a jury verdict in Con Edison
of New York's favor. However, the facility's tanks still contain significant quantities of PCB-contaminated oil and the EPA has determined that an emergency cleanup program estimated to
cost $2.1 million is required for them. The EPA is attempting to negotiate with the owners of the facility for the implementation of the required emergency cleanup program, but has indicated
that it may order PRPs who shipped waste oil to the facility to implement or to fund the program if the facility owners do not agree to carry out the program.

Mattiace Petrochemical Company Site.In July 2000, Con Edison of New York was served with an EPA Superfund information request for
the Mattiace Petrochemical Company Superfund site in Glen Cove, New York. According to the EPA, the Mattiace Petrochemical Company processed, blended, repacked and distributed solvents at the site
from the mid-1960's until 1987. Between 1974 and 1982, Mattiace Petrochemical's affiliate, the M&M Drum Company, cleaned and refurbished metal

28

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drums at the site. The EPA has reportedly incurred expenses totaling approximately $23.5 million since 1988 in conducting emergency removal and cleanup work and other response actions at the
site, including the portions of the site used by the M&M Drum Company. During the late 1970's
and early 1980's, Con Edison of New York purchased naphtha and a mineral spirit-based solvent product from Mattiace Petrochemical and sold empty scrap drums to Mattiace Petrochemical and M&M Drum.
Under a proposed Consent Decree, Con Edison of New York will settle its obligations with respect to this site with a $4.9 million payment and TRC Company, an environmental contractor, will be
responsible to complete the remediation of the site. In addition, TRC Company is to insure its obligations under the Consent Decree with a $25 million insurance policy. If TRC Company were to
default on its obligations under the Consent Decree and such default was not covered by the insurance policy, Con Edison of New York could have additional liability with respect to the site.

Croton Point Sanitary Landfill Site.The New York Attorney General has alleged that Con Edison of New York and numerous other businesses
with commercial and industrial facilities within Westchester County, New York are Superfund PRPs for the County of Westchester's Croton Point Sanitary Landfill in Croton on the Hudson, New York,
because they formerly used the landfill for the disposal of refuse and waste materials that contained hazardous substances. According to the New York Attorney General, the State of New York has spent
over $27 million since 1993 assisting the County of Westchester in implementing response actions needed to prevent releases of hazardous substances from the landfill and to properly close the
landfill. Con Edison of New York has joined a group of other designated site PRPs that has negotiated a settlement with the Attorney General, under which the settling PRPs will pay $9.5 million
of the State of New York's past response costs. Con Edison of New York expects that its share of the settlement, which must be approved by the United States District Court for the Southern District of
New York before becoming effective, will approximate $370,000.

Washington Heights Power Outage

Lawsuits relating to a July 1999 interruption of electric service to customers served by Con Edison of New York's Washington Heights distribution network
were brought in New York State Supreme and Civil Courts, New York County. A number of cases, including purported class action lawsuits, have been dismissed, discontinued or settled for de minimisamounts. The company does not expect that the remaining cases will have a material adverse effect on its financial position, results of
operation or liquidity.

Ronel Bennett

In December 1999, Ronel Bennett, Inc. and its president commenced an action in Supreme Court of the State of New York, County of Queens, against
Con Edison of New York and six of its employees seeking $300 million in damages and alleging breach of contract and torts. Ronel Bennett performed work for the company at its former Ravenswood
generating station from September 1996 to Spring 1997. Plaintiffs claim that the company failed to maintain a safe working environment, misrepresented conditions, failed to disclose information
about hazardous and toxic substances, violated federal and New York laws regarding hazardous substances and retaliated against the plaintiffs. The company does not expect this proceeding to have a
material adverse effect on its financial condition, results of operation or liquidity.

29

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O&R

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note F to the O&R financial statements in Item 8 (which information is
incorporated herein by reference).

Superfund

The following is a discussion of significant proceedings pending under Superfund or similar statutes involving sites, including manufactured gas sites, for
which O&R has been asserted to have a liability. Additional such proceedings may arise in the future.

O&R
is permitted under its current rate agreements to defer for subsequent recovery through rates certain site investigation and remediation costs.

For
a further discussion of claims and possible claims against O&R under Superfund, its estimated liability accrued for Superfund claims and recovery from customers of site investigation and
remediation costs, see "Environmental Matters" in Note F to the O&R financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites.O&R and its predecessors formerly owned and operated manufactured gas plants at seven sites (O&R MGP Sites) in
Orange County and Rockland County, New York. Five of these sites are now owned by parties other than O&R and have been redeveloped by them for residential, commercial or industrial uses. The DEC is
requiring O&R to develop and implement remediation programs for the O&R MGP Sites.

O&R
has investigated and detected soil and/or groundwater contamination to varying degrees at all of the O&R MGP Sites. However, additional investigation will be required at most of the O&R MGP Sites
and the remediation and monitoring methods have not yet been determined.

For
additional information about the O&R MGP Sites, see Note F to the O&R financial statements in Item 8 (which information is incorporated herein by reference).

Metal Bank of America Site.O&R is a PRP with respect to the site described under "Superfund-Metal Bank of America Site" above in the
description of Con Edison of New York's legal proceedings in this Item 3. O&R's share of the estimated $24 million to $30 million cost of the cleanup program is expected to be
approximately 4.6 percent.

Borne Chemical Site.O&R is a PRP with respect to the site described under "Superfund-Borne Chemical Site" above in the description of Con
Edison of New York's legal proceedings in this Item 3. In October 1995, various site PRPs, including O&R, entered into an administrative consent order with the NJDEP which obligates them to
perform a remedial investigation to determine what, if any, subsurface remediation is required.

West Nyack Site.In 1994 and 1997, O&R entered into consent orders with the DEC pursuant to which O&R agreed to conduct a remedial
investigation and remediate certain property it owns in West
Nyack, New York at which PCBs were discovered. Petroleum contamination related to a leaking underground storage tank was found as well. O&R has completed all remediation at the site that the

30

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DEC has required to date. The DEC is expected to determine whether any additional groundwater remediation will be required.

Orange County Landfill Site.In August 2000, the New York Attorney General informed O&R that it has been identified as a Superfund
PRP for the Orange County Landfill Site in Goshen, New York. The site, a former sanitary landfill, was operated by the Orange County Department of Works between 1974 and January 1992 and was
reportedly used for the disposal of approximately seven million cubic yards of municipal waste as well as small quantities of waste oil, industrial waste, septic sludge and hazardous waste. In
March 1992, the DEC designated the landfill site a Class 2 Inactive Hazardous Waste Disposal Site after finding groundwater contamination in the vicinity of the site. Since then, the
State of New York has incurred expenses totaling more than $12 million in connection with various required response actions for the site, including the capping and closure of the landfill.
Orange County has reportedly spent an additional $5 million in connection with those actions. O&R's records indicate that during the period 1988 through 1990, it disposed of approximately 1.5
cubic yards of oil-soaked debris and four cubic yards of oil and/or solvent-contaminated metal at the landfill. O&R is investigating whether private refuse carters that picked up trash
from its facilities may have used the landfill for the disposal of the trash.

Ramapo Landfill Site.In November 2000, the New York Attorney General informed O&R that it was considered a Superfund PRP for the
Ramapo Landfill Site in the Town of Ramapo, New York because a commercial carting company that had picked up trash from its facilities in Rockland County, New York during the early 1980's may have
disposed of that material at the site. The site, a former municipal waste and construction and demolition debris landfill, is included on the Superfund National Priorities List and is being
administered by the DEC. In 1992, the EPA issued a Record of Decision selecting a comprehensive cleanup program for the site, which is estimated will cost between $21 million and
$28 million to complete. The State of New York has reportedly spent more than $19 million assisting the Town of Ramapo to implement the required cleanup program.

O&R Clean Air Act Proceeding

For information relating to alleged violations of the federal Clean Air Act and the New York State Environmental Conservation Law relating to the Lovett
Generating Station that it sold in June 1999, See Note F to the O&R financial statements included in Item 8 (which information is incorporated herein by reference).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information about the executive officers of Con Edison and Con Edison of New York, as of February 20, 2003. As
indicated, certain of the executive officers are executive officers of each of Con Edison and Con Edison of New York and others are executive officers of Con Edison or Con Edison of New York. The term
of office of each officer is until the next election of directors (trustees) of their company and until his or her successor is chosen and qualifies. Officers are

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subject to removal at any time by the board of directors (trustees) of their company. Mr. McGrath has an employment agreement with Con Edison, which provides that he will serve as Chairman of
the Board and Chief Executive Officer of Con Edison and Con Edison of New York through August 31, 2005 (subject to one year extensions unless terminated on six months prior notice).
Messrs. Burke and McMahon and Ms. Freilich have employment agreements with Con Edison, which provide that they will serve in senior executive positions through August 31, 2005.

|Name                                                        |  | Age |  | Offices and Positions During Past Five Years                                                                                                                                                                                                                                                                                           
|----------------------------------------------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Executive Officers of Con Edison and Con Edison of New York
|Eugene R. McGrath                                           |  | 61  |  | 10/97 to presentChairman, President, Chief Executive Officer and Director of Con Edison
3/98 to presentChairman, Chief Executive Officer and Trustee of Con Edison of New York
9/90 to 2/98Chairman, President, Chief Executive Officer and Trustee to Con Edison of New York                                                       
|Kevin Burke                                                 |  | 52  |  | 9/00 to presentPresident of Con Edison of New York
7/99 to 8/00President of O&R
7/98 to 6/99Senior Vice PresidentCustomer Service of Con Edison of New York
3/98 to 6/98Senior Vice PresidentCorporate Planning of Con Edison of New York
3/93 to 2/98Vice PresidentCorporate Planning                                         
|Joan S. Freilich                                            |  | 61  |  | 3/98 to presentExecutive Vice President, Chief Financial Officer and Director (Trustee) of Con Edison and Con Edison of New York
10/97 to 2/98Senior Vice President, Chief Financial Officer and Director of Con Edison
4/97 to 2/98Trustee of Con Edison of New York
7/96 to 2/98Senior Vice President and Chief Financial Officer
|Frances A. Resheske                                         |  | 42  |  | 2/02 to presentSenior Vice PresidentPublic Affairs of Con Edison of New York
5/99 to 2/02Vice PresidentPublic Affairs of Con Edison of
New York
2/99 to 4/99DirectorPublic Affairs of Con Edison of New York
6/95 to 2/99General ManagerGovernment Relations and Community Development, Brooklyn Union                         
|Charles E. McTiernan, Jr.                                   |  | 58  |  | 1/03 to presentGeneral Counsel of Con Edison and Con Edison of New York
10/85 to 12/02Associate General Counsel of Con Edison of
New York                                                                                                                                                                                            
|Edward J. Rasmussen                                         |  | 54  |  | 12/00 to presentVice President and Controller of Con Edison and Con Edison of New York
12/00 to presentVice President, Controller and Chief Financial Officer of O&R
4/93 to 11/00Assistant Controller of Con Edison of New York                                                                                                    
|Hyman Schoenblum                                            |  | 54  |  | 12/00 to presentVice PresidentCorporate Planning of Con Edison of New York
12/97 to 11/00Vice President and Controller of Con Edison and Con Edison of New York
7/99 to 11/00Vice President and Chief Financial Officer of O&R                                                                                                     

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|Robert P. Stelben                                                                                                                 |  | 60 |  | 12/97 to presentVice President and Treasurer of Con Edison and Con Edison of New York
7/99 to presentVice President and Treasurer of O&R                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Executive Officers of Con Edison but not Con Edison of New York                                                                  
|Stephen B. Bram                                                                                                                   |  | 60 |  | 1/03 to presentGroup President, Energy and Communications of Con Edison
9/00 to 12/02President and Chief Executive Officer of O&R
4/95 to 8/00Senior Vice PresidentCentral Operations of Con Edison of New York                                                                        
|John D. McMahon                                                                                                                   |  | 51 |  | 1/03 to presentPresident and Chief Executive Officer of O&R
8/98 to 12/02Senior Vice President and General Counsel of Con Edison and Con Edison of New York
10/97 to 8/98Deputy General Counsel, Corporate and Regulatory, of Con Edison of New York                                    
|Executive Officers of Con Edison of New York but not Con Edison(all offices and positions listed are with Con Edison of New York)
|Louis L. Rana                                                                                                                     |  | 54 |  | 2/03 to presentSenior Vice PresidentElectric Operations
10/01 to 1/03Vice PresidentManhattan Electric Operations
4/00 to 9/01Vice PresidentManhattan Customer Service
3/98 to 3/00Vice PresidentSystem and Transmission Operations
10/97 to 2/98General ManagerCentral Operations
|Mary Jane McCartney                                                                                                               |  | 54 |  | 10/93 to presentSenior Vice PresidentGas                                                                                                                                                                                                                                                 
|Robert A. Saya                                                                                                                    |  | 61 |  | 9/01 to presentSenior Vice PresidentCentral Operations
4/00 to 8/01Vice PresidentSystem and Transmission Operations
1/95 to 3/00Chief Engineer, Substation and Transmission Engineering                                                                                               
|Luther Tai                                                                                                                        |  | 54 |  | 9/01 to presentSenior Vice PresidentCentral Services
9/00 to 8/01Senior Vice PresidentCentral Operations
7/98 to 8/00Vice PresidentCorporate Planning
7/94 to 6/98Director Corporate Planning                                                                                       
|Marilyn Caselli                                                                                                                   |  | 48 |  | 8/98 to presentVice PresidentCustomer Operations
10/97 to 7/98Vice PresidentStaten Island Customer Service                                                                                                                                                                             

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

CON EDISON

Con Edison's Common Shares ($.10 par value), the only class of common equity of Con Edison, are traded on the New York Stock Exchange. As of January 31,
2003, there were 97,987 holders of record of Con Edison's Common Shares.

The
market price range for Con Edison's Common Shares during 2002 and 2001, as reported in the consolidated reporting system, and the dividends paid by Con Edison in 2002 and 2001 were as follows:

|            |  | 2002 |       | 2001
|----------- |  | ---- | ----- | ----
|
|
|1st Quarter |  | $    | 42.50 |     
|2nd Quarter |  | $    | 45.10 |     
|3rd Quarter |  | $    | 43.44 |     
|4th Quarter |  | $    | 44.30 |     

On January 16, 2003, Con Edison's Board of Directors declared a quarterly dividend of $0.56 per Common Share. The first quarter 2003 dividend will be
paid on March 15, 2003.

Con
Edison expects to pay dividends to its shareholders primarily from dividends and other distributions it receives from subsidiaries. The payment of future dividends, which, is subject to approval
and declaration by Con Edison's Board of Directors, will depend on a variety of factors, including business, financial and regulatory considerations. For additional information see "Dividends" in
Note B to the Con Edison financial statements in Item 8 (which information is incorporated herein by reference).

CON EDISON OF NEW YORK

The outstanding shares of Con Edison of New York's Common Stock ($2.50 par value), the only class of common equity of Con Edison of New York, are held by Con
Edison and are not traded.

The
dividends declared by Con Edison of New York in 2002 and 2001 are shown in its Consolidated Statement of Retained Earnings included in Item 8 (which information is incorporated herein by
reference). For additional information about the payment of dividends by Con Edison of New York, and restrictions thereon, see "Dividends" in Note B to the Con Edison of New York financial
statements in Item 8 (which information is incorporated herein by reference).

O&R

The outstanding shares of O&R's Common Stock ($5.00 par value), the only class of common equity of O&R, are held by Con Edison and are not traded.

The
dividends declared by O&R in 2002 and 2001 are shown in its Consolidated Statement of Retained Earnings included in Item 8 (which information is incorporated herein by reference). See
Note B to the O&R financial statements in Item 8 for information about restrictions on the payment of dividends by O&R.

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ITEM 6.    SELECTED FINANCIAL DATA

CON EDISON*

|                                                                    |  | For the Year Ended December 31
|------------------------------------------------------------------- |  | ------------------------------
|
|
|
|Operating revenues                                                  |  | $                             
|Purchased power                                                     |  |                               
|Fuel                                                                |  |                               
|Gas purchased for resale                                            |  |                               
|Operating income                                                    |  |                               
|Income before cumulative effect of changes in accounting principles |  |                               
|Cumulative effect of changes in accounting principles               |  |                               
|Net income for common stock                                         |  |                               
|Total assets                                                        |  |                               
|Long-term debt                                                      |  |                               
|Preferred stock subject to mandatory redemption                     |  |                               
|Common shareholders' equity                                         |  |                               
|                                                                   
|BASIC EARNINGS PER SHARE                                            |  |                               
|Before cumulative effect of changes in accounting principles        |  | $                             
|Cumulative effect of changes in accounting principles               |  | $                             
|After cumulative effect of changes in accounting principles         |  | $                             
|DILUTED EARNINGS PER SHARE                                          |  |                               
|Before cumulative effect of changes in accounting principles        |  | $                             
|Cumulative effect of changes in accounting principles               |  | $                             
|After cumulative effect of changes in accounting principles         |  | $                             
|Cash dividends per common share                                     |  | $                             
|                                                                   
|Average common shares outstanding (millions)                        |  |                               
|                                                                   

CON EDISON OF NEW YORK

|                                                |  | For the Year Ended December 31
|----------------------------------------------- |  | ------------------------------
|
|
|
|Operating revenues                              |  | $                             
|Purchased power                                 |  |                               
|Fuel                                            |  |                               
|Gas purchased for resale                        |  |                               
|Operating income                                |  |                               
|Net income for common stock                     |  |                               
|Total assets                                    |  |                               
|Long-term debt                                  |  |                               
|Preferred stock subject to mandatory redemption |  |                               
|Common shareholders' equity                     |  |                               
|                                               

35

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  CONSOLIDATED EDISON, INC.

This discussion and analysis relates to the accompanying consolidated financial statements of Consolidated Edison, Inc. (Con Edison) and should be read
in conjunction with the consolidated financial statements and the notes thereto. Except where noted, this discussion and analysis is presented on a consolidated basis. Information in the notes
referred to in this discussion and analysis is hereby incorporated by reference herein. The use of terms such as "see" or "refer to" shall be deemed to incorporate by reference into this discussion
and analysis the information to which reference is made.

CON EDISON

Con Edison is a holding company that provides a wide range of energy-related and telecommunications services to its customers through its regulated and
unregulated subsidiaries. Con Edison's core business is energy distribution and it is also pursuing related growth opportunities in competitive businesses.

Con
Edison's principal subsidiary is Consolidated Edison Company of New York, Inc. (Con Edison of New York), a regulated utility that provides electric service to over 3.1 million
customers and gas
service to approximately 1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan.

Orange
and Rockland Utilities, Inc. (O&R) is also a regulated utility subsidiary of Con Edison. O&R, along with its regulated utility subsidiaries, provides electric service to over 285,000
customers in southeastern New York and adjacent sections of New Jersey and northeastern Pennsylvania and gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

Con
Edison has four unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity, gas and energy-related
services to delivery customers of utilities, including Con Edison of New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; Consolidated
Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and energy and other infrastructure projects; and Con Edison Communications, LLC (Con
Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. The unregulated subsidiaries participate in competitive businesses that are
subject to different risks than those found in the businesses of the regulated utility subsidiaries. The unregulated subsidiaries accounted for 7.3 percent of consolidated operating revenues
and 2.9 percent of consolidated net income in 2002 (before the cumulative effect of changes in accounting principles) and 7.0 percent of consolidated total assets at December 31,
2002.

RESULTS OF OPERATIONS  SUMMARY

Con Edison's earnings per share in 2002 were $3.03 ($3.02 on a diluted basis). Earnings per share in 2001 and 2000 were $3.22 ($3.21 on a diluted basis) and
$2.75 ($2.74 on a diluted basis), respectively.

Earnings
per share for 2002, before the cumulative effect of changes in accounting principles of $22.1 million after tax, were $3.14 ($3.13 on a diluted basis). See Notes K and O to the
financial statements.

36

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Earnings
for the years ended December 31, 2002, 2001 and 2000 were as follows:

|                         |            | 2002 |       | 2001  |   | 2000  |      
|------------------------ | ---------- | ---- | ----- | ----- | - | ----- | -----
|
|
|Con Edison of New York   |            | $    | 605.4 |       | $ | 649.5 |      
|O&R                      |            |      | 44.9  |       |   | 40.2  |      
|Unregulated subsidiaries |            |      | (2.6  | )**   |   | 11.5  |      
|Other***                 |            |      | (1.7  | )     |   | (19.0 | )    
|                         |           
|                         | CON EDISON |      | $     | 646.0 |   | $     | 682.2
|                         |           



Con Edison's earnings in 2002 were $36.2 million lower than in 2001, reflecting the following factors (after tax, in millions):

|Con Edison of New York:                               |  |   |                                                                         |  
|----------------------------------------------------- |  | - | ----------------------------------------------------------------------- | -
|                                                      |  |   | Lower operation and maintenance expenses (excluding nuclear operations) |  
|                                                      |  |   | Impact of weather (estimated)                                           |  
|                                                      |  |   | Reserve for electric excess earnings                                    |  
|                                                      |  |   | Amortization of divestiture gain in 2001                                |  
|                                                      |  |   | Reduction in gas base rates and lower non-firm gas sales                |  
|                                                      |  |   | Economic conditions (estimated)                                         |  
|Cumulative effect of changes in accounting principles |  |   | (22.1                                                                   | )
|Cessation of goodwill amortization                    |  |   | 10.8                                                                    |  
|Unregulated businesses                                |  |   | 8.0                                                                     |  
|Orange and Rockland Utilities                         |  |   | 4.7                                                                     |  
|Other                                                 |  |   | 2.2                                                                     |  
|                                                      | 
|TOTAL                                                 |  | $ | (36.2                                                                   | )
|                                                      | 

Con
Edison's earnings in 2001 were $99.4 million higher than in 2000, reflecting the following factors (after tax, in millions):

|Con Edison of New York: |  |                                                          |  |  
|----------------------- |  | -------------------------------------------------------- |  | -
|                        |  | Lower nuclear production expenses                        |  | $
|                        |  | Impact of weather and economic conditions (estimated)    |  |  
|                        |  | Lower depreciation expense                               |  |  
|                        |  | Amortization of divestiture gain                         |  |  
|                        |  | Increased pension credits                                |  |  
|                        |  | Recognition of deferred NYPA rate increase               |  |  
|                        |  | Unrecovered Indian Point replacement power costs in 2000 |  |  
|                        |  | Electric rate reductions                                 |  |  
|                        |  | Taxes other than income, principally property taxes      |  |  
|                        |  | Merger-related expenses in 2000                          |  |  
|                        |  | Unregulated businesses                                   |  |  
|Other                   |  |                                                          |  |  
|                        | 
|Total                   |  |                                                          |  | $
|                        | 

See
"Results of Operations" below for further discussion and analysis of results of operations.

37

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APPLICATION OF CRITICAL ACCOUNTING POLICIES

Con Edison's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in the United
States of America. The company's critical
accounting policies include industry-specific accounting applicable to regulated public utility subsidiaries and accounting for pensions and other postretirement benefits, contingencies, derivative
instruments, goodwill and leases.

The
application of certain of these accounting policies requires the company to use estimates. These estimates may require the company to make assumptions about matters that are highly uncertain and
for which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

The
major critical accounting policies are as follows:

Accounting
for Regulated Public UtilitiesSFAS No. 71

Con Edison's principal subsidiaries, Con Edison of New York and O&R, are regulated public utilities subject to Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, are subject to the accounting requirements of the Federal Energy
Regulatory Commission (FERC) and state public utility regulatory authorities having jurisdiction.

SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

Con
Edison's principal regulatory assets and liabilities are detailed on the company's consolidated balance sheet. The company is receiving or being credited with a return on all of its regulatory
assets for which a cash outflow has been made. The company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The company's
regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Accounting
for Pensions and Other Postretirement Benefits

Con
Edison provides pensions and other postretirement benefits to substantially all employees and retirees of its utility subsidiaries and certain employees of its unregulated subsidiaries. Con Edison
accounts for these benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions." In applying these accounting policies, the company has made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future
compensation, health care cost trends, and appropriate discount rates. See Notes D and E to the financial statements for information about

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these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2002, 2001 and 2000.

Primarily
because of the amortization of previous years' net investment gains, Con Edison's pension expense for 2002, 2001 and 2000 was negative, resulting in a credit to and increase in net income in
each year. Investment gains and losses on plan assets are fully recognized in expense over a 15-year period (20 percent of the gains and losses for each year begin to amortize in
each of the following five years and the amortization period for each 20 percent portion of the gains and losses is ten years). This amortization is in accordance with the Statement of Policy
issued by the New York State Public Service Commission (PSC) and is permitted under SFAS No. 87, which provides a "corridor method" for moderating the effect of investment gains and losses on
pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains
and losses.

Con
Edison's expense or credit for actual pension and other postretirement benefits in future periods will depend upon actual returns on plan assets and the assumptions the company makes for future
periods. The company's current estimate for 2003 is a reduction, compared to 2002, in the pension and other postretirement benefits net credit of $54 million after tax. This reduction reflects,
among other factors, an actual loss on the pension fund of 8.6 percent in 2002 as compared with an expected annual asset return assumption of 9.2 percent. This variation will reduce net
income by $21.3 million after tax in 2003, as compared to 2002. In addition, the company has lowered its
expected annual asset return assumption for the plans for 2003 to 8.8 percent. This revised assumption will reduce net income by $14.5 million after tax in 2003, as compared to 2002.

Amortization
of market gains and losses experienced in previous years is expected to reduce the pension and other post retirement benefit net credit by an additional $25 million, after tax, in
2004. A 5.0 percentage point variation in the actual annual return in 2003 as compared to the expected annual asset return of 8.8 percent would change net income by approximately
$6 million in 2004. Under the terms of its current regulatory agreements, O&R would defer as a regulatory asset any difference between expenses recognized under SFAS No. 87 and the
amounts reflected in rates for such expenses.

An
actuarial valuation of the plan's funded status was performed as of December 31, 2002. The valuation showed that the fair value of the company's pension plan assets exceeded its Accumulated
Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the plan's ABO in future years. In that event, Con Edison
would be required, under SFAS No. 87 and SFAS No. 132 "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a liability equal in amount to the difference between
the fair value of the plan assets and the ABO, plus its total accrued pension credits, through a non-cash charge to other comprehensive income (OCI). The charge to OCI, which would be net
of taxes, would not affect the company's net income for common stock.

Con
Edison was not required to make cash contributions to its pension plan in 2002 nor will it be required to do so in 2003.

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Accounting
for Contingencies

SFAS No. 5, "Accounting for Contingencies," applies to an existing condition, situation, or set of circumstances involving uncertainty as to possible
loss that will ultimately be resolved when one or more future events occur or fail to occur. Con Edison's known material contingencies include litigation relating to its October 1999 merger
agreement with Northeast Utilities, a proceeding relating to outages at the nuclear generating unit the company sold in 2001, workers' compensation
claims, and its responsibility for hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, that have been used or generated in the course of the operations of its
subsidiaries. See Notes F, G and P to the financial statements. In accordance with SFAS No. 5, the company has accrued estimates of losses relating to the contingencies as to which loss is
probable and can be reasonably estimated and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated.

Accounting
For Derivative Instruments

Con Edison's subsidiaries use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase
or sale of electricity or gas and interest rate risk on certain debt securities. See "Financial Market Risks" below and Note O to the financial statements.

Accounting
for Goodwill

Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. In accordance with this standard, Con Edison ceased
amortizing goodwill and began testing remaining goodwill balances for impairment on an annual basis. Con Edison completed initial goodwill impairment tests and recorded a loss of $34.1 million
($20.2 million after tax) as of January 1, 2002, relating to certain generation assets owned by an unregulated subsidiary. The unamortized goodwill of $405.8 million, relating to
the acquisition of O&R, was tested for impairment and determined not to be impaired. See Note K to the financial statements.

In
determining whether or not its goodwill is impaired, Con Edison is required to make certain estimates and assumptions that could affect the results of the goodwill impairment test. Actual results
could differ from the estimates used.

Accounting
for Leases

Con Edison applies SFAS No. 13, "Accounting for Leases" and other related accounting pronouncements to its leasing transactions. See Notes J and S to the
financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Con Edison's liquidity reflects cash flows from operating, investing and financing activities, as shown on the accompanying consolidated statement of cash flows
and discussed below. As a result of these activities, cash and temporary cash investments (including restricted cash) decreased $226.9 million at December 31, 2002 compared to
December 31, 2001.

Cash
Flows From Operating Activities

Con Edison's cash flows from operating activities reflect principally its energy sales and its cost of operations. The volume of energy sales is dependent on
factors external to Con Edison such as weather, economic conditions and technological developments. The prices at which Con Edison's utility subsidiaries provide energy to their customers are
determined in accordance with rate agreements approved by

40

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the state public utility regulatory authority having jurisdictionthe New York State Public Service Commission (PSC), the New Jersey Board of Public Utilities (NJBPU) and the Pennsylvania
Public Utility Commission (PPUC). See "Regulatory Matters" below. In general, changes in the utility subsidiaries' cost of purchased power, fuel and gas affect the timing of cash flows but not net
income because the costs are recovered in accordance with rate agreements. See "Recoverable Energy Costs" in Note A to the financial statements.

Net
income for common stock is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect Con Edison's cash flow from operations. Principal
non-cash charges include depreciation and deferred taxes. Principal non-cash credits include accrued pension credits. Pension credits result from past favorable performance in
Con Edison of New York's pension fund and assumptions about future performance. See "Application of Critical Accounting PoliciesAccounting for Pensions and Other Postretirement Benefits"
and Notes D and E to the financial statements.

Net
cash flows from operating activities in 2002 were $82.6 million less than the 2001 period. This decrease is due principally to higher energy costs and sales in December 2002 as
compared to December 2001, resulting in increased customer accounts receivable and recoverable energy costs, offset in part by increased accounts payable balances. The net benefit to cash flow
from these activities in 2001 was greater than the benefit in 2002 because high energy costs at year-end 2000 were collected in 2001 and energy purchases at year-end 2001 were
lower than the prior year. The
change in cash flows also reflect the timing of federal income tax payments and refunds and net cash received related to regulatory liabilities, such as transmission congestion contracts, offset by
increased cash expended related to regulatory assets. Net cash flows from operating activities in 2001 increased $245.5 million compared with 2000, due principally to lower energy costs which
are reflected in decreased customer accounts receivable and recoverable energy costs, offset in part by decreased accounts payable balances. See Note G to the financial statements.

The
following analysis reflects variations in balance sheet accounts, which impact specific line items within the consolidated statement of cash flows. The changes in these balance sheet line items
are utilized to reconcile income to cash flow from operations.

Accounts
receivablecustomers, less allowance for uncollectible accounts were $96.4 million higher at December 31, 2002 than at year-end 2001, due primarily to
higher electric, gas and steam sales in December 2002 as compared to December 2001. Con Edison of New York's equivalent number of days of revenue outstanding (ENDRO) of customer accounts
receivable was 29.3 days at December 31, 2002, compared with 29.6 days at December 31, 2001. For O&R, the ENDRO was 23.0 days at December 31, 2002, compared
with 23.6 days at year-end 2001.

Recoverable
energy costs increased $113.0 million at December 31, 2002 as compared with year-end 2001 due primarily to increased fuel, purchased power and gas costs,
resulting from higher sales volumes in December 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Other
receivables increased $70.0 million at December 31, 2002 as compared with year-end 2001, due primarily to increased receivables associated with electric and gas
commodity transactions at the unregulated subsidiaries (accounts payable for such transactions also increased) and increased gas hedging

41

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program receivables at the utility subsidiaries. See "Financial Market RisksCommodity Price Risks," below.

Gas
in storage decreased $31.0 million at December 31, 2002 as compared with year-end 2001, reflecting primarily the lower volumes in storage as a result of higher
withdrawals due to the colder weather at year-end 2002 as compared to 2001.

Other
current assets increased $18.9 million at December 31, 2002 compared with year-end 2001, due primarily to an increase in the value of energy marketing contracts at the
regulated and unregulated subsidiaries.

Deferred
loss on the sale of the nuclear generating unit decreased $47.6 million at December 31, 2002 as compared to year-end 2001 reflecting the recovery of these costs from
Con Edison of New York's customers in accordance with the company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Divestiturecapacity
replacement reconciliation balance decreased $30.0 million at December 31, 2002 as compared to year-end 2001 representing the amortization of
capacity costs incurred prior to the opening of the New York Independent System Operator (NYISO) market, in accordance with the company's 2000 Electric Rate Agreement. See "Rate and Restructuring
Agreements" in Note A to the financial statements.

Deferred
environmental remediation costs increased $20.5 million at December 31, 2002 as compared to year-end 2001 representing primarily additional liabilities accrued for
costs related to Superfund and other sites, which Con Edison's regulated subsidiaries are permitted to recover under current rate agreements. See Note F to the financial statements.

For
information about the regulatory asset for World Trade Center restoration costs, see Note Q to the financial statements.

Deferred
asbestos-related costs increased $33.7 million at December 31, 2002 as compared to year-end 2001 due to increased liabilities accrued for Con Edison of New York's
non-employee related asbestos claims (which Con Edison of New York is permitted to recover under its current rate agreements). See Note F to the financial statements.

Other
regulatory assets increased $34.4 million at December 31, 2002 as compared to year-end 2001 due principally to the reconciliation of taxes collected and the tax expense
resulting from New York
State tax law changes in accordance with PSC authorization. See Note A to the financial statements and "Other Regulatory Liabilities," below.

Accumulated
provision for injuries and damages increased $21.8 million at December 31, 2002 as compared with year-end 2001, reflecting primarily workers' compensation claims
relating to asbestos exposure. See Note F to the financial statements.

Accounts
payable increased $239.7 million at December 31, 2002 as compared with year-end 2001. This increase is due primarily to higher electric, gas and steam energy costs
at December 31, 2002 as compared to December 31, 2001, reflecting higher sales volumes, and an increase in payables associated with settled

42

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electric and gas commodity transactions at the unregulated subsidiaries. See discussion of electric power costs in "Results of Operations," below.

Accrued
taxes decreased $45.3 million at December 31, 2002 compared with year-end 2001, due primarily to the payment of the 2001 fourth quarter federal income tax liability
in January 2002. The federal government delayed the timing of the payment in light of the World Trade Center attack.

Transmission
congestion contracts increased $119.9 million at December 31, 2002 as compared to year-end 2001 reflecting proceeds from the sale of transmission rights on Con
Edison of New York's transmission system. These proceeds are being retained for customer benefit.

The
gas rate plan balance of $36.3 million at December 31, 2002 was established in accordance with the 2002 gas rate agreement to provide for the recovery of costs (net of reimbursement)
related to the World Trade Center attack.

Electric
excess earnings balance of $40.0 million at December 31, 2002 represents a reserve established in 2002 for earnings in excess of a specified rate of return that are to be
retained for
customer benefit in accordance with Con Edison of New York's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

During
2002, other regulatory liabilities increased $125.5 million, due primarily to the reconciliation of taxes collected and the expense resulting from New York State tax law changes in
accordance with PSC authorization and the establishment of a liability to customers for interest earned on a federal income tax refund. Changes in the New York State tax laws applicable to utility
companies, effective January 1, 2000, repealed or reduced certain revenue-based taxes and instituted a net income-based tax. In June 2001, the PSC issued its final Order relating to
these tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and tax expense resulting from tax law changes, until those changes
are incorporated into base rates.

Cash
Flows Used in Investing Activities

Cash
flows used in investing activities were $686.8 million higher in 2002 compared with 2001, due primarily to the receipt of proceeds from generation divestiture, net of contributions to the
nuclear decommissioning trust, in the 2001 period. See "Generation Divestiture," below. In addition, construction expenditures increased $112.3 million in 2002 compared with 2001, principally
to meet load growth on the company's electric distribution systems, to effect permanent restoration of portions of the electric, gas and steam systems in lower Manhattan following the World Trade
Center attack and for the ongoing project to add incremental generating capacity at Con Edison of New York's East River steam-electric generating plant (the East River Repowering Project). Cash flows
used in investing activities in 2001 decreased $605.5 million compared with 2000, due primarily to the receipt of proceeds from generation divestiture, which offset increased utility
construction expenditures related to meet load growth on the company's electric distribution systems. See "Generation Divestiture" and "Capital Expenditures" below.

Deferred
real estate sale costs related to the demolition and remediation of a nine-acre development site in midtown Manhattan along the East River were $134.4 million at
December 31, 2002, compared to $105.4 million at December 31, 2001. In 2000, Con Edison of New York agreed to sell this site for an

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expected price of $576 million to $680 million, depending on zoning and other adjustments. The sale is subject to PSC approval and other conditions. The buyer paid Con Edison of New
York $50 million in 2000 as a down payment, which Con Edison of New York used to fund a portion of the demolition and remediation expenses. The down payment has been recorded as a regulatory
liability.

Cash
Flows Used in Financing Activities

Net cash flows used in financing activities in 2002 decreased $278.0 million compared with 2001, reflecting principally increased financing for
construction expenditures at Con Edison of New York, the issuance of common stock and a reduction in the amount of common stock dividends paid in cash. In 2002, the company began issuing new common
shares for its Automatic Dividend Reinvestment and Cash Payment Plan instead of purchasing previously issued shares on the open market (approximately 1.0 million shares for
$39.6 million).

In
September 2001, the company used the proceeds from the sale of Con Edison of New York's nuclear plant to repay all outstanding short-term borrowing. Net repayments of
short-term debt increased $221.8 million for the year-ended December 31, 2002 compared with 2001 period. Cash flows used in financing activities in 2001 increased
$196.3 million compared with 2000, as a result of decreased borrowings and increased debt redemption.

Con
Edison had $161.7 million of commercial paper and other short-term notes outstanding at December 31, 2002 and $343.7 million outstanding at December 31,
2001. Con Edison's average daily short-term borrowing outstanding in 2002 was $256.1 million compared with $241.8 million in 2001. The weighted average interest rate was
1.7 percent in 2002 compared to 4.6 percent in 2001. For additional information about Con Edison's short-term borrowing, see Note C to the financial statements.

In
February 2002, Con Edison of New York redeemed at maturity $150 million of 6.625 percent 9-year, Series 1993C Debentures. In April 2002, Con Edison
issued $325 million of 7.25 percent long-term debt (Public Income Notes, Series 2002A), with a 40-year maturity, callable at par after five years. In
June 2002, Con Edison of New York redeemed at maturity $150 million of variable rate
5-year, Series 1997A Debentures and issued $300 million of non-callable 5.625 percent 10-year Series 2002A Debentures. In
August 2002, Con Edison of New York redeemed at maturity $37.1 million of Cumulative Preferred Stock, $100 par value, 6.125 percent, Series J. In December 2002, Con
Edison of New York issued $500 million 4.875 percent 10-year Series 2002B Debentures. In January 2003, Con Edison of New York redeemed $275 million of
7.75 percent 35-year, Series 1996A, Subordinated Deferrable Interest Debentures.

In
October 2002, Con Edison of New York changed the interest rate method applicable to $224.6 million aggregate principal amount of its tax-exempt Facilities Revenue Bonds,
Series 2001A from a variable weekly rate mode to a 10-year term mode, callable at par after three years with a 4.70 percent annual interest rate. In addition, Con Edison of
New York entered into a swap agreement in connection with these bonds pursuant to which the company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate
of 5.375 percent. See Note O to the financial statements.

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External
borrowings are a source of liquidity for Con Edison that could be affected by changes in credit ratings, financial performance and capital markets. For information about Con Edison's ratings
and certain financial ratios, see "Capital Resources" below.

Generation
Divestiture

In 2001, Con Edison of New York completed the sale of its interest in the jointly owned Roseton generating station and its nuclear generating unit and related
assets. See Note I to the financial statements.

Capital
Resources

Con Edison is a holding company that operates only through its subsidiaries and has no material assets other than its interests in its subsidiaries. Con Edison
expects to finance its capital requirements primarily from dividends it receives from its subsidiaries and through the sale of securities, including commercial paper. In addition, Con Edison's ability
to make payments on its external borrowings and dividends on its common shares is dependent upon its receipt of dividends from its
subsidiaries or proceeds from the sale of its securities or its interests in its subsidiaries. For information about restrictions on the payment of dividends by Con Edison's utility subsidiaries, see
Note B to the financial statements.

For
information about Con Edison's $950 million commercial paper programs and revolving credit agreements with banks, see Note C to the financial statements.

In
2002, Con Edison issued 1.7 million shares of previously unissued shares of its common stock for its Automatic Dividend Reinvestment and Cash Payment Plan, Stock Purchase Plan and Stock
Option Plan, which increased common equity by $68.5 million.

Con
Edison expects its utility subsidiaries to finance their operations, capital requirements and payment of dividends to Con Edison from internally generated funds and external borrowings.

In
December 2001, the PSC authorized Con Edison's utility subsidiaries to issue up to $1.95 billion of debt securities prior to 2006, of which Con Edison of New York issued
$525 million of debt securities in 2002. In addition, the PSC authorized the refunding of the utility subsidiaries' outstanding debt securities and preferred stock.

Con
Edison's unregulated subsidiaries have financed their operations and capital requirements primarily with capital contributions from Con Edison, internally generated funds and external borrowings
and off-balance sheet financings guaranteed by Con Edison. See Note S to the financial statements.

In
August 2002, President Bush signed into law an appropriations bill that authorizes funds for which the company is eligible to apply for the recovery of costs it incurred in connection with
the World Trade Center attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. See Note Q to the financial statements.

Con
Edison's ratio of earnings to fixed charges for 2002, 2001 and 2000 and common equity ratio at December 31, 2002, 2001 and 2000 were:

|                                      |  | 2002 |  | 2001 |  | 2000
|------------------------------------- |  | ---- |  | ---- |  | ----
|
|Earnings to fixed charges (SEC basis) |  | 3.25 |  | 3.49 |  | 3.10
|Common equity ratio                   |  | 48.2 |  | 49.6 |  | 49.1

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Con
Edison's ratio of earnings to fixed charges decreased for 2002 compared to 2001 primarily as a result of decreased earnings, including a non-cash, after-tax charge of
$22.1 million related to changes in accounting principles. Excluding this charge, the ratio of earnings to fixed charges for 2002 would have been 3.3. See Notes K and O to the financial
statements. Con Edison's ratio of earnings to fixed charges increased for 2001 compared to 2000 primarily as a result of increased earnings, reflecting charges in 2000 for replacement power costs
($130.0 million) and merger related expenses ($32.1 million). See Notes G and P to the financial statements.

The
commercial paper of Con Edison and its utility subsidiaries is rated P-1, A-1 and F-1, respectively, by Moody's Investors Service, Inc. (Moody's),
Standard & Poor's Rating Services (S&P) and Fitch Ratings (Fitch). Con Edison's unsecured debt is rated A2, A and A-, respectively, by Moody's, S&P and Fitch. The senior unsecured
debt of Con Edison's subsidiaries, Con Edison of New York and O&R, is rated A1, A+ and A+, respectively, by Moody's, S&P and Fitch.

Capital
Requirements

The following table compares Con Edison's capital requirements relating to its regulated and unregulated subsidiaries for the years 2000 through 2002 and
estimated amounts for 2003 and 2004:

|                                               |           | 2000 |     | 2001  |   | 2002  |       | 2003 |       | 2004 
|---------------------------------------------- | --------- | ---- | --- | ----- | - | ----- | ----- | ---- | ----- | -----
|
|
|Regulated utility construction expenditures    |           | $    | 959 |       | $ | 1,043 |       | $    | 1,157 |      
|Investment in unregulated subsidiaries         |           |      | 121 |       |   | 187   |       |      | 277   |      
|                                               |           |     
|                                               | Sub-total |      |     | 1,080 |   |       | 1,230 |      |       | 1,434
|Retirement of long-term securities at maturity |           |      | 395 |       |   | 638   |       |      | 348   |      
|                                               |           |     
|                                               | Total     |      | $   | 1,475 |   | $     | 1,868 |      | $     | 1,782

The increased regulated utility construction expenditures in 2002 and 2003 reflect expenditures for permanent electric, gas and steam system restoration
following the World Trade Center attack, programs to meet increased electric load growth and reliability needs, a higher level of gas infrastructure expenditures and the East River Repowering Project.

The
investment in unregulated subsidiaries reflects Con Edison's funding to the unregulated subsidiaries as well as the subsidiaries' own investments, but does not include off-balance
sheet financing (which is guaranteed by Con Edison). See Notes R and S to the financial statements. At December 31, 2002 and 2001, Con Edison's investment in these subsidiaries, on an
unconsolidated basis, was $789.8 million and $473.5 million, respectively.

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Contractual Obligations and Commercial Commitments

The following table summarizes Con Edison's material obligations at December 31, 2002, to make payments pursuant to contracts. Long-term debt
and capital lease obligations are included on Con Edison's balance sheet. Operating leases and non-utility generator (NUGs) contracts (for which undiscounted future annual payments are
shown) are disclosed in the notes to the financial statements.

|                                                         |  | Payments Due by Period
|-------------------------------------------------------- |  | ----------------------
|
|
|
|Long-term debt (Note B)                                  |  | $                     
|Capital lease obligations (Note J)                       |  |                       
|Operating leases (Notes J and S)                         |  |                       
|Non-utility generator contracts (Note H)                 |  |                       
|Natural gas supply, transportation and storage contracts |  |                       
|                                                        
|Total                                                    |  | $                     

Con
Edison's material commercial commitments to make payments in addition to these contractual commitments are its guarantees of certain obligations of its subsidiaries. See Notes R and S to the
financial statements.

ELECTRIC POWER REQUIREMENTS

In 2002, Con Edison's utility subsidiaries purchased substantially all of the energy they sold to customers pursuant to firm contracts with NUGs and others or
through the NYISO's wholesale electricity market. Con Edison expects that these resources will again be adequate to meet the requirements of its customers in 2003.

In
general, Con Edison's utility subsidiaries recover prudently incurred purchase power costs pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction.
See "Financial Market Risks - Commodity Price Risk" below and "Recoverable Energy Costs" in Note A to the financial statements. From time to time certain parties have petitioned
the PSC to review these provisions, the elimination of which could have a material adverse effect on Con Edison's financial position, results of operations or liquidity.

To
reduce the volatility of electric energy costs, Con Edison's utility subsidiaries have firm contracts to purchase electric energy (including the output of the nuclear generating unit divested in
2001) and have entered into derivative transactions to hedge the costs of expected purchases, which together cover a substantial portion of the electric energy expected to be sold to customers in the
summer of 2003. See Notes H and O to the financial statements. Con Edison of New York also owns approximately 630 MW of electric generating stations located in New York City, the electricity from
which it sells through the NYISO's wholesale electricity market.

In
December 2002, Con Edison of New York issued a request for proposals seeking a contract to purchase, for no more than 10 years, 500 MW of electric capacity from a new facility located
in New York City (or outside the City if there is dedicated new transmission).

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The
East River Repowering Project will add incremental electric capacity of approximately 200 MW based on a winter nominal rating or approximately 125 MW based on a summer nominal rating. Con Edison's
utility subsidiaries do not expect to add any other long-term electric generation resources. In a July 1998 order, the PSC indicated that it "agree(s) generally that Con Edison of
New York need not plan on constructing new generation as the competitive market develops," but considers "overly broad" and did not adopt Con Edison of New York's request for a declaration that,
solely with respect to providing generating capacity, it will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer
have the obligation to construct new generating facilities, regardless of the market price of capacity. Con Edison of New York monitors the adequacy of the electric capacity resources and related
developments in its service area, and works with other parties on long-term resource adequacy issues within the framework of the NYISO.

Con
Edison's unregulated subsidiaries sell electricity in the wholesale and retail NYISO and other markets. At December 31, 2002, Con Edison Development owned interests in electric generating
facilities with an aggregate capacity of 588 MW and had under construction additional generating facilities with an aggregate capacity of 665 MW of capacity. In addition, Con Edison Development has an
operating lease arrangement for a 525 MW generating facility (see Notes J and S) that was placed in service in December 2002. Con Edison Energy sells the electricity from these
generating facilities under contract or on the wholesale electricity markets. See "Financial Market Risks - Commodity Price Risk," below.

REGULATORY MATTERS

Electric

In July 2002, FERC issued a Notice of Proposed Rulemaking (NOPR) to establish a Standard Market Design (SMD) for wholesale electricity markets across the
country. The proposed SMD has many of the elements of the markets that have been established in the Northeast, and if adopted, could facilitate transactions among energy markets across the country.
The SMD proposes that transmission owners would join Independent Transmission Providers, or ITPs, which would be independent of market participants, would have operational authority for all
transmission assets
under their control, and would perform certain functions related to day-ahead and real-time energy markets, determine resource adequacy requirements, financial congestion
management, regional planning, market monitoring, and interregional coordination with neighboring ITPs. Transmission facilities of Con Edison's utility subsidiaries, other than those located
underground, are currently controlled by the NYISO.

In
September 1997, the PSC approved a restructuring agreement among Con Edison of New York, the PSC staff and certain other parties (the 1997 Restructuring Agreement). Pursuant to the 1997
Restructuring Agreement, Con Edison of New York reduced electric rates on an annual basis by $129 million in 1998, $80 million in 1999, $103 million in 2000 and
$209 million in 2001, divested most of its electric generating capacity, and enabled all of its electric customers to be served by competitive energy suppliers.

48

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In
November 2000, the PSC approved an October 2000 agreement (the 2000 Electric Rate Agreement) that, among other things, revised and extended the electric rate plan provisions of the
1997 Restructuring Agreement and addressed certain generation divestiture-related issues.

The
electric rate plan provisions of the 2000 Electric Rate Agreement cover the five-year period ending March 2005. Pursuant to the 2000 Electric Rate Agreement, Con Edison of New
York reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

The
2000 Electric Rate Agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable
Energy Costs" in Note A to the financial statements.

For
additional information about the 1997 Restructuring Agreement and the 2000 Electric Rate Agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

O&R
has entered into settlement agreements or similar arrangements with the PSC, NJBPU and PPUC that provide for a transition to a competitive electric market. See "Rate and Restructuring Agreements"
in Note A to the financial statements.

In
August 2002, O&R's New Jersey utility subsidiary submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act (EDECA) of
$110 million of electric purchased power costs in excess of amounts previously billed to customers, associated interest, and other deferred charges. See "Recoverable Energy Costs" in
Note A to the financial statements.

Gas

In April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The
rate agreement reduces retail sales and transportation rates by $25 million, on an annual basis.

In
November 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties that revised and extended the 1996 gas rate settlement agreement through
September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

In
November 2000, the PSC also approved a gas rate agreement between O&R, PSC Staff and certain other parties covering the three-year period November 2000 through
October 2003.

In
November 2002, O&R filed a request with the PSC for approval of a $27.2 million rate increase effective November 2003. O&R also submitted a multi-year plan that
addresses rates for two additional years, with an increase of $2.5 million per year to cover adjustments to infrastructure costs, inflation and property taxes. The Administrative Law Judge is
expected to issue a recommended decision in the third quarter 2003.

For
additional information about the new gas rate agreements, see "Rate and Restructuring Agreements" in Note A to the financial statements.

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Steam

In December 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties with respect to the steam rate
plan filed by Con Edison in November 1999. The agreement provides for a $16.6 million steam rate increase, which took effect October 2000 and, with limited exceptions, provided
for no further changes in steam rates prior to October 2004.

For
additional information about the agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

FINANCIAL MARKET RISKS

Con Edison's primary market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest
Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction
expenditures and maturing debt securities. Con Edison and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through
opportunistic refinancing of debt. Con Edison estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of
$809.8 million would result in a change in annual interest expense of $1.2 million.

In
addition, Con Edison and its subsidiaries, from time to time, enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See "Interest Rate Hedging" in
Note O to the financial statements.

Commodity
Price Risk

Con Edison's commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The regulated and
unregulated subsidiaries have risk management strategies to mitigate their related exposures. See Note O to the financial statements.

In
general, the rates the utility subsidiaries charge customers for electric, gas and steam service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation
of steam and electricity, including gains or losses on certain derivative instruments used to hedge energy purchases and related transaction costs. See "Recoverable Energy Costs" in Note A to
the financial statements.

Con
Edison estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $7.4 million for the derivative instruments used
by its regulated utility subsidiaries to hedge purchases of electricity and gas. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the
cost of the electricity and gas purchased.

Con
Edison's unregulated subsidiaries use a value-at-risk model to assess the market risk of their electricity and gas commodity fixed price purchase and sales commitments,
physical forward contracts, and commodity derivative instruments. Value-at-risk represents the potential change in the fair value of instruments or portfolios due to changes in
market factors, for a specified time period and confidence

50

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level. The unregulated subsidiaries estimate value-at-risk across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a
95 percent confidence level. Since the value-at-risk calculation involves complex calculation methodologies, estimates and assumptions that are based on past experience,
it is not necessarily indicative of future results. The average, high and low values-at-risk for the 12 months ended December 31, 2002 were $1.4 million,
$3.0 million and $0.6 million, respectively.

Credit
Risk

Con Edison is exposed to credit risk related to over-the-counter transactions entered into primarily for the various energy supply and
hedging activities for its regulated and unregulated subsidiaries. Credit risk is the loss that may result from a counterparty's nonperformance. Con Edison uses credit policies to manage this risk,
including an established credit approval process, monitoring of counterparty limits, master netting agreements and collateral or prepayment arrangements. Con Edison measures credit risk exposure as
the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized
gains, net of any unrealized losses where the company has a legally enforceable right of setoff.

Con
Edison's unregulated energy subsidiaries had $64.8 million of credit exposure, net of collateral, at December 31, 2002, of which $45.0 million was with investment grade
counterparties and $14.2 million was with the New York Mercantile Exchange or independent system operators.

Investment
Risk

Con Edison's investment risk relates to the investment of the assets in the company's pension and other postretirement benefit plans. See "Critical Accounting
Policies - Accounting for Pensions and Other Postretirement Benefits," above.

ENERGY TRADING ACTIVITIES

Unregulated subsidiaries of Con Edison engage in energy trading activities that are accounted for in accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. Con Edison Energy markets energy through specialized products and provides wholesale capacity, risk management and load forecasting and
scheduling services to wholesale and retail energy providers and asset optimization services for the electric generating plants of Con Edison Development. Con Edison Energy also procures and markets
energy for other Con Edison subsidiaries and utilizes commodity contracts such as two-party forward contracts for the purchase or sale of electricity and capacity, over-the
counter swap contracts, exchange-traded natural gas and crude oil futures and options, transmission congestion contracts, natural gas transportation contracts and other physical and financial
contracts.

Prior
to October 2002, these contracts were accounted for under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and
Risk Management Activities." As of October 2002, energy and energy-related trading contracts that meet the definition of a derivative are accounted for under SFAS No. 133. Such contracts
are marked to market with gains and losses recognized in earnings. For the years ended December 31, 2002 and 2001, Con Edison recognized in income net unrealized pre-tax losses of
$1.4 million, excluding the effect of a cumulative adjustment

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due to a change in accounting principle, and net gains of $9.6 million, respectively. Contracts that did not fall within the scope of SFAS No. 133 were included in the cumulative effect
of a change in accounting principle recognized in December 2002. See Note T to the financial statements.

The
changes in fair value of energy trading net assets for the years ended December 31, 2002 and 2001 were as follows:

|                                                           |                                                       | 2002 |      | 2001  |  
|---------------------------------------------------------- | ----------------------------------------------------- | ---- | ---- | ----- | -
|
|
|Fair value of net assets outstanding - beginning of period |                                                       | $    | 11.2 |       | $
|Change in fair value during the period:                    |                                                       |      |      |       |  
|                                                           | Unrealized gain at inception                          |      |      | 10.9  |  
|                                                           | Net premium paid/(received)                           |      |      | (1.7  | )
|                                                           | Cumulative effect of a change in accounting principle |      |      | (3.2  | )
|                                                           | Changes in fair value prior to settlement             |      |      | 6.4   |  
|                                                           | Fair value realized at settlement of contracts        |      |      | (18.7 | )
|                                                           |                                                      
|Total change in fair value during the period               |                                                       |      | (6.3 | )     |  
|                                                           |                                                      
|Fair value of net assets outstanding - end of period       |                                                       | $    | 4.9  |       | $
|                                                           |                                                      

As of December 31, 2002, the sources of fair value of the energy trading net assets were as follows:

|                                                   |  |   |      | Fair Value of Net
Assets at Period End
(Millions of Dollars) |   |      |  
|-------------------------------------------------- |  | - | ---- | ------------------------------------------------------------ | - | ---- | -
|
|
|
|Prices provided by external sources                |  | $ | 12.6 |                                                              | $ | (4.8 | )
|Prices based on models and other valuation methods |  |   | (2.9 | )                                                            |   | -    |  
|                                                   | 
|Total                                              |  | $ | 9.7  |                                                              | $ | (4.8 | )
|                                                   | 

"Prices provided by external sources" represents the fair value of exchange-traded futures and options and the fair value of positions for which price
quotations are available through or derived from brokers or other market sources.

"Prices
based on models and other valuation methods" represents the fair value of positions calculated using internal models when directly and indirectly quoted external prices or prices derived from
external sources are not available. Internal models incorporate the use of options pricing and estimates of the present value of cash flows based upon underlying contractual terms. The models reflect
management's estimates, taking into account observable market prices, estimated market prices in the absence of quoted market prices, the risk-free market discount rate, volatility
factors, estimated correlations of energy commodity prices and contractual volumes. Counterparty specific credit quality, market price uncertainty and other risks are also factored into the models.

ENVIRONMENTAL MATTERS

For information concerning potential liabilities arising from laws and regulations protecting the environment, including the Superfund, and from claims relating
to alleged exposure to asbestos, see Note F to the financial statements.

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IMPACT OF INFLATION

Con Edison is affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits Con Edison's utility subsidiaries to recover
through depreciation only the historical cost of their plant assets even though in an inflationary economy the cost to replace the assets upon their retirement will substantially exceed historical
costs. The impact is, however, partially offset by the repayment of the utility subsidiaries' long-term debt in dollars of lesser value than the dollars originally borrowed.

RESULTS OF OPERATIONS

Con Edison's results of operations (which were discussed above under "Results of Operations - Summary") are discussed below for each of its
business segments. Con Edison's principal business segments are its electric, gas and steam utility businesses of its regulated utility subsidiaries and the businesses of its unregulated subsidiaries.
For additional information about its business segments, see Note N to the financial statements.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Electric

Con Edison's electric operating revenues in 2002 decreased $637.0 million compared with 2001, reflecting primarily lower fuel and purchased power costs
of $297.1 million (discussed below). The decrease also reflects the completion in March 2002 of amortizations of a previously deferred gain on the sale of divested plants and a
previously deferred NYPA revenue increase ($43.3 million), a reserve established in 2002 for earnings in excess of a specified rate of return that are to be retained for customer benefit in
accordance with Con Edison of New York's 2000 Electric Rate Agreement ($40.0 million), the amortization of the loss ($29.9 million) related to the sale of the company's nuclear
generating unit and rate reductions and other amortizations in accordance with the company's rate agreements. The decrease in electric operating revenues was offset, in part, by an increase in
electric sales revenues ($24.0 million) reflecting principally the hot summer weather. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the financial
statements.

Electricity
delivery volumes for Con Edison's utility subsidiaries increased 2.0 percent in 2002 compared with 2001. After adjusting for variations, principally weather and billing days in each
period, electricity delivery volumes for Con Edison of New York and O&R increased 0.5 percent and 3.2 percent, respectively, in the 2002 period.

Con
Edison's electric purchased power costs decreased $244.8 million in 2002 compared with 2001, due to a decrease in the price of purchased power and an increase in volumes of electricity
purchased from other suppliers by participants in the retail access programs of Con Edison's utility subsidiaries. This decrease was offset in part by Con Edison of New York's increased purchased
volumes resulting from the sale of the company's nuclear generating unit in September 2001 and the hot summer weather in 2002. Fuel costs decreased $52.3 million as a result of decreased
generation at Con Edison of New York's owned power plants. In general, Con Edison's utility subsidiaries recover prudently incurred fuel and

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purchased power costs pursuant to rate provisions approved by the PSC. See "Recoverable Energy Costs" in Note A to the financial statements.

Con
Edison's electric operating income decreased $85.4 million in 2002 compared with 2001. The principal component of the decrease was lower net electric revenues (operating revenues less fuel
and purchased power costs) of $339.9 million. The decrease in net electric revenues reflects the sale of the nuclear generation unit and the same factors (other than lower fuel and purchased
power costs) as discussed above with respect to the decrease in electric operating revenues. The decrease in net revenues was offset in part by reduced other operations and maintenance expenses
($135.0 million) reflecting nuclear production expenses incurred in 2001, but not in 2002 and productivity improvements, lower depreciation and amortization expense ($30.3 million) and
lower revenue taxes ($27.2 million). The decrease is also offset by lower income tax of $63.9 million.

Gas

Con Edison's gas operating revenues decreased $261.9 million, resulting primarily from the lower cost of purchased gas ($233.9 million) in 2002
compared with 2001. The lower cost of purchased gas reflects primarily lower unit costs at Con Edison of New York. The lower revenues also reflect reduced sales volumes, resulting primarily from the
mild winter weather in the first quarter of 2002 and for Con Edison of New York, revenue reductions implemented in accordance with the gas rate
agreement approved by the PSC in April 2002. Gas operating income decreased $6.5 million in 2002, reflecting a $28.0 million decrease in net revenues (operating revenues less gas
purchased for resale), and increased property tax expense ($10.0 million), offset in part by reduced operations and maintenance expenses ($16.6 million), reduced revenue taxes
($12.1 million) and lower income taxes ($7.8 million).

Con
Edison's gas sales and transportation volumes for firm customers decreased 3.2 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001.
After adjusting for variations, principally weather and billing days in each period, firm gas sales and transportation volumes for Con Edison of New York and O&R decreased 1.5 percent and
0.3 percent, respectively, in the 2002 period.

Con
Edison's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. A weather-normalization provision that applies to the gas business of Con Edison's
utility subsidiaries moderates, but does not completely eliminate, the effect of weather-related changes on gas operating income.

Steam

Con Edison of New York's steam operating revenues decreased $99.7 million. The lower revenues reflect reduced sales volumes and lower fuel and purchased
power costs primarily as a result of the loss of the World Trade Center as a customer, the mild winter weather in the first quarter of 2002, and the soft economy. The lower fuel and purchased power
costs reflect primarily lower unit costs. Steam operating income increased $8.2 million for 2002 compared with 2001 due primarily to reduced operations and maintenance expenses of
$9.3 million and lower income taxes of $10.5 million, offset in part by a

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decrease in net revenues (operating revenues less fuel and purchased power costs) of $11.1 million. See "Recoverable Energy Costs" in Note A to the financial statements.

Steam
sales volume decreased 3.2 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001, reflecting primarily the loss of the World Trade
Center as a customer, the mild winter weather in the first quarter of 2002 and the soft economy. After adjusting
for variations, principally weather and billing days in each period, steam sales volume decreased 1.4 percent.

Unregulated
Business

Earnings for the unregulated subsidiaries decreased $14.0 million in 2002 compared with 2001, reflecting a non-cash, after-tax
charge in 2002 of $22.1 million for changes in accounting principles (see Notes K, O and S to the financial statements) and continued start-up losses in the company's wholesale
telecommunications business, including a non-cash, after-tax charge in 2002 of $5.0 million for a write-down of an investment in Neon
Communications, Inc. (NEON). The decrease in earnings was offset, in part, by higher electric retail sales volumes and gross margins, the capitalization of previously expensed project
development costs on generation assets ($4.2 million after tax) and unrealized mark-to-market gains on derivative instruments ($6.9 million after tax), which are
also discussed below in "Other Income."

Taxes
Other Than Income Taxes

At $1.1 billion, taxes other than income taxes remain one of Con Edison's largest operating expenses.

The
principal components of, and variations in, operating taxes were:

|                                                  |  | Increase/(Decrease) |        
|------------------------------------------------- |  | ------------------- | -------
|
|
|
|Property taxes                                    |  | $                   | 660.6  
|State and local taxes related to revenue receipts |  |                     | 365.2  
|Payroll taxes                                     |  |                     | 60.1   
|Other taxes                                       |  |                     | 28.3   
|                                                  |  |                     |        
|Total                                             |  | $                   | 1,114.2



Effective in 2003, New York City increased Con Edison of New York's annual property taxes by $96 million. Under Con Edison of New York's rate agreements,
the company is deferring the property tax increase as a regulatory asset to be recovered from customers.

Other
Income

Investment income decreased $6.1 million in 2002 compared to 2001, due principally to reduced interest income earned on short-term cash
investments in the 2002 period as compared to the 2001 period. For the 2001 period, the company had more cash on hand than the 2002 period, primarily as a result of the sale of its nuclear generating
unit. Allowance for equity funds used during construction increased $8.7 million in 2002 compared to 2001 primarily reflecting the East River Repowering Project. Other

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income increased $52.5 million in 2002 compared to 2001 due primarily to $26.7 million of interest income on a federal income tax refund claim, a $10.2 million
write-off in 2001 of an investment in the New York Discovery Fund in 2001, a $9.4 million increase in interest earned on Con Edison of New York's regulatory assets (See "Application
of Critical Accounting Policies - Accounting for Regulated Public Utilities - SFAS No. 71," above) and a $11.7 million mark-to-market
gain on derivative contracts for an unregulated subsidiary. These increases were offset in part by reduced income of $2.5 million from Con Edison of New York's non-utility
operations. Other income deductions decreased $8.1 million due principally to lower legal fees relating to the Northeast Utilities litigation. See Note P to the financial statements.

Net
Interest Charges

Net interest charges increased $10.7 million in 2002 compared to 2001. The increase reflects principally the interest expense associated with a net
federal income tax deficiency related to a prior period audit ($19.1 million), partially offset by decreased interest expense on long-term debt of $11.6 million.

Income
Tax

Federal income tax decreased $11.8 million in 2002 compared to 2001, reflecting lower income before tax and deductions related to removal costs and tax
credits. In 2000, New York State implemented a tax law change that reduced or repealed certain revenue-based taxes and replaced them with the imposition of a net income-based tax. State income taxes
decreased $54.4 million in 2002 compared to 2001, reflecting lower income before tax, lowering of the tax rate and prior period adjustments. The state income tax expense is offset against the
savings from the eliminated or reduced revenue taxes. Any over- or under-collection of these taxes is deferred for return to, or recovery from, customers. See Notes A and L to the financial
statements.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Electric

Con Edison's electric operating revenues in 2001 decreased $50.3 million from 2000. The decrease in 2001 reflects decreased purchased power costs (see
"Recoverable Energy Costs" in Note A to the financial statements) and electric rate reductions of $375.6 million in 2001, offset by the effects of the warmer than normal summer weather
when compared to cooler than normal weather for the 2000 period.

Electricity
sales volume for Con Edison's utility subsidiaries increased 3.1 percent in 2001 compared with 2000. The increase reflects the warmer than normal summer weather and economic growth.
Con Edison's electric sales vary seasonally in response to weather and peak in the summer.

After
adjusting for variations, principally weather and billing days, in each period, electricity sales volume for Con Edison New York increased 2.4 percent in 2001 compared with 2000. For O&R,
weather-adjusted electric sales increased 3.3 percent in 2001 compared with 2000.

Con
Edison's electric operating income increased $93.2 million in 2001 compared with 2000. The increase reflects an increase in net revenues (operating revenues less fuel and purchased power)
of $73 million. The increase in net revenues reflects principally increased sales ($76.3 million), recognition

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of revenue related to previously deferred NYPA rate increases ($35.2 million), gains on the sale of divested generation plants ($37.5 million), increased system benefit charges
($41 million), recovery of incremental NUG cost ($31.0 million), reconciliation of state income tax and gross receipts tax ($110.8 million; see "Income Tax" below) and the
reduction in net revenues in 2000 for replacement power costs ($130.0 million), offset by electric rate reductions of $375.6 million in 2001. Electric operating income also increased due
to decreased other operations and maintenance expenses of $107.9 million and decreased depreciation and amortization expense of $69.1 million, offset in part by increased property taxes
of $33.7 million, federal income tax of $42.3 million and state income tax of $99.1 million (see "Income Tax" below).

The
$107.9 million decrease in other operations and maintenance expenses reflects principally lower expenses related to Con Edison of New York's nuclear generating unit which was sold in
September 2001 ($98.4 million), increased pension credits ($42.5 million) and decreased transmission expenses ($11.3 million), offset in part by higher distribution
expenses for the relocation of company facilities to avoid interference with municipal infrastructure projects ($13.4 million) and increased system benefit charges ($41 million).

Gas

Con Edison's gas operating revenues increased $204.0 million in 2001 compared with 2000, reflecting increased cost of purchased gas, offset in part by a
reduction in customers' bills of $20.0 million, reflecting a refund of previously deferred credits and other provisions of the gas rate agreement approved by the PSC in November 2000.
The increase in operating income of $3.7 million reflects principally an increase in net revenues (operating revenues less gas purchased for resale) of $5.4 million, increased pension
credits of $8.2 million, and the recognition in income in the 2001 period of previously deferred gas credits ($7.0 million), offset in part by increased depreciation and amortization
expense ($5.3 million), increased state income tax ($8.7 million; see "Income Tax" below) and higher distribution expenses of $3.0 million for the relocation of company facilities
to avoid interference with municipal infrastructure projects.

Firm
gas sales and transportation volume for Con Edison's utility subsidiaries decreased 2.0 percent in 2001 compared with 2000.

Con
Edison's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. The decrease in volume in 2001 compared with 2000 reflects the warmer 2001 winter
compared with 2000.

After
adjusting for variations, principally weather and billing days, in each period, gas sales and transportation volume to firm customers for Con Edison of New York increased 2.8 percent in
2001 compared with 2000. For O&R, weather-adjusted gas sales decreased 0.1 percent in 2001 compared with 2000.

Steam

Con Edison of New York's steam operating revenues increased $51.6 million in 2001 compared to 2000, reflecting primarily increased purchased steam and
fuel costs (see "Recoverable Energy Costs" in Note A

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to the financial statements). Steam operating income increased $2.3 million in 2001 compared with 2000, reflecting an October 2000 rate increase of $16.6 million.

Steam
sale volume decreased 5.3 percent in 2001 compared with 2000. The decrease in 2001 reflects the mild winter weather compared with 2000.

After
adjusting for variations, principally weather and billing days, in each period, steam sales volume decreased 2.7 percent in 2001.

Unregulated
Business

Operating revenues of Con Edison's unregulated subsidiaries decreased $133.7 million in 2001 compared to 2000, principally reflecting lower gas revenues
as result of lower gas sales volumes in the 2001 period compared to 2000. The decrease in operating revenues was offset by a comparable decrease in the cost of gas purchased and other expenses.

The
unregulated subsidiaries' operating income increased $11.6 million in 2001 compared to 2000 due principally to higher electric commodity gross margins and higher wholesale energy trading
volumes.

Taxes
Other Than Income Taxes

The principal components of, and variations, in operating taxes were:

|                                                  |  | 2001 Amount |         | Increase/(Decrease)
2001 compared
to 2000 |  
|------------------------------------------------- |  | ----------- | ------- | ----------------------------------------- | -
|
|
|Property taxes                                    |  | $           | 649.1   |                                           | $
|State and local taxes related to revenue receipts |  |             | 403.3   |                                           |  
|Payroll taxes                                     |  |             | 60.8    |                                           |  
|Other taxes                                       |  |             | 26.3    |                                           |  
|                                                  |  |             |        
|Total                                             |  | $           | 1,139.5 | *                                         | $



Other
Income

Other income increased $11.4 million in 2001 compared with 2000, due principally to reduced federal income tax expense and the recognition in 2000 of
$32.1 million of merger-related expenses, offset by the write-off in 2001 of an investment of $10.2 million in the New York City Discovery Fund.

Net
Interest Charges

Net interest charges increased $23.4 million in 2001 compared with 2000, reflecting $28.4 million of increased interest expense for Con Edison of
New York related to long-term borrowings and $5.7 million of interest expense related to long-term borrowing for a 236 MW electric generating facility located in
Lakewood, New Jersey (which was purchased in June 2000 by an unregulated subsidiary), offset in part by $10.6 million in 2000 for interest accrued on the net after-tax gain
from Con Edison of New York's 1999 generation divestiture, prior to the disposition of this gain in 2000. See Note I to the financial statements.

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Income
Tax

Federal income tax increased $14.9 million in 2001 compared with 2000, reflecting the changes in income before tax, deductions related to removal costs
and tax credits. State income taxes increased $120.6 million in 2001 compared with 2000 as a result of the change in New York State tax law, offset by a corresponding increase in other
operating revenues for taxes no longer applicable but still being recovered through rates. See Notes A and L to the financial statements.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

This discussion and analysis relates to the accompanying consolidated financial statements of Consolidated Edison Company of New York, Inc. (Con Edison
of New York or the Company) and should be read in conjunction with the financial statements and the notes thereto. Information in the notes referred to in this discussion and analysis is hereby
incorporated by reference herein. The use of terms such as "see" or "refer to" shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.

CON EDISON OF NEW YORK'S BUSINESS

Con Edison of New York is a regulated utility that provides electric service to over 3.1 million customers and gas service to approximately
1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan. All of the common stock of Con Edison of New York is owned by Consolidated
Edison, Inc. (Con Edison).

RESULTS OF OPERATIONS  SUMMARY

Con Edison of New York's net income for common stock for the year ended December 31, 2002 was $605.4 million. Earnings for the years ended
December 31, 2001 and 2000 were $649.5 million and $570.1 million, respectively.

Con
Edison of New York's earnings in 2002 were $44.1 million lower than in 2001, reflecting the following factors (after tax, in millions):

|Lower operation and maintenance expenses (excluding nuclear operations) |  | $ | 21.6  |  
|----------------------------------------------------------------------- |  | - | ----- | -
|Impact of weather (estimated)                                           |  |   | 18.4  |  
|Reserve for electric excess earnings                                    |  |   | (26.0 | )
|Amortization of divestiture gain in 2001                                |  |   | (25.0 | )
|Reduction in gas base rates and lower non-firm gas sales                |  |   | (21.3 | )
|Economic conditions (estimated)                                         |  |   | (7.5  | )
|Other                                                                   |  |   | (4.3  | )
|                                                                        |  |   |      
|Total                                                                   |  | $ | (44.1 | )
|                                                                        |  |   |      

The
Company's earnings in 2001 were $79.4 million higher than in 2000, reflecting the following factors (after tax, in millions):

|Lower nuclear production expenses                        |  | $ | 64.0   |  
|-------------------------------------------------------- |  | - | ------ | -
|Impact of weather and economic conditions (estimated)    |  |   | 47.5   |  
|Lower depreciation expense                               |  |   | 45.5   |  
|Amortization of divestiture gain                         |  |   | 37.5   |  
|Increased pension credits                                |  |   | 34.5   |  
|Recognition of deferred NYPA rate increase               |  |   | 22.9   |  
|Unrecovered Indian Point replacement power costs in 2000 |  |   | 84.5   |  
|Electric rate reductions                                 |  |   | (243.4 | )
|Taxes other than income, principally property taxes      |  |   | (12.2  | )
|Other                                                    |  |   | (1.4   | )
|                                                         |  |   |       
|Total                                                    |  | $ | 79.4   |  
|                                                         |  |   |       

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See
"Results of Operations" below for further discussion and analysis of results of operations.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Con Edison of New York's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in
the United States of America. The Company's critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other
postretirement benefits and contingencies.

The
application of certain of these accounting policies requires the Company to use estimates. These estimates require the Company to make assumptions about matters that are highly uncertain and for
which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

The
major critical accounting policies are as follows:

Accounting
for Regulated Public UtilitiesSFAS No. 71

Con Edison of New York is a regulated public utility subject to Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation," and, in accordance with SFAS No. 71, is subject to the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the New York State Public
Service Commission (PSC).

SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

Con
Edison of New York's principal regulatory assets and liabilities are detailed on the Company's consolidated balance sheet. The Company is receiving or being credited with a return on all of its
regulatory assets for which a cash outflow has been made. The Company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The
Company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the PSC.

Accounting
for Pensions and Other Postretirement Benefits

Con Edison of New York provides pensions and other postretirement benefits to substantially all employees and retirees. The Company accounts for these benefits
in accordance with SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." In applying these
accounting policies, the Company has made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future compensation, health care cost trends,
and appropriate discount rates. See Notes D and E to the
financial statements for information about these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2002, 2001 and 2000.

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Primarily
because of the amortization of previous years' net investment gains, Con Edison of New York's pension expense for 2002, 2001 and 2000 was negative, resulting in a credit to and increase in
net income in each year. Investment gains and losses on plan assets are fully recognized in expense over a 15-year period (20 percent of the gains and losses for each year begin to
amortize in each of the following five years and the amortization period for each 20 percent portion of the gains and losses is ten years). This amortization is in accordance with the Statement
of Policy issued by the PSC and is permitted under SFAS No. 87, which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively,
allows for any systematic method of amortization of unrecognized gains and losses that is faster than the corridor method and is applied consistently to both gains and losses.

Con
Edison of New York's expense or credit for actual pension and other postretirement benefits in future periods will depend upon actual returns on plan assets and the assumptions the Company makes
for future periods. The Company's current estimate for 2003 is a reduction, compared to 2002, in the pension and other postretirement benefits net credit of $54 million after tax. This
reduction reflects, among other factors, an actual loss on the pension fund of 8.6 percent in 2002 as compared with an expected annual asset return assumption of 9.2 percent. This
variation will reduce net income by $21.3 million after tax in 2003, as compared to 2002. In addition, the Company has lowered its expected annual asset return assumption for the plans for 2003
to 8.8 percent. This revised assumption will reduce net income by $14.5 million after tax in 2003, as compared to 2002.

Amortization
of market gains and losses experienced in previous years is expected to reduce the pension and other postretirement benefit net credit by an additional $25 million, after tax, in
2004. A 5.0 percentage point variation in the actual annual return in 2003 as compared to the expected annual asset return of 8.8 percent would change net income by approximately
$6 million in 2004.

An
actuarial valuation of the plan's funded status (which applies to both Con Edison of New York and O&R) was performed as of December 31, 2002. The valuation showed that the fair value of the
pension plan assets exceeded its Accumulated Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the plan's ABO in
future years. In that event, Con Edison would be required, under SFAS No. 87 and SFAS No. 132 "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a liability
equal in amount to the difference between the fair value of the plan assets and the ABO, plus its total accrued pension credits, through a non-cash charge to other comprehensive income
(OCI). The charge to OCI, which would be net of taxes, would not affect the Company's net income for common stock.

Con
Edison of New York was not required to make cash contributions to its pension plan in 2002 nor will it be required to do so in 2003.

Accounting
for Contingencies

SFAS No. 5, "Accounting for Contingencies," applies to an existing condition, situation, or set of circumstances involving uncertainty as to possible
loss that will ultimately be resolved when one or more future events occur or fail to occur. The Company's known material contingencies include a PSC

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proceeding relating to outages at the nuclear generating unit the Company sold in 2001, workers' compensation claims, and its responsibility for hazardous substances, such as asbestos,
polychlorinated biphenyls (PCBs), and coal tar, that have been used or generated in the course of its operations. See Notes F and G to the financial statements. In accordance with SFAS No. 5,
the Company has accrued estimates of losses relating to the contingencies as to which loss is probable and can be reasonably estimated and no liability has been accrued for contingencies as to which
loss is not probable or cannot be reasonably estimated.

LIQUIDITY AND CAPITAL RESOURCES

Con Edison of New York's liquidity reflects cash flows from its operating, investing and financing activities as shown on the accompanying consolidated
statement of cash flows and discussed below. As a result of these activities, cash and temporary cash investments (including restricted cash) decreased $176.7 million at December 31,
2002 compared to December 31, 2001.

Cash
Flows From Operating Activities

Con Edison of New York's cash flows from operating activities reflect principally its energy sales and its cost of operations. The volume of energy sales is
dependent on factors external to the Company such as weather, economic conditions and technological developments. The prices at which the Company provides energy to its customers are determined in
accordance with rate agreements approved by the PSC. See "Regulatory Matters," below. In general, changes in the cost of purchased power, fuel and gas affect the timing of cash flows but not net
income because the costs are recovered in accordance with rate agreements. See "Recoverable Energy Costs" in Note A to the financial statements.

Net
income for common stock is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect Con Edison of New York's cash flow from operations. Principal
non-cash charges included depreciation and deferred taxes. Principal non-cash credits included accrued pension credits. Pension credits result from past favorable performance
in the Company's pension fund and assumptions about future performance. See "Application of Critical Accounting PoliciesAccounting for Pensions and Other Postretirement Benefits," above,
and Notes D and E to the financial statements.

Net
cash flows from operating activities in 2002 were $10.1 million more than the 2001 period. The change in cash flows reflect the aforementioned impact of energy sales and its cost of
operations, the timing of federal income tax payments and refunds and cash received or expended related to regulatory liabilities and regulatory assets, respectively.

The
following analysis reflects variations in balance sheet accounts, which also impact specific line items within the consolidated statement of cash flows. The change in these balance sheet line
items are utilized to reconcile income to cash flow from operations.

Accounts
receivablecustomers, less allowance for uncollectible accounts were $74.7 million higher at December 31, 2002 than at year-end 2001, due primarily to
higher electric, gas and steam sales in December 2002 as compared to December 2001. The Company's equivalent number of days of revenue outstanding (ENDRO) of customer accounts receivable
was 29.3 days at December 31, 2002, compared with 29.6 days at December 31, 2001.

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Recoverable
energy costs increased $101.8 million at December 31, 2002 as compared with year-end 2001 due primarily to increased fuel, purchased power and gas costs,
resulting from higher sales volumes in December 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Other
receivables increased $19.9 million at December 31, 2002 as compared with year-end 2001, due primarily to increased gas hedging program receivables.

Gas
in storage decreased $22.5 million at December 31, 2002 as compared with year-end 2001, reflecting primarily the lower volumes in storage as a result of higher
withdrawals due to the colder weather at year-end 2002 as compared to 2001.

Other
current assets increased $20.8 million at December 31, 2002 compared with year-end 2001, due primarily to an increase in the value of energy marketing contracts.

Deferred
loss on the sale of the nuclear generating unit decreased $47.6 million at December 31, 2002 as compared to year-end 2001 reflecting the recovery of these costs from
customers in accordance with the Company's 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

Divestiturecapacity
replacement reconciliation balance decreased $30.0 million at December 31, 2002 as compared to year-end 2001 representing the amortization of
capacity costs incurred prior to the opening of the New York Independent System Operator (NYISO) market in accordance with the Company's 2000 Electric Rate Agreement. See "Rate and Restructuring
Agreements" in Note A to the financial statements.

Deferred
environmental remediation costs increased $30.3 million at December 31, 2002 as compared to year-end 2001 representing primarily additional liabilities accrued for
costs related to Superfund and the other sites, which the Company is permitted to recover under its current rate agreements. See Note F to the financial statements.

For
information about the regulatory asset for World Trade Center restoration costs, see Note P to the financial statements.

Deferred
asbestos-related costs increased $33.7 million at December 31, 2002 as compared to year-end 2001 due to increased liabilities accrued for non-employee
related asbestos claims (which the Company is permitted to recover under its current rate agreements). See Note F to the financial statements.

Other
regulatory assets increased $37.4 million at December 31, 2002 as compared to year-end 2001 due principally to the reconciliation of taxes collected and the tax expense
resulting from New York State tax law changes in accordance with PSC authorization. See Note A to the financial statements and "Other Regulatory Liabilities," below.

Accumulated
provision for injuries and damages increased $24.5 million at December 31, 2002 as compared with year-end 2001, reflecting primarily workers' compensation claims
relating to asbestos exposure. See Note F to the financial statements.

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Accounts
payable increased $152.0 million at December 31, 2002 as compared with year-end 2001. This increase is due primarily to higher electric, gas and steam energy costs
at December 31, 2002 as compared to December 31, 2001, reflecting higher sales volumes. See discussion of electric power costs in "Results of Operations," below.

Accrued
taxes decreased $48.6 million at December 31, 2002 compared with year-end 2001, due primarily to the payment of the 2001 fourth quarter federal income tax liability
in January 2002. The federal government delayed the timing of the payment in light of the World Trade Center attack.

Transmissions
congestion contracts increased $119.9 million at December 31, 2002 as compared to year-end 2001 reflecting proceeds from the sale of transmission rights on Con
Edison of New York's transmission system. These proceeds are being retained for customer benefit.

The
gas rate plan balance of $36.3 million at December 31, 2002 was established in accordance with the 2002 gas rate agreement to provide recovery of costs (net of reimbursement) related
to the World Trade Center attack.

Electric
excess earnings balance of $40.0 million at December 31, 2002 represents a reserve established in 2002 for earnings in excess of a specified rate of return that are to be
retained for customer benefit in accordance with the 2000 Electric Rate Agreement. See "Rate and Restructuring Agreements" in Note A to the financial statements.

During
2002, other regulatory liabilities increased $127.7 million, due primarily to the reconciliation of taxes collected and the tax expense resulting from New York State tax law changes in
accordance with PSC authorization and the establishment of a liability to customers for interest earned on a federal income tax refund. Changes in the New York State tax laws applicable to utility
companies, effective January 1, 2000, repealed or reduced certain revenue-based taxes and instituted a net income-based tax. In June 2001, the PSC issued its final Order relating to
these tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and tax expense resulting from tax law changes, until those changes
are incorporated into base rates.

Cash
Flows Used in Investing Activities

Cash flows used in investing activities were $710.3 million higher in 2002 compared with 2001, due primarily to the receipt of proceeds from generation
divestiture, net of contributions to the nuclear
decommissioning trust, in the 2001 period. See "Generation Divestiture," below. In addition, construction expenditures increased $119.6 million in 2002 compared with 2001, principally to meet
load growth on the Company's electric distribution systems, to effect permanent restoration of portions of the electric, gas and steam systems in lower Manhattan following the World Trade Center
attack and for the ongoing project to add incremental generating capacity at the Company's East River steam-electric generating plant (the East River Repowering Project). Cash flows used in investing
activities in 2001 decreased $612.7 million compared with 2000, due primarily to the receipt of proceeds from generation divestiture in the 2001 period, which offset increased utility
construction expenditures ($93.3 million) related to meet load growth on the Company's electric distribution systems. See "Generation Divestiture" and "Capital Expenditures" below.

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Deferred
real estate sale costs related to the demolition and remediation of a nine-acre development site in midtown Manhattan along the East River were $134.4 million at
December 31, 2002, compared to $105.4 million at December 31, 2001. In 2000, the Company agreed to sell this site for an expected price of $576 million to
$680 million, depending on zoning and other adjustments. The sale is subject to PSC approval and other conditions. The buyer paid Con Edison of New York $50 million in 2000 as a down
payment, which the Company used to fund a portion of the demolition and remediation expenses. The down payment has been recorded as a regulatory liability.

Cash
Flows Used in Financing Activities

Net cash flows used in financing activities in 2002 decreased $329.1 million compared with 2001, reflecting principally increased financing for
construction expenditures, and reduced dividend payments to the parent.

In
September 2001, the Company used the proceeds from the sale of its nuclear plant to repay all outstanding short-term borrowing. Net repayments of short-term debt
increased $140.0 million for the year-ended December 31, 2002 compared with 2001 period. The common stock dividend to parent decreased $79.3 million in 2002 compared
with 2001. Cash flows used in financing activities in 2001 increased $376.0 million compared with 2000, as a result of decreased borrowings and increased debt redemption.

External
borrowings are a source of liquidity that could be affected by changes in credit ratings, financial performance and capital markets. For information about the Company's credit ratings and
certain financial ratios, see "Capital Resources," below.

Con
Edison of New York had no commercial paper outstanding at December 31, 2002 and at December 31, 2001. The Company's average daily commercial paper outstanding in 2002 was
$156.7 million compared to $163.8 million in 2001. The weighted average interest rate was 1.8 percent in 2002 compared to 4.9 percent in 2001. For additional information
about the Company's commercial paper program, see Note C to the financial statements.

In
February 2002, the Company redeemed at maturity $150 million of 6.625 percent 9-year Series 1993C Debentures. In June 2002, the Company redeemed at
maturity $150 million of variable rate 5-year Series 1997A Debentures and issued $300 million of non-callable 5.625 percent 10-year
Series 2002A Debentures. In August 2002, the Company redeemed at maturity $37.1 million of Cumulative Preferred Stock, $100 par value, 6.125 percent, Series J. In
December 2002, the Company issued $500 million 4.875 percent 10-year Series 2002B Debentures. In January 2003, the Company redeemed $275 million
of 7.75 percent 35-year, Series 1996A, Subordinated Deferrable Interest Debentures.

In
October 2002, Con Edison of New York changed the interest rate method applicable to $224.6 million aggregate principal amount of its tax-exempt Facilities Revenue Bonds,
Series 2001A from a variable weekly rate mode to a 10-year term mode, callable at par after three years with a 4.70 percent annual interest rate. In addition, the Company
entered into a swap agreement in connection with these

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bonds pursuant to which the Company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate of 5.375 percent. See Note O to the financial
statements.

Generation
Divestiture

In 2001, Con Edison of New York completed the sale of its interest in the jointly owned Roseton generating station and its nuclear generating unit and related
assets. See Note I to the financial statements.

Capital
Resources

Con Edison of New York expects to finance its operations, capital requirements and the payment of dividends to Con Edison from internally generated funds and
external borrowings, including commercial paper. For information about Con Edison of New York's commercial paper program and revolving credit agreements with banks, see Note C to the financial
statements.

In
December 2001, the PSC authorized Con Edison of New York to issue up to $1.8 billion of debt securities prior to 2006, of which the Company issued $525 million of debt
securities in 2002. The PSC also authorized the refunding of the Company's outstanding debt securities and preferred stock.

In
August 2002, President Bush signed into law an appropriations bill that authorizes funds for which the Company is eligible to apply for the recovery of costs it incurred in connection with
the World Trade Center attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. See Note P to the financial statements.

Con
Edison of New York's ratio of earnings to fixed charges for 2002, 2001 and 2000 and common equity ratio at December 31, 2002, 2001 and 2000 were:

|                                      |  | 2002 |  | 2001 |  | 2000
|------------------------------------- |  | ---- |  | ---- |  | ----
|
|Earnings to fixed charges (SEC basis) |  | 3.35 |  | 3.66 |  | 3.23
|Common equity ratio                   |  | 46.6 |  | 47.2 |  | 46.4

The
changes in interest coverage in these years reflect changes in pre-tax income and changes in interest charges due to debt issuances and refunding. The Company's ratio of earnings to
fixed charges increased for 2001 compared to 2000 primarily as a result of increased earnings, reflecting charges in 2000 for replacement power costs ($130 million). See Note G to the
financial statements.

The
commercial paper of Con Edison of New York is rated P-1, A-1 and F-1, respectively, by Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Rating Services (S&P) and Fitch Ratings (Fitch). The senior unsecured debt of Con Edison of New York is rated A1, A+ and A+, respectively, by Moody's, S&P, and Fitch.

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Capital
Requirements

The following table compares Con Edison of New York's capital requirements for the years 2000 through 2002 and estimated amounts for 2003 and 2004:

|                                               |       | 2000 |     | 2001  |   | 2002 |       | 2003 |       | 2004 
|---------------------------------------------- | ----- | ---- | --- | ----- | - | ---- | ----- | ---- | ----- | -----
|
|
|Utility construction expenditures              |       | $    | 908 |       | $ | 983  |       | $    | 1,098 |      
|Retirement of long-term securities at maturity |       |      | 275 |       |   | 628  |       |      | 337   |      
|                                               |       |     
|                                               | Total |      | $   | 1,183 |   | $    | 1,611 |      | $     | 1,435

* Includes redemption in advance of maturity of $275 million of Con Edison of New York's Subordinated Deferrable
Interest Debentures Series 1996A in January 2003.

The increased regulated utility construction expenditures in 2002 and 2003 reflect expenditures for permanent electric, gas and steam system restoration
following the World Trade Center attack, programs to meet increased electric load growth and reliability needs, a higher level of gas infrastructure expenditures and the East River Repowering Project.

Contractual
Obligations and Commercial Commitments

The following tables summarize Con Edison of New York's material obligations to make payments pursuant to contracts. Long-term debt and capital
lease obligations are included on the Company's balance sheet. Operating leases and non-utility generator contracts (NUGs) (for which undiscounted future annual payments are shown) are
disclosed in the notes to financial statements.

|                                                         |  | Payments Due by Period
|-------------------------------------------------------- |  | ----------------------
|
|
|
|Long-term debt (Note B)                                  |  | $                     
|Capital lease obligations (Note N)                       |  |                       
|Operating leases (Note N)                                |  |                       
|Non-utility generator contracts (Note H)                 |  |                       
|Natural gas supply, transportation and storage contracts |  |                       
|                                                        
|Total                                                    |  | $                     

The
Company has no material commercial commitments to make payments other than these contractual commitments.

ELECTRIC POWER REQUIREMENTS

In 2002, Con Edison of New York purchased substantially all of the energy it sold to customers pursuant to firm contracts with NUGs and others or through the
NYISO's wholesale electricity market.

The
Company recovers prudently incurred purchased power costs pursuant to rate provisions approved by the PSC. See "Financial Market RisksCommodity Price Risk" below and "Recoverable
Energy Costs" in Note A to the financial statements. From time to time certain parties have petitioned the PSC to review these provisions, the elimination of which could have a material adverse
effect on the Con Edison of New York's financial position, results or operations or liquidity.

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To reduce the volatility of electric energy costs, the Company has firm contracts to purchase electric energy (including the output of the nuclear generating unit divested in 2001) and has entered
into derivative transactions to hedge the costs of expected purchases which together cover a substantial portion of the electric energy expected to be sold to its customers in the summer of 2003. See
Notes H and O to the financial statements. The Company also owns 630 MW of electric generating stations located in New York City, the electricity from which it sells through the NYISO's wholesale
electricity market.

In
December 2002, the Company issued a request for proposals seeking a contract to purchase, for no more than 10 years, 500 MW of electric capacity from a new facility located in New
York City (or outside the City if there is dedicated new transmission).

The
East River Repowering Project will add incremental electric capacity of approximately 200 MW based on a winter nominal rating or approximately 125 MW based on a summer nominal rating. The Company
does not expect to add any other long-term electric generation resources. In a July 1998 order, the PSC indicated that it "agree(s) generally that the Company need not plan on
constructing new generation as the competitive market develops," but considers "overly broad" and did not adopt its request for a declaration that, solely with respect to providing generating
capacity, the Company will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer have the obligation to construct new
generating facilities, regardless of the market price of capacity. The Company monitors the adequacy of the electric
capacity resources and related developments in its service area, and works with other parties on long-term resource adequacy issues within the framework of the NYISO.

REGULATORY MATTERS

Electric

In July 2002, FERC issued a Notice of Proposed Rulemaking (NOPR) to establish a Standard Market Design (SMD) for wholesale electricity markets across the
country. The proposed SMD has many of the elements of the markets that have been established in the Northeast, and if adopted, could facilitate transactions among energy markets across the country.
The SMD proposes that transmission owners would join Independent Transmission Providers, or ITPs, which would be independent of market participants, would have operational authority for all
transmission assets under their control, and would perform certain functions related to day-ahead and real-time energy markets, determine resource adequacy requirements,
financial congestion management, regional planning, market monitoring, and interregional coordination with neighboring ITPs. The Company's transmission facilities, other than those located
underground, are currently controlled by the NYISO.

In
September 1997, the PSC approved a restructuring agreement among Con Edison of New York, PSC staff and certain other parties (the 1997 Restructuring Agreement). Pursuant to the 1997
Restructuring Agreement, the Company reduced electric rates on an annual basis by $129 million in 1998, $80 million in 1999, $103 million in 2000 and $209 million in 2001,
divested most of its electric generating capacity, and enabled all of its electric customers to choose to be served by competitive energy suppliers.

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In
November 2000, the PSC approved an October 2000 agreement (the 2000 Electric Rate Agreement) that, among other things, revised and extended the electric rate plan provisions of the
1997 Restructuring Agreement and addressed certain generation divestiture-related issues.

The
electric rate plan provisions of the 2000 Electric Rate Agreement cover the five-year period ending March 2005. Pursuant to the Agreement, the Company reduced the distribution
component of its electric rates by $170 million on an annual basis, effective October 2000.

The
2000 Electric Rate Agreement continues the rate provisions pursuant to which the Company recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy Costs"
in Note A to the financial statements.

For
additional information about the 1997 Restructuring Agreement and the 2000 Electric Rate Agreement, see "Rate and Restructuring Agreements" in Note A to the financial statements.

Gas

In April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The
rate agreement reduces retail sales and transportation rates by $25 million, on an annual basis.

In
November 2000, the PSC approved an agreement between Con Edison of New York, PSC staff and certain other parties that revised and extended the 1996 gas rate settlement agreement through
September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

For
additional information, see "Rate and Restructuring" in Note A to the financial statements.

Steam

In December 2000, the PSC approved an agreement between Con Edison of New York, PSC staff and certain other parties with respect to the steam rate plan
filed by the Company in November 1999. The agreement provides for a $16.6 million steam rate increase, which took effect October 2000 and, with limited exceptions, no further
changes in steam rates prior to October 2004.

For
additional information about the agreement, see "Rate and Restructuring" in Note A to the financial statements.

FINANCIAL MARKET RISKS

Con Edison of New York's primary financial market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction
expenditures and maturing debt securities. Con Edison of New York manages interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through
opportunistic refinancing of debt. The Company estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of
$615.3 million would result in a change in annual interest expense of $1.1 million.

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In
addition, the Company, from time to time, enters into derivative financial instruments to hedge interest rate risk on certain debt securities. See "Interest Rate Hedging" in Note O to the
financial statements.

Commodity Price Risk

Con Edison of New York's commodity price risk relates primarily to the purchase and sale of electricity and gas that the Company delivers to its customers. The
Company has risk management strategies to mitigate its related exposure and uses derivative instruments to hedge this price risk. See "Energy Price Hedging" in Note O to the financial
statements. Also, see Item 2 of this report for a discussion of the Company's generating capacity.

In
general, the rates the Company charges customers for electric, gas and steam service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation of steam
and electricity, including gains or losses on certain derivative instruments and related transaction costs. See "Recoverable Energy Costs" in Note A to the financial statements.

The
Company estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $5.7 million for the derivative instruments
used by it to hedge purchases of electricity and gas. The Company expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity
and gas purchased.

Credit Risk

Con Edison of New York is exposed to credit risk related to over-the-counter transactions entered into primarily for the various energy
supply and hedging activities. Credit risk is the loss that may result from a counterparty's nonperformance. The Company uses credit policies to manage its credit risk, including an established credit
approval process, monitoring of counterparty limits, master netting agreements and credit mitigation measures such as margin, collateral, or prepayment arrangements.

Investment Risk

Con Edison of New York's investment risk relates to the investment of the assets in the Company's pension and other postretirement benefit plans. See "Critical
Accounting PoliciesAccounting for Pensions and Other Postretirement Benefits," above.

ENERGY TRADING ACTIVITIES

Con Edison of New York has not engaged to a material extent in trading activities that are accounted for at fair value. See "Financial Market Risks" above.

ENVIRONMENTAL MATTERS

For information concerning potential liabilities arising from laws and regulations protecting the environment, including the Superfund, and from claims relating
to alleged exposure to asbestos, see Note F to the financial statements.

IMPACT OF INFLATION

Con Edison of New York is affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits the Company to recover through
depreciation only the historical cost of its plant assets even though in an inflationary economy the cost to replace the assets upon their retirement

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will substantially exceed historical cost. The impact is, however, partially offset by the repayment of the Company's long-term debt in dollars of lesser value than the dollars originally
borrowed.

RESULTS OF OPERATIONS

The Company's results of operations (which were discussed above under "Results of OperationsSummary") are discussed below for each of its business
segments. The Company's principal business segments are its electric, gas and steam businesses. For additional information about its business segments, see Note L to the financial statements.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Electric

Con Edison of New York's electric operating revenues in 2002 decreased $575.2 million compared with 2001, reflecting primarily lower fuel and purchased
power costs of $226.9 million (discussed below). The decrease also reflects the completion in March 2002 of amortizations of a previously
deferred gain on the sale of divested plants and a previously deferred NYPA revenue increase ($43.3 million), a reserve established in 2002 for earnings in excess of a specified rate of return
that are to be retained for customer benefit in accordance with the 2000 Electric Rate Agreement ($40.0 million), a reserve established in 2002 related to the sale of the Company's nuclear
generating unit ($24.8 million), the amortization of the loss ($29.9 million) related to the sale of the Company's nuclear generating unit and rate reductions and other amortizations in
accordance with the Company's rate agreements. The decrease in electric operating revenues was offset, in part, by an increase in electric sales revenues ($24.0 million) reflecting principally
the hot summer weather. See "Recoverable Energy Costs" and "Rate and Restructuring Agreements" in Note A to the financial statements.

Electricity
delivery volume in Con Edison of New York's service territory increased 1.6 percent in 2002 compared with 2001. The increase reflects the impact of the hot summer weather, offset in
part, by the mild winter weather in the first quarter of 2002 and the soft economy. After adjusting for variations, principally weather and billing days in each period, electricity delivery volume in
the service territory increased 0.5 percent in the 2002 period.

The
Company's electric purchased power costs decreased $174.6 million in 2002 compared with 2001, due to a decrease in the price of purchased power and an increase in volumes of electricity
purchased from other suppliers by participants in the retail access programs. This decrease was offset in part by the Company's increased purchased volumes resulting from the sale of the Company's
nuclear generating unit in September 2001 and the hot summer weather in 2002. Fuel costs decreased $52.3 million as a result of decreased generation at Company-owned power plants. In
general, the Company recovers prudently incurred fuel and purchased power costs pursuant to rate provisions approved by the PSC. See "Recoverable Energy Costs" in Note A to the financial
statements.

The
Company's electric operating income decreased $92.7 million in 2002 compared with 2001. The principal component of the decrease was lower net electric revenues (operating revenues less fuel
and purchased power costs) of $348.3 million. The decrease in net electric revenues reflects the sale of the nuclear generation unit and the same factors (other than lower fuel and purchased
power costs) as discussed above with respect to the decrease in electric operating income. The decrease in net electric

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revenues was offset in part by reduced other operations and maintenance expenses ($136.8 million) reflecting nuclear production expenses incurred in 2001 but not in 2002, and productivity
improvements, lower depreciation and amortization expense ($31.5 million) and lower revenue taxes ($26.2 million). The decrease is also offset by lower operating income tax of
$61.8 million.

Gas

Con Edison of New York's gas operating revenues decreased $223.4 million, resulting primarily from the lower cost of purchased gas
($194.2 million) in 2002 compared with 2001. The lower cost of purchased gas reflects primarily lower unit costs. The lower revenues also reflect reduced sales volumes, resulting primarily from
the mild winter weather in the first quarter of 2002 and revenue reductions implemented in accordance with the gas rate agreement approved by the PSC in April 2002. Gas operating income
decreased $7.9 million in 2002, reflecting a $29.2 million decrease in net revenues (operating revenues less gas purchased for resale), and increased property tax expense
($9.6 million), offset in part by reduced operations and maintenance expenses ($16.2 million), reduced revenue taxes ($10.3 million) and lower income taxes ($8.7 million).

Gas
sales and transportation volumes for firm customers decreased 3.5 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001. After adjusting
for variations, principally weather and billing days in each period, firm gas sales and transportation volumes in the Company's service territory decreased 1.5 percent in the 2002 period.

The
Company's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. A weather-normalization provision that applies to the Company's gas business
moderates, but does not completely eliminate, the effect of weather-related changes on gas operating income.

Steam

Con Edison of New York's steam operating revenues decreased $99.7 million. The lower revenues reflect reduced sales volumes and lower fuel and purchased
power costs primarily as a result of the loss of the World Trade Center as a customer, the mild winter weather in the first quarter of 2002 and the soft economy. The lower fuel and purchased power
costs reflect primarily lower unit costs. Steam operating income increased $8.2 million for 2002 compared with 2001 due primarily to
reduced operations and maintenance expenses of $9.3 million and lower income taxes of $10.5 million, offset in part by a decrease in net revenues (operating revenues less fuel and
purchased power costs) of $11.1 million. See "Recoverable Energy Costs" in Note A to the financial statements.

Steam
sales volume decreased 3.2 percent in the year ended December 31, 2002 compared with the year ended December 31, 2001, reflecting primarily the loss of the World Trade
Center as a customer, the mild winter weather in the first quarter of 2002 and the soft economy. After adjusting for variations, principally weather and billing days in each period, steam sales volume
decreased 1.4 percent.

Taxes Other Than Income Taxes

At $1.0 billion, taxes other than income taxes remain one of Con Edison of New York's largest operating expenses.

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The
principal components of, and variations in, operating taxes were:

|                                                  |  | Increase/(Decrease) |        
|------------------------------------------------- |  | ------------------- | -------
|
|
|
|Property taxes                                    |  | $                   | 629.8  
|State and local taxes related to revenue receipts |  |                     | 326.9  
|Payroll taxes                                     |  |                     | 54.4   
|Other taxes                                       |  |                     | 28.3   
|                                                  |  |                     |        
|Total                                             |  | $                   | 1,039.4

*Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2002 were
$1,351.0 million.

Effective in 2003, New York City increased the Company's annual property taxes by $96 million. Under the Company's rate agreements, the Company is
deferring the property tax increase as a regulatory asset to be recovered from customers.

Other Income

Investment income decreased $4.1 million in 2002 compared to 2001, due principally to reduced interest income earned on short-term cash
investments in the 2002 period as compared to the 2001 period. For the 2001 period, the Company had more cash on hand than the 2002 period, primarily as a result of the sale of its nuclear generating
unit. Allowance for equity funds used during construction increased $8.2 million in 2002 compared to 2001 primarily reflecting the East River
Repowering Project. Other income increased $41.7 million in 2002 compared to 2001 due primarily to $26.7 million of interest income on a federal income tax refund claim, a
$10.2 million write-off in 2001 of an investment in the New York Discovery Fund in 2001, a $9.4 million increase in interest earned on regulatory assets (See "Application of
Critical Accounting PoliciesAccounting for Regulated Public UtilitiesSFAS No. 71," above), offset in part by reduced income of $2.5 million from
non-utility operations. Income tax expense decreased $4.4 million in 2002 compared to 2001 due primarily to the recognition of tax benefits relating to the September 2001
sale of the Company's nuclear generating unit.

Net Interest Charges

Net interest charges increased $6.6 million in the twelve months ended December 31, 2002 compared to the twelve months ended December 31,
2001. The increase reflects principally the interest expense associated with a net federal income tax deficiency related to a prior period audit ($19.1 million), partially offset by decreased
interest expense on long-term debt of $14.9 million.

Income Tax

Federal income tax decreased $28.6 million in 2002 compared to 2001, reflecting lower income before tax and deductions related to removal costs and tax
credits. In 2000, New York State implemented a tax law change that reduced or repealed certain revenue-based taxes and replaced them with the imposition of a net income-based tax. State income taxes
decreased $56.8 million in 2002 compared to 2001, reflecting lower income before tax, lowering of the tax rate and prior period adjustments. The state income tax expense is offset against the
savings from the eliminated or reduced revenue taxes. Any over- or under-

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collection of these taxes is deferred for return to, or recovery from, customers. See Notes A and L to the financial statements.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Electric

Con Edison of New York's electric operating revenues in 2001 decreased $116.7 million from 2000. The decrease in 2001 reflects decreased purchased power
costs (see "Recoverable Energy Costs" in Note A to the financial statements) and electric rate reductions of $374.5 million, offset by economic growth and the effects of the warmer than
normal summer weather when compared to cooler than normal weather for the 2000 period.

Electricity
sales volume in the Company's service territory increased 3.0 percent in 2001. The increase in sales volume reflects the warmer than normal summer weather and economic growth. The
Company's electric sales vary seasonally in response to weather and peak in the summer. After adjusting for variations, principally weather and billing days, in each period, electricity sales volume
in Con Edison of New York's service territory increased 2.4 percent in 2001.

The
Company's electric operating income increased $90.5 million in 2001 compared with 2000. The increase in electric operating income was primarily comprised of an increase in net revenues
(operating revenues less fuel and purchased power costs) of $63.6 million. The increase in net revenues reflects principally increased sales ($64.1 million), recognition of revenue
related to previously deferred NYPA rate increases ($35.2 million), gain on the sale of divested generating plants ($37.5 million), increased revenues associated with system benefits
charges ($32.8 million), recovery of incremental NUG cost ($31.0 million), reconciliation of state income tax and gross receipts tax ($110.8 million; see "Income Tax," below) and
non-recurring charges in 2000 for replacement power costs ($130.0 million), offset by electric rate reductions of $374.5 million. Electric operating income also increased due
to decreased other operations and maintenance expenses of $108.4 million (discussed below) and decreased depreciation expense of $73.6 million, offset in part by increased property taxes
of $33.7 million, federal income tax of $40.1 million and state income tax of $98.8 million (see "Income Tax," below).

The
$108.4 million decrease in other operations and maintenance expenses reflects principally lower expenses related to the Company's nuclear generating unit which was sold in
September 2001 ($98.4 million), increased pension credits ($42.5 million) and decreased transmission expenses ($9.9 million), offset in part by higher distribution expenses
for the relocation of Company facilities to avoid interference with municipal infrastructure projects ($13.4 million) and increased system benefits charges ($32.8 million).

Gas

Con Edison of New York's gas operating revenues increased $186.6 million in 2001 compared with 2000, reflecting increased cost of purchased gas, offset
in part by a reduction in customers' bills of $20.0 million, reflecting a refund of previously deferred credits and other provisions of the gas rate agreement approved by the PSC in
November 2000. Operating income in 2001 increased $1.6 million compared with 2000, reflecting an increase in net revenues (operating revenues less gas purchased for resale) of
$11.2 million and increased pension credits of $8.2 million, offset in part by increased depreciation and

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amortization expense ($3.9 million), increased state income tax ($8.2 million; see "Income Tax" below), increased uncollectible account write-offs ($1.9 million) and
higher distribution expenses for the relocation of Company facilities to avoid interference with municipal infrastructure projects ($3.0 million).

Gas
sales and transportation volume to firm customers decreased 0.4 percent in 2001 compared with 2000.

The
Company's gas sales and transportation volumes vary seasonally in response to weather and peak in the winter. The decrease in volume in 2001 compared with 2000 reflects the warmer 2001 winter
compared with 2000. After adjusting for variations, principally weather and billing days, in each period, gas sales and transportation volume to firm customers increased 2.8 percent in 2001.

Steam

Con Edison of New York's steam operating revenues increased $51.6 million in 2001 compared with 2000, reflecting primarily increased purchased steam and
fuel costs (see "Recoverable Energy Costs" in Note A to the financial statements). Steam operating income increased $2.3 million in 2001 compared with 2000, reflecting an
October 2000 rate increase of $16.6 million.

Steam
sales volume decreased 5.3 percent in 2001 and increased 0.8 percent in 2000. The decrease in 2001 reflects the mild 2001 winter weather compared with 2000. After adjusting for
variations,
principally weather and billing days, in each period, steam sales volume decreased 2.7 percent in 2001.

Taxes Other Than Income Taxes

The
principal components of and variations in operating taxes were:

|                                                  |  | Increase/(Decrease) |        
|------------------------------------------------- |  | ------------------- | -------
|
|
|
|Property taxes                                    |  | $                   | 620.4  
|State and local taxes related to revenue receipts |  |                     | 364.5  
|Payroll taxes                                     |  |                     | 56.2   
|Other taxes                                       |  |                     | 26.3   
|                                                  |  |                     |        
|Total                                             |  | $                   | 1,067.4

*Including sales tax on customers' bills, total taxes other than income taxes billed to customers in 2001 were
$1,414.4 million.

Other Income

Other income increased $0.9 million in 2001 compared with 2000, due principally to deferred federal income tax credits realized, offset by a
write-off in 2001 of an investment of $10.2 million in the New York City Discovery Fund.

Net Interest Charges

Net interest charges increased $16.0 million in 2001, compared with 2000, reflecting principally $28.4 million of increased interest expense for
Con Edison of New York related to long-term borrowings, offset in part by a decrease of $8.4 million related to short-term borrowings and $7.0 million of interest
accrued on the net after tax gain from generation divestiture prior to regulatory disposition of the gain in 2000. See Note I to the financial statements.

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Income Tax

Federal income tax increased $19.7 million in 2001, reflecting the change in income before tax, deductions related to removal costs and tax credits.
State income taxes increased $117.5 million in 2001 compared with 2000 as the result of the change in New York State tax law, offset by a corresponding increase in other operating revenues for
taxes no longer applicable but still being recovered through rates. See Notes A and J to the financial statements.

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MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONSORANGE AND ROCKLAND UTILITIES, INC.

Orange and Rockland Utilities, Inc. (O&R or the Company), a wholly-owned subsidiary of Consolidated Edison, Inc. (Con Edison), meets the
conditions specified in General Instruction I of Form 10-K and is permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, like Con Edison, that
are reporting companies under the Securities Exchange Act of 1934. Accordingly, this O&R Management's Narrative Analysis of Results of Operations is included in this report, and O&R has omitted from
this report the information called for by Part II, Item 7 of Form 10-K (Management's Discussion and Analysis of Financial Condition and Results of Operations).

This
narrative analysis should be read in conjunction with the accompanying consolidated financial statements of O&R and its subsidiaries and the notes thereto. Information in the notes referred to in
this narrative analysis is hereby incorporated by reference herein. The use of terms such as "see" or "refer to" shall be deemed to incorporate by reference into this narrative analysis the
information to which reference is made.

O&R'S BUSINESS

O&R is a regulated utility that, along with its regulated utility subsidiaries, provides electric service to over 285,000 customers in southeastern New York and
in adjacent sections of New Jersey and northeastern Pennsylvania and gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

RESULTS OF OPERATIONS  SUMMARY

O&R's net income for common stock for the year ended December 31, 2002, was $44.9 million, $4.7 million higher than the corresponding 2001
period. The increase in the Company's net income was attributable primarily to higher electric sales volumes due to warmer than normal weather, customer growth and higher average usage, which produced
an additional $7.3 million of net electric revenues (operating revenues less purchased power costs). While firm gas volumes were down slightly, gas net revenues increased by $0.8 million
due primarily to incentives earned from interruptible and off-system gas sales. Income taxes and revenue taxes decreased by $3.2 million due to lowered tax rates in New York. The
higher net revenues and lower taxes were partially offset by $4.9 million in higher interest charges that resulted from a change by the New Jersey Board of Public Utilities (NJBPU) to the
carrying charges allowed on the Company's deferred purchased power balance in New Jersey. This expense was offset in part by lower net financing costs of $1.4 million. Operation and maintenance
costs increased by $1.2 million and depreciation charges were $1.2 million higher.

See
"Results of OperationsBusiness Segments" below for further analysis of earnings.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

O&R's financial statements reflect the application of its accounting policies, which conform to accounting principles generally accepted in the United States of
America. The Company's critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits and
contingencies.

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The
application of certain of these accounting policies requires the Company to use estimates. These estimates require the Company to make assumptions about matters that are highly uncertain and for
which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

Accounting for Regulated Public UtilitiesSFAS No. 71

O&R is a regulated public utility subject to Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and, in accordance with SFAS No. 71, is subject to the accounting requirements and rate making practices of the Federal Energy Regulatory Commission (FERC) and state public utility
regulatory authorities having jurisdiction.

SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

O&R's
principal regulatory assets and liabilities are detailed on the Company's consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for
which a cash outflow has been made. The Company is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The Company's regulatory assets
and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Accounting for Pensions and Other Postretirement Benefits

O&R and its subsidiaries provide pension and other postretirement benefits to substantially all employees and retirees. The Company accounts for these benefits
in accordance with SFAS No. 87,
"Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions." In applying these accounting policies, the Company has made
critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, future compensation and health care cost trends, and appropriate discount rates. See
Notes D and E to the financial statements for information about these assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for
2002, 2001 and 2000. Plan expense or credit in future periods will depend on the assumptions the Company makes and the actual performance of the pension fund.

In
accordance with SFAS No. 71 and consistent with rate provisions approved by the applicable state public utility authorities, O&R defers as a regulatory asset or regulatory liability, any
difference between expenses recognized under SFAS No. 87 and the amounts reflected in rates for such expenses.

An
actuarial valuation of Con Edison's pension plan's funded status (which applies to both Con Edison of New York and O&R) was performed as of December 31, 2002. The valuation showed that the
fair value

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of the pension plan assets exceeded its Accumulated Benefit Obligation (ABO) at December 31, 2002. However, the fair market value of Con Edison's pension plan assets could fall below the
plan's ABO in future years. In that event, O&R would be required, under SFAS No. 87 and SFAS No. 132, "Employers' Disclosures about Pension and Postretirement Benefits," to accrue a
liability equal in the amount to the difference between the fair value of the plan assets and the ABO, less its accrued pension liability through a charge to other comprehensive income (OCI). The
charge to OCI, which would be net of taxes, would not affect O&R's net income.

Accounting for Contingencies

SFAS No. 5, "Accounting for Contingencies," applies to an existing condition, situation or set of circumstances involving uncertainty as to possible loss
that will ultimately be resolved when one or more future events occur or fail to occur. The Company's known material contingencies include workers' compensation claims, and its responsibility for
hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, that have been used or generated in the course of its operations. See Note F to the financial statements.
In accordance with SFAS No. 5, the Company has accrued estimates of its losses relating to the contingencies as to which loss is probable and can
be reasonably estimated, and no liability has been accrued for contingencies as to which the loss is not probable or cannot be reasonably estimated.

RESULTS OF OPERATIONS

The Company's results of operations (which were discussed above under "Results of OperationsSummary") are discussed below for each of its business
segments. The Company's principal business segments are its electric and gas utility businesses. For additional information about its business segments, see Note P to the financial statements.

Electric

Electric operating revenues decreased $62.9 million during 2002 compared to 2001. This decrease was primarily the result of lower purchased power costs
and tax recoveries in 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Electric
sales volumes in 2002 increased 5.8 percent compared to 2001 due to warmer than normal summer weather, customer growth and higher average usage. After adjusting for weather variations,
total electricity sales volumes were 3.2 percent higher in 2002. Net electric revenues (operating revenues less purchased power) were $7.3 million higher in 2002 than in 2001.

Purchased
power costs decreased $70.2 million during 2002 compared to 2001, reflecting decreases in the unit cost of purchased power and increased volumes of electricity purchased by customers
from other suppliers, partially offset by higher energy usage by full-service customers.

Electric
operating income increased $7.3 million in 2002 as compared to 2001. This increase reflects the impact of higher net electric revenues along with lower New York state and local income
and revenue taxes, offset in part by higher operation and maintenance charges and depreciation costs.

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Gas

Gas operating revenues decreased $39.0 million in 2002 as compared to 2001. This decrease was primarily the result of lower gas costs and sales to firm
customers in 2002. See "Recoverable Energy Costs" in Note A to the financial statements.

Total
firm gas sales volumes in 2002 decreased 1.1 percent compared to 2001. Revenues from gas sales in New York are subject to a weather normalization clause that moderates, but does not
eliminate, the effect of weather-related changes on net income. After adjusting for weather variations in each period, total firm sales and transportation volumes were 0.3 percent lower for
2002 compared to 2001. Net gas revenues (operating revenues less purchased gas) were $0.7 million higher in 2002 due primarily to incentives earned from interruptible and off-system
gas sales.

The
cost of gas purchased for resale was $39.8 million less in 2002 than in 2001, reflecting lower sales volumes and unit costs.

Decreased
gas revenues also reflect the reduced requirement for the Company to buy gas for resale because of an increase in the purchase of gas by customers from other suppliers.

Gas
operating income increased by $1.4 million in 2002, compared to 2001, due primarily to higher net revenues and lower operations and maintenance expenses, offset in part by lower late
payment charge revenues and higher depreciation.

Other Operations and Maintenance

Other operations and maintenance expense increased $1.2 million in 2002 compared to 2001. The increase was attributable primarily to higher electric
transmission and distribution expenditures, partially offset by lower customer bad debt and collections expense.

Taxes Other Than Income Taxes

Taxes other than income taxes decreased by $1.5 million in 2002 compared to 2001. The decrease was primarily the result of lower New York State revenue
taxes of $2.7 million, which resulted from reduced tax rates and lower energy costs billed to customers. Partially offsetting this decrease were higher property taxes of $0.9 million.

The
principal components of, and variations, in operating taxes were:

|                                                  |  | Increase/(Decrease) |     
|------------------------------------------------- |  | ------------------- | ----
|
|
|
|Property taxes                                    |  | $                   | 27.3
|State and local taxes related to revenue receipts |  |                     | 21.2
|Payroll taxes                                     |  |                     | 3.8 
|Other taxes                                       |  |                     | 0.1 
|                                                  |  |                     |     
|Total                                             |  | $                   | 52.4

|* |  | Including sales tax on customers' bills, total taxes other than income taxes, billed to customers in 2002 was $70.8 million.
|- |  | ----------------------------------------------------------------------------------------------------------------------------

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Net Interest Charges

Interest charges increased by $4.1 million in 2002 compared to 2001, primarily as a result of a change by the NJBPU in the carrying charges allowed on
the Company's deferred purchased power balance in New Jersey ($4.9 million) and lower allowance for borrowed funds used during construction ($0.6 million). These expenses were offset in
part by lower net financing costs of $1.4 million that resulted from lower average debt balances and interest rates in 2002.

Income Taxes

Income taxes decreased by $1.6 million in 2002 compared to 2001, reflecting primarily lower state income taxes. State income taxes decreased primarily as
a result of a 0.5 percent reduction in the New York State tax rate. Excluding certain taxes in New York that are reconciled to amounts included in rates, income taxes increased by
$1.7 million due primarily to higher operating income in 2002.

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Con Edison

For information about Con Edison's primary market risks associated with activities in derivative financial instruments, other financial instruments and
derivative commodity instruments, see "Financial Market Risks" in Con Edison's MD&A in Item 7 (which information is incorporated herein by reference).

Con Edison of New York

For information about Con Edison of New York's primary market risks associated with activities in derivative financial instruments, other financial instruments
and derivative commodity instruments, see "Financial Market Risks" in Con Edison of New York's MD&A in Item 7 (which information is incorporated herein by reference).

O&R

O&R's primary financial market risks are interest rate risk, commodity price risk, credit risk and investment risk.

Interest
Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including utility construction
expenditures and maturing debt securities. O&R and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through
opportunistic refinancing of debt. The Company estimates that, as of December 31, 2002, a 10 percent variation in interest rates applicable to its variable rate debt of
$45.0 million would result in a change in annual interest expense of $0.1 million.

In
addition, O&R and its subsidiaries from time to time enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See Note P to the financial
statements.

Commodity
Price Risk

O&R's commodity price risk relates primarily to the purchase and sale of electricity and gas that the Company delivers to its customers. The Company has risk
management strategies to mitigate its related exposure and uses derivative instruments to hedge this price risk. See Note P to the financial statements.

In
general, the rates O&R and its subsidiaries charge customers for electric and gas service fluctuate with the cost of purchased power, gas purchased for resale and fuel used in the generation of
electricity, including gains or losses on certain derivative instruments and related transaction costs. See "Recoverable Energy Costs" in Note A to the financial statements.

O&R
estimates that, as of December 31, 2002, a 10 percent change in market prices would result in a change in fair value of $1.7 million for the derivative instruments used by it
to hedge purchases of
electricity and gas. The Company expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased.

Credit
Risk

O&R is exposed to credit risk related to over-the-counter transactions entered into primarily for various energy supply and hedging
activities. Credit risk is the loss that may result from a counterparty's

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nonperformance. The Company uses credit policies to manage its credit risk, including an established credit approval process, monitoring of counterparty limits, master netting agreements, and credit
mitigation measures such as margin, collateral, or prepayment arrangements.

Investment
Risk

O&R's investment risk relates to the investment of the assets in the Company's pension and other postretirement benefit plans. See "Critical Accounting
PoliciesAccounting for Pensions and Other Postretirement Benefits," in Part II Item 7.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|A. Financial Statements                                                                             |                                               | Page
|--------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----
|Con Edison                                                                                          |                                               |     
|Report of Independent Accountants                                                                   |                                               | 88  
|Consolidated Balance Sheet at December 31, 2002 and 2001                                            |                                               | 89  
|Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000                  |                                               | 91  
|Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000    |                                               | 92  
|Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000 |                                               | 92  
|Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000           |                                               | 93  
|Consolidated Statement of Capitalization at December 31, 2002 and 2001                              |                                               | 94  
|Notes to the Consolidated Financial Statements                                                      |                                               | 96  
|Con Edison of New York                                                                              |                                               |     
|Report of Independent Accountants                                                                   |                                               | 135 
|Consolidated Balance Sheet at December 31, 2002 and 2001                                            |                                               | 136 
|Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000                  |                                               | 138 
|Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000    |                                               | 139 
|Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000 |                                               | 139 
|Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000           |                                               | 140 
|Consolidated Statement of Capitalization at December 31, 2002 and 2001                              |                                               | 141 
|Notes to the Consolidated Financial Statements                                                      |                                               | 143 
|O&R                                                                                                 |                                               |     
|Report of Independent Accountants                                                                   |                                               | 170 
|Consolidated Balance Sheet at December 31, 2002 and 2001                                            |                                               | 171 
|Consolidated Income Statement for the years ended December 31, 2002, 2001 and 2000                  |                                               | 173 
|Consolidated Statement of Retained Earnings for the years ended December 31, 2002, 2001 and 2000    |                                               | 174 
|Consolidated Statement of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000 |                                               | 174 
|Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000           |                                               | 175 
|Consolidated Statement of Capitalization at December 31, 2002 and 2001                              |                                               | 176 
|Notes to the Consolidated Financial Statements                                                      |                                               | 177 
|Financial Statement Schedules                                                                       |                                               |     
|Con Edison                                                                                          |                                               |     
|                                                                                                    | Schedule ICondensed financial information    |     
|                                                                                                    | Schedule IIValuation and qualifying accounts |     
|Con Edison of New York                                                                              |                                               |     
|                                                                                                    | Schedule IIValuation and qualifying accounts |     
|O&R                                                                                                 |                                               |     
|                                                                                                    | Schedule IIValuation and qualifying accounts |     

All other schedules are omitted because they are not applicable or the required information is shown in financial statements or notes thereto.

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---

B. Supplementary Financial Information

Selected Quarterly Financial Data for the years ended December 31, 2002 and 2001 (Unaudited)

|                                                                                               |  | 2002
|---------------------------------------------------------------------------------------------- |  | ----
|
|
|
|Operating revenues                                                                             |  | $   
|Operating income                                                                               |  |     
|Income for common stock before cumulative effect of changes in accounting principles           |  |     
|Cumulative effect of changes in accounting principles                                          |  |     
|Net income for common stock                                                                    |  |     
|Basic earnings per common share before cumulative effect of changes in accounting principles   |  | $   
|Cumulative effect of changes in accounting principles                                          |  |     
|Basic earnings per common share after cumulative effect of changes in accounting principles    |  | $   
|Diluted earnings per common share before cumulative effect of changes in accounting principles |  | $   
|Cumulative effect of changes in accounting principles                                          |  |     
|Diluted earnings per common share after cumulative effect of changes in accounting principles  |  | $   
|                                                                                               |  |     
|                                                                                              
|
|Operating revenues                                                                             |  | $   
|Operating income                                                                               |  |     
|Net income for common stock                                                                    |  |     
|Basic earnings per common share                                                                |  | $   
|Diluted earnings per common share                                                              |  | $   

In
the opinion of Con Edison, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

86

---

|                            |  | 2002
|--------------------------- |  | ----
|
|
|
|Operating revenues          |  | $   
|Operating income            |  |     
|Net income for common stock |  |     
|                            |  |     
|                           
|
|Operating revenues          |  | $   
|Operating income            |  |     
|Net income for common stock |  |     

In
the opinion of Con Edison of New York, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

|                            |  | 2002
|--------------------------- |  | ----
|
|
|
|Operating revenues          |  | $   
|Operating income            |  |     
|Net income for common stock |  |     
|                            |  |     
|                           
|
|Operating revenues          |  | $   
|Operating income            |  |     
|Net income for common stock |  |     

In
the opinion of O&R, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation.

87

---



REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Consolidated Edison, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of
Consolidated Edison, Inc. and its subsidiaries (the company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed
in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP
New York, NY
February 20, 2003

88

---



Consolidated Edison, Inc.CONSOLIDATED BALANCE SHEET

|                                                                |                                                                                                                                  | As at
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | -----
|
|
|
|ASSETS                                                          |                                                                                                                                  |      
|UTILITY PLANT, AT ORIGINAL COST(Note A)                         |                                                                                                                                  |      
|                                                                | Electric                                                                                                                         |      
|                                                                | Gas                                                                                                                              |      
|                                                                | Steam                                                                                                                            |      
|                                                                | General                                                                                                                          |      
|                                                               
|                                                                | TOTAL                                                                                                                            |      
|                                                                | Less: Accumulated depreciation                                                                                                   |      
|                                                               
|                                                                | NET                                                                                                                              |      
|                                                                | Construction work in progress                                                                                                    |      
|                                                               
|NET UTILITY PLANT                                               |                                                                                                                                  |      
|                                                               
|NON-UTILITY PLANT(Note A)                                       |                                                                                                                                  |      
|                                                                | Unregulated generating assets, less accumulated depreciation of $30,166 and $21,289 in 2002 and 2001, respectively               |      
|                                                                | Non-utility property, less accumulated depreciation of $19,476 and $10,902 in 2002 and 2001, respectively                        |      
|                                                                | Construction work in progress                                                                                                    |      
|                                                               
|NET PLANT                                                       |                                                                                                                                  |      
|                                                               
|CURRENT ASSETS                                                  |                                                                                                                                  |      
|                                                                | Cash and temporary cash investments (Note A)                                                                                     |      
|                                                                | Restricted cash                                                                                                                  |      
|                                                                | Funds held for the redemption of long-term debt                                                                                  |      
|                                                                | Accounts receivable - customers, less allowance for uncollectible accounts of $34,692 and $34,775 in 2002 and 2001, respectively |      
|                                                                | Accrued unbilled revenue (Note A)                                                                                                |      
|                                                                | Other receivables                                                                                                                |      
|                                                                | Fuel, at average cost                                                                                                            |      
|                                                                | Gas in storage, at average cost                                                                                                  |      
|                                                                | Materials and supplies, at average cost                                                                                          |      
|                                                                | Prepayments                                                                                                                      |      
|                                                                | Other current assets                                                                                                             |      
|                                                               
|TOTAL CURRENT ASSETS                                            |                                                                                                                                  |      
|                                                               
|INVESTMENTS(Note A)                                             |                                                                                                                                  |      
|DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS       |                                                                                                                                  |      
|                                                                | Goodwill (Note K)                                                                                                                |      
|                                                                | Intangible asset, less accumulated amortization of $9,712 and $5,953 in 2002 and 2001, respectively                              |      
|                                                                | Accrued pension credits (Note D)                                                                                                 |      
|                                                                | Regulatory assets                                                                                                                |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                                |                                                                                                                                  |      
|                                                               
|                                                                | TOTAL REGULATORY ASSETS                                                                                                          |      
|                                                               
|                                                                | Other deferred charges and noncurrent assets                                                                                     |      
|                                                               
|TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS |                                                                                                                                  |      
|                                                               
|TOTAL ASSETS                                                    |                                                                                                                                  | $    
|                                                               

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

89

---



Consolidated Edison, Inc.CONSOLIDATED BALANCE SHEET

|                                                           |                                                         | As at
|---------------------------------------------------------- | ------------------------------------------------------- | -----
|
|
|
|CAPITALIZATION AND LIABILITIES                             |                                                         |      
|CAPITALIZATION(see Statement of Capitalization and Note B) |                                                         |      
|                                                           | Common shareholders' equity                             |      
|                                                           | Preferred stock                                         |      
|                                                           | Long-term debt                                          |      
|                                                          
|TOTAL CAPITALIZATION                                       |                                                         |      
|                                                          
|MINORITY INTERESTS                                         |                                                         |      
|NONCURRENT LIABILITIES                                     |                                                         |      
|                                                           | Obligations under capital leases (Note J)               |      
|                                                           | Accumulated provision for injuries and damages (Note F) |      
|                                                           | Pension and benefits reserve                            |      
|                                                           | Superfund and other environmental costs (Note F)        |      
|                                                           | Other noncurrent liabilities                            |      
|                                                          
|TOTAL NONCURRENT LIABILITIES                               |                                                         |      
|                                                          
|CURRENT LIABILITIES                                        |                                                         |      
|                                                           | Long-term debt due within one year                      |      
|                                                           | Preferred stock to be redeemed in one year              |      
|                                                           | Notes payable                                           |      
|                                                           | Accounts payable                                        |      
|                                                           | Customer deposits                                       |      
|                                                           | Accrued taxes                                           |      
|                                                           | Accrued interest                                        |      
|                                                           | System benefit charge                                   |      
|                                                           | Independent power producer buyout                       |      
|                                                           | Accrued wages                                           |      
|                                                           | Other current liabilities                               |      
|                                                          
|TOTAL CURRENT LIABILITIES                                  |                                                         |      
|                                                          
|DEFERRED CREDITS AND REGULATORY LIABILITIES                |                                                         |      
|                                                           | Accumulated deferred income tax (Note L)                |      
|                                                           | Accumulated deferred investment tax credits (Note A)    |      
|                                                           | Regulatory liabilities                                  |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                          
|                                                           | TOTAL REGULATORY LIABILITIES                            |      
|                                                          
|                                                           | Other deferred credits                                  |      
|                                                          
|TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES          |                                                         |      
|                                                          
|TOTAL CAPITALIZATION AND LIABILITIES                       |                                                         | $    
|                                                          

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

90

---



Consolidated Edison, Inc.CONSOLIDATED INCOME STATEMENT

|                                                                                       |                                                                | For the Years Ended December 31, |            
|-------------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------- | -----------
|
|
|
|OPERATING REVENUES (NoteA)                                                             |                                                                |                                  |            
|                                                                                       | Electric                                                       |                                  | $          
|                                                                                       | Gas                                                            |                                  |            
|                                                                                       | Steam                                                          |                                  |            
|                                                                                       | Non-utility                                                    |                                  |            
|                                                                                       |                                                               
|TOTAL OPERATING REVENUES                                                               |                                                                |                                  | 8,481,860  
|                                                                                       |                                                               
|OPERATING EXPENSES                                                                     |                                                                |                                  |            
|                                                                                       | Purchased power                                                |                                  |            
|                                                                                       | Fuel                                                           |                                  |            
|                                                                                       | Gas purchased for resale                                       |                                  |            
|                                                                                       | Other operations                                               |                                  |            
|                                                                                       | Maintenance                                                    |                                  |            
|                                                                                       | Depreciation and amortization (Note A)                         |                                  |            
|                                                                                       | Taxes, other than income taxes (Note A)                        |                                  |            
|                                                                                       | Income taxes (Notes A and L)                                   |                                  |            
|                                                                                       |                                                               
|TOTAL OPERATING EXPENSES                                                               |                                                                |                                  | 7,421,723  
|                                                                                       |                                                               
|OPERATING INCOME                                                                       |                                                                |                                  | 1,060,137  
|                                                                                       |                                                               
|OTHER INCOME (DEDUCTIONS)                                                              |                                                                |                                  |            
|                                                                                       | Investment income (Note A)                                     |                                  |            
|                                                                                       | Allowance for equity funds used during construction (Note A)   |                                  |            
|                                                                                       | Other income                                                   |                                  |            
|                                                                                       | Other income deductions                                        |                                  |            
|                                                                                       | Income taxes (Notes A and L)                                   |                                  |            
|                                                                                       |                                                               
|TOTAL OTHER INCOME (DEDUCTIONS)                                                        |                                                                |                                  | 62,000     
|                                                                                       |                                                               
|INCOME BEFORE INTEREST CHARGES                                                         |                                                                |                                  | 1,122,137  
|                                                                                       |                                                               
|                                                                                       | Interest on long-term debt                                     |                                  |            
|                                                                                       | Other interest                                                 |                                  |            
|                                                                                       | Allowance for borrowed funds used during construction (Note A) |                                  |            
|                                                                                       |                                                               
|NET INTEREST CHARGES                                                                   |                                                                |                                  | 441,582    
|                                                                                       |                                                               
|INCOME BEFORE PREFERRED STOCK DIVIDENDS                                                |                                                                |                                  | 680,555    
|                                                                                       |                                                               
|PREFERRED STOCK DIVIDEND REQUIREMENTS                                                  |                                                                |                                  | 12,458     
|                                                                                       |                                                               
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES                    |                                                                |                                  | 668,097    
|                                                                                       |                                                               
|CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (NET OF INCOME TAXES OF $15,259) |                                                                |                                  | 22,061     
|                                                                                       |                                                               
|NET INCOME FOR COMMON STOCK                                                            |                                                                | $                                | 646,036    
|                                                                                       |                                                               
|EARNINGS PER COMMON SHARE - BASIC                                                      |                                                                |                                  |            
|                                                                                       | Before cumulative effect of changes in accounting principles   |                                  | $          
|                                                                                       |                                                               
|                                                                                       | Cumulative effect of changes in accounting principles          |                                  | $          
|                                                                                       |                                                               
|                                                                                       | After cumulative effect of changes in accounting principles    |                                  | $          
|                                                                                       |                                                               
|EARNINGS PER COMMON SHARE - DILUTED                                                    |                                                                |                                  |            
|                                                                                       | Before cumulative effect of changes in accounting principles   |                                  | $          
|                                                                                       |                                                               
|                                                                                       | Cumulative effect of changes in accounting principles          |                                  | $          
|                                                                                       |                                                               
|                                                                                       | After cumulative effect of changes in accounting principles    |                                  | $          
|                                                                                       |                                                               
|DIVIDENDS DECLARED PER SHARE OF COMMON STOCK                                           |                                                                | $                                | 2.22       
|                                                                                       |                                                               
|AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC                                           |                                                                |                                  | 212,989,784
|                                                                                       |                                                               
|AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED                                         |                                                                |                                  | 214,049,653
|                                                                                       |                                                               

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

91

---



Consolidated Edison, Inc.CONSOLIDATED STATEMENT OF RETAINED EARNINGS

|                                                                       |                                                        | For the Years Ended December 31, |          
|---------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------------- | ---------
|
|
|
|BALANCE, JANUARY 1                                                     |                                                        | $                                | 5,251,017
|                                                                       | Less: Stock options exercised                          |                                  |          
|                                                                       | Orange & Rockland purchase accounting adjustment       |                                  |          
|                                                                       | Income before preferred stock dividends                |                                  |          
|Less: Cumulative effect of changes in accounting principles            |                                                        |                                  | 22,061   
|                                                                       |                                                       
|NET INCOME AFTER CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES |                                                        |                                  | 658,494  
|                                                                       |                                                       
|TOTAL                                                                  |                                                        |                                  | 5,905,662
|                                                                       |                                                       
|DIVIDENDS DECLARED ON CAPITAL STOCK                                    |                                                        |                                  |          
|                                                                       | Cumulative preferred, at required annual rates         |                                  |          
|                                                                       | Common, $2.22, $2.20 and $2.18 per share, respectively |                                  |          
|                                                                       |                                                       
|TOTAL DIVIDENDS DECLARED                                               |                                                        |                                  | 485,225  
|                                                                       |                                                       
|BALANCE, DECEMBER 31                                                   |                                                        | $                                | 5,420,437
|                                                                       |                                                       

Consolidated Edison, Inc.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

|                                                      |                                                                                                                                                          | For the Years Ended December 31, |        
|----------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | -------
|
|
|
|NET INCOME FOR COMMON STOCK                           |                                                                                                                                                          | $                                | 646,036
|OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES       |                                                                                                                                                          |                                  |        
|                                                      | Investment in marketable equity securities, net of ($854), ($703) and ($454) taxes in 2002, 2001 and 2000, respectively                                  |                                  |        
|                                                      | Minimum pension liability adjustments, net of ($2,536), ($1,680) and ($703) taxes in 2002, 2001 and 2000, respectively                                   |                                  |        
|                                                      | Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5,635) taxes in 2001 |                                  |        
|                                                      | Unrealized gains/(losses) on derivatives qualified as hedges, net of $12,718 and ($21,901) taxes in 2002 and 2001, respectively                          |                                  |        
|                                                      | Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,662) and ($10,291) taxes in 2002 and 2001, respectively          |                                  |        
|                                                      |                                                                                                                                                         
|TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES |                                                                                                                                                          |                                  | 15,809 
|                                                      |                                                                                                                                                         
|COMPREHENSIVE INCOME                                  |                                                                                                                                                          | $                                | 661,845
|                                                      |                                                                                                                                                         

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

92

---



Consolidated Edison, Inc.CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                                                                                                      |                                                | For the Years Ended December 31, |                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------- | ------------------------------------------------------------------------------
|
|
|
|OPERATING ACTIVITIES                                                                                                                                  |                                                |                                  |                                                                               
|                                                                                                                                                      | Income before preferred stock dividends        |                                  | $                                                                             
|                                                                                                                                                      | PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Depreciation and amortization                                                 
|                                                                                                                                                      |                                                |                                  | Deferred income tax (excluding taxes resulting from divestiture of plant)     
|                                                                                                                                                      |                                                |                                  | Common equity component of allowance for funds used during construction       
|                                                                                                                                                      |                                                |                                  | Accrued pension costs (net of capitalized amounts)                            
|                                                                                                                                                      |                                                |                                  | Other non-cash charges                                                        
|CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS OF DIVESTITURE OF UTILITY PLANTS AND PURCHASE OF THE LAKEWOOD PROJECT IN 2001 AND 2000, RESPECTIVELY |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Accounts receivable - customers, less allowance for uncollectibles            
|                                                                                                                                                      |                                                |                                  | Materials and supplies, including fuel and gas in storage                     
|                                                                                                                                                      |                                                |                                  | Prepayments, other receivables and other current assets                       
|                                                                                                                                                      |                                                |                                  | Recoverable energy costs                                                      
|                                                                                                                                                      |                                                |                                  | Accounts payable                                                              
|                                                                                                                                                      |                                                |                                  | Retiree benefit reserve                                                       
|                                                                                                                                                      |                                                |                                  | Accrued taxes                                                                 
|                                                                                                                                                      |                                                |                                  | Accrued interest                                                              
|                                                                                                                                                      |                                                |                                  | Deferred charges and regulatory assets                                        
|                                                                                                                                                      |                                                |                                  | Deferred credits and regulatory liabilities                                   
|                                                                                                                                                      |                                                |                                  | Transmission congestion contracts                                             
|                                                                                                                                                      |                                                |                                  | Other assets                                                                  
|                                                                                                                                                      |                                                |                                  | Other liabilities                                                             
|                                                                                                                                                      |                                               
|NET CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                              |                                                |                                  | 1,505,321                                                                     
|                                                                                                                                                      |                                               
|INVESTING ACTIVITIES                                                                                                                                  |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Utility construction expenditures                                             
|                                                                                                                                                      |                                                |                                  | Cost of removal less salvage                                                  
|                                                                                                                                                      |                                                |                                  | Non-utility construction expenditures                                         
|                                                                                                                                                      |                                                |                                  | Common equity component of allowance for funds used during construction       
|                                                                                                                                                      |                                                |                                  | Nuclear fuel expenditures                                                     
|                                                                                                                                                      |                                                |                                  | Contributions to nuclear decommissioning trust                                
|                                                                                                                                                      |                                                |                                  | Payment for purchase of the Lakewood Project, net of cash and cash equivalents
|                                                                                                                                                      |                                                |                                  | Divestiture of utility plants (net of federal income tax)                     
|                                                                                                                                                      |                                                |                                  | Investments by unregulated subsidiaries                                       
|                                                                                                                                                      |                                                |                                  | Demolition and remediation costs for First Avenue properties                  
|                                                                                                                                                      |                                                |                                  | Deposit from sale of First Avenue properties                                  
|                                                                                                                                                      |                                               
|NET CASH FLOWS USED IN INVESTING ACTIVITIES                                                                                                           |                                                |                                  | (1,628,113                                                                    
|                                                                                                                                                      |                                               
|FINANCING ACTIVITIES                                                                                                                                  |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Repurchase of common stock                                                    
|                                                                                                                                                      |                                                |                                  | Net proceeds/(repayments) from/of short-term debt                             
|                                                                                                                                                      |                                                |                                  | Issuance of long-term debt                                                    
|                                                                                                                                                      |                                                |                                  | Retirement of long-term debt                                                  
|                                                                                                                                                      |                                                |                                  | Redemption of preferred stock                                                 
|                                                                                                                                                      |                                                |                                  | Issuance of common stock                                                      
|                                                                                                                                                      |                                                |                                  | Advance refunding of long-term debt                                           
|                                                                                                                                                      |                                                |                                  | Issuance and refunding costs                                                  
|                                                                                                                                                      |                                                |                                  | Common stock dividends                                                        
|                                                                                                                                                      |                                                |                                  | Preferred stock dividends                                                     
|                                                                                                                                                      |                                               
|NET CASH FLOWS USED IN FINANCING ACTIVITIES                                                                                                           |                                                |                                  | (104,104                                                                      
|                                                                                                                                                      |                                               
|CASH AND TEMPORARY CASH INVESTMENTS:                                                                                                                  |                                                |                                  |                                                                               
|                                                                                                                                                      |                                               
|NET CHANGE FOR THE PERIOD                                                                                                                             |                                                |                                  | (226,896                                                                      
|                                                                                                                                                      |                                               
|BALANCE AT BEGINNING OF PERIOD                                                                                                                        |                                                | $                                | 359,333                                                                       
|                                                                                                                                                      |                                               
|BALANCE AT END OF PERIOD                                                                                                                              |                                                | $                                | 132,437                                                                       
|                                                                                                                                                      |                                               
|LESS: RESTRICTED CASH                                                                                                                                 |                                                |                                  | 14,579                                                                        
|BALANCE: CASH AND TEMPORARY CASH INVESTMENTS                                                                                                          |                                                | $                                | 117,858                                                                       
|                                                                                                                                                      |                                               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Cash paid during the period for:                                              
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  | Business Acquisitions                                                         
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                               
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                               
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                               
|                                                                                                                                                      |                                                |                                  |                                                                               
|                                                                                                                                                      |                                               

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

93

---



Consolidated Edison, Inc.CONSOLIDATED STATEMENT OF CAPITALIZATION

|                                                                  |                                                                                                               | Shares outstanding |                                                                                                                                                                                    |  |             |   |          
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | - | ---------
|
|
|
|
|COMMON SHAREHOLDERS' EQUITY (NOTE B)                              |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | Common stock                                                                                                  |                    | 213,932,934                                                                                                                                                                        |  | 212,257,244 |   | $        
|                                                                  | Retained earnings                                                                                             |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | Treasury stock, at cost: 23,210,700, shares and 23,230,850 shares at December 31, 2002 and 2001, respectively |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | Capital stock expense                                                                                         |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)                                                                 |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  |                                                                                                               |                    | Investment in marketable equity securities, net of ($2,011) and ($1,157) taxes in 2002 and 2001, respectively                                                                      |  |             |   |          
|                                                                  |                                                                                                               |                    | Minimum pension liability adjustments, net of ($4,919) and ($2,383) taxes in 2002 and 2001, respectively                                                                           |  |             |   |          
|                                                                  |                                                                                                               |                    | Unrealized gains/(losses) on derivatives qualified as hedges arising during the period due to cumulative effect of a change in accounting principle, net of ($5,635) taxes in 2001 |  |             |   |          
|                                                                  |                                                                                                               |                    | Unrealized gains/(losses) on derivatives qualified as hedges, net of ($14,818) and ($21,901) taxes in 2002 and 2001, respectively                                                  |  |             |   |          
|                                                                  |                                                                                                               |                    | Less: Reclassification adjustment for gains/(losses) included in net income, net of ($11,953) and ($10,291) taxes in 2002 and 2001, respectively                                   |  |             |   |          
|                                                                  |                                                                                                              
|TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | (13,627  
|                                                                  |                                                                                                              
|TOTAL COMMON SHAREHOLDERS' EQUITY                                 |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | 5,921,079
|                                                                  |                                                                                                              
|PREFERRED STOCK (NOTE B)                                          |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | Subject to mandatory redemption Cumulative Preferred, $100 par value, 61/8% Series J                          |                    | -                                                                                                                                                                                  |  | 370,500     |   |          
|                                                                  |                                                                                                              
|TOTAL SUBJECT TO MANDATORY REDEMPTION                             |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | -        
|                                                                  |                                                                                                              
|OTHER PREFERRED STOCK                                             |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  | $5 Cumulative Preferred, without par value, authorized 1,915,319 shares                                       |                    | 1,915,319                                                                                                                                                                          |  | 1,915,319   |   |          
|                                                                  | Cumulative Preferred, $100 par value, authorized 6,000,000 shares*                                            |                    |                                                                                                                                                                                    |  |             |   |          
|                                                                  |                                                                                                               |                    | 4.65% Series C                                                                                                                                                                     |  | 153,296     |   | 153,296  
|                                                                  |                                                                                                               |                    | 4.65% Series D                                                                                                                                                                     |  | 222,330     |   | 222,330  
|                                                                  |                                                                                                              
|TOTAL OTHER PREFERRED STOCK                                       |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | 212,563  
|                                                                  |                                                                                                              
|TOTAL                                                             |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | 212,563  
|Less: Preferred stock due within one year                         |                                                                                                               |                    |                                                                                                                                                                                    |  |             |   | -        
|                                                                  |                                                                                                              
|TOTAL PREFERRED STOCK                                             |                                                                                                               |                    |                                                                                                                                                                                    |  |             | $ | 212,563  
|                                                                  |                                                                                                              

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

94

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Consolidated Edison, Inc.CONSOLIDATED STATEMENT OF CAPITALIZATION

|Long-term debt (Note B)                                                                                                  |      |   |            |   |           | At December 31, |          
|------------------------------------------------------------------------------------------------------------------------ | ---- | - | ---------- | - | --------- | --------------- | ---------
|
|
|
|
|DEBENTURES:                                                                                                              |      |   |            |   |           |                 |          
|                                                                                                                         | 2002 |   | 65/8       |   | 1993C     |                 | $        
|                                                                                                                         | 2002 |   | 2.06*      |   | 1997A     |                 |          
|                                                                                                                         | 2003 |   | 63/8       |   | 1993D     |                 |          
|                                                                                                                         | 2003 |   | 6.56       |   | 1993D     |                 |          
|                                                                                                                         | 2004 |   | 75/8       |   | 1992B     |                 |          
|                                                                                                                         | 2005 |   | 65/8       |   | 1995A     |                 |          
|                                                                                                                         | 2005 |   | 65/8       |   | 2000C     |                 |          
|                                                                                                                         | 2007 |   | 6.45       |   | 1997B     |                 |          
|                                                                                                                         | 2007 |   | 71/8       |   | 1997J     |                 |          
|                                                                                                                         | 2008 |   | 61/4       |   | 1998A     |                 |          
|                                                                                                                         | 2008 |   | 6.15       |   | 1998C     |                 |          
|                                                                                                                         | 2009 |   | 7.15       |   | 1999B     |                 |          
|                                                                                                                         | 2010 |   | 81/8       |   | 2000A     |                 |          
|                                                                                                                         | 2010 |   | 71/2       |   | 2000A     |                 |          
|                                                                                                                         | 2010 |   | 71/2       |   | 2000B     |                 |          
|                                                                                                                         | 2012 |   | 55/8       |   | 2002A     |                 |          
|                                                                                                                         | 2013 |   | 47/8       |   | 2002B     |                 |          
|                                                                                                                         | 2023 |   | 71/2       |   | 1993G     |                 |          
|                                                                                                                         | 2026 |   | 73/4       |   | 1996A     |                 |          
|                                                                                                                         | 2027 |   | 61/2       |   | 1997F     |                 |          
|                                                                                                                         | 2028 |   | 7.1        |   | 1998D     |                 |          
|                                                                                                                         | 2028 |   | 6.9        |   | 1998D     |                 |          
|                                                                                                                         | 2029 |   | 71/8       |   | 1994A     |                 |          
|                                                                                                                         | 2029 |   | 7.0        |   | 1999G     |                 |          
|                                                                                                                         | 2039 |   | 7.35       |   | 1999A     |                 |          
|                                                                                                                         | 2041 |   | 71/2       |   | 2001A     |                 |          
|                                                                                                                         | 2042 |   | 71/4       |   | 2002A     |                 |          
|                                                                                                                         |     
|TOTAL DEBENTURES                                                                                                         |      |   | 5,030,000  |   |           | 4,205,000       |          
|                                                                                                                         |     
|TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR FACILITIES REVENUE BONDS: |     
|                                                                                                                         | 2014 |   | 6.09       |   | 1994**    |                 |          
|                                                                                                                         | 2015 |   | 1.45       |   | 1995**    |                 |          
|                                                                                                                         | 2020 |   | 51/4       |   | 1993B     |                 |          
|                                                                                                                         | 2020 |   | 6.10       |   | 1995A     |                 |          
|                                                                                                                         | 2022 |   | 53/8       |   | 1993C     |                 |          
|                                                                                                                         | 2028 |   | 6.00       |   | 1993A     |                 |          
|                                                                                                                         | 2029 |   | 71/8       |   | 1994A     |                 |          
|                                                                                                                         | 2034 |   | 1.35***    |   | 1999A     |                 |          
|                                                                                                                         | 2036 |   | 4.70       |   | 2001A**** |                 |          
|                                                                                                                         | 2036 |   | 1.37***    |   | 2001B     |                 |          
|                                                                                                                         |     
|TOTAL TAX-EXEMPT DEBT                                                                                                    |      |   |            |   |           |                 | 1,198,762
|                                                                                                                         |     
|SUBORDINATED DEFERRABLE INTEREST DEBENTURES:                                                                             |      |   |            |   |           |                 |          
|                                                                                                                         | 2031 |   | 73/4       |   | 1996A     |                 |          
|                                                                                                                         |     
|OTHER LONG-TERM DEBT                                                                                                     |      |   | 164,350    |   |           | 167,845         |          
|UNAMORTIZED DEBT DISCOUNT                                                                                                |      |   | (27,051    | ) |           | (26,738         | )        
|                                                                                                                         |     
|TOTAL                                                                                                                    |      |   | 6,641,061  |   |           | 5,812,167       |          
|LESS: LONG-TERM DEBT DUE WITHIN ONE YEAR                                                                                 |      |   | 472,631    |   |           | 310,950         |          
|                                                                                                                         |     
|TOTAL LONG-TERM DEBT                                                                                                     |      |   | 6,168,430  |   |           | 5,501,217       |          
|                                                                                                                         |     
|TOTAL CAPITALIZATION                                                                                                     |      | $ | 12,302,072 |   | $         | 11,380,048      |          
|                                                                                                                         |     

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

95

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These notes form an integral part of the accompanying consolidated financial statements of Consolidated Edison, Inc. (Con Edison) and its subsidiaries.

Con Edison

Con Edison is a holding company that provides a wide range of energy-related and telecommunications services to its customers through its regulated and
unregulated subsidiaries. Con Edison's core business is energy distribution and it is also pursuing related growth opportunities in competitive businesses.

Con
Edison's principal subsidiary is Consolidated Edison Company of New York, Inc. (Con Edison of New York), a regulated utility that provides electric service to over 3.1 million
customers and gas service to approximately 1.1 million customers in New York City and Westchester County. It also provides steam service in parts of Manhattan.

Orange
and Rockland Utilities, Inc. (O&R), a regulated utility that Con Edison acquired in July 1999, provides electric service to over 285,000 customers in southeastern New York and in
adjacent sections of New Jersey and northeastern Pennsylvania. O&R also provides gas service to over 120,000 customers in southeastern New York and northeastern Pennsylvania.

Con
Edison has four unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity, gas and energy-related
services to delivery customers of utilities, including Con Edison of New York and O&R; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; Consolidated
Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and energy and other infrastructure projects; and Con Edison Communications, LLC (Con
Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. The unregulated subsidiaries participate in competitive energy supply and
services businesses that are subject to different risks than those found in the businesses of the regulated utility subsidiaries.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

Con Edison's consolidated financial statements include the accounts of Con Edison and its consolidated subsidiaries, including the regulated utilities, Con
Edison of New York and O&R. All intercompany balances and transactions have been eliminated.

Accounting Policies

The accounting policies of Con Edison and its subsidiaries conform to accounting principles generally accepted in the United States of America. For regulated
public utilities, like Con Edison of New York and O&R, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory Commission (FERC)
and the state public utility regulatory commissions having jurisdiction.

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SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

Con
Edison's principal regulatory assets and liabilities are detailed on the consolidated balance sheet. The company is receiving or being credited with a return on all of its regulatory assets for
which a cash outflow has been made, and is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. The company's regulatory assets and
liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

The
standards in SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of the FASB Statement No. 71," have been applied to Con Edison's regulated
electric supply business, including electric generating assets (see Note I) and non-utility generator (NUG) contracts (see Note H) and related regulatory assets and
liabilities, following the 1997 Restructuring Agreement (defined below). The application of SFAS No. 101 to the electric supply business had no material effect on the financial position,
results of operations or liquidity of Con Edison.

Other
significant accounting policies of the company are referenced in Note D (Pension Benefits), Note E (Other Postretirement Benefits), Note J (Leases), Note K (Goodwill
and Intangible Assets) and Note O (Derivative Instruments and Hedging Activities) to the financial statements.

Rate and Restructuring Agreements

Electric

In September 1997, the New York State Public Service Commission (PSC) approved a restructuring agreement between Con Edison of New York, the PSC staff
and certain other parties (the 1997 Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access
plan, a rate plan for the period ended March 31, 2002, a reasonable opportunity for recovery of "strandable costs" and the divestiture of electric generation capacity by Con Edison of New York.

At
December 31, 2002, approximately 163,000 Con Edison of New York customers representing approximately 25 percent of aggregate customer load were purchasing electricity from other
suppliers under the electric retail access program (which is available to all of Con Edison of New York's electric customers). Con Edison of New York delivers electricity to customers in this program
through its regulated transmission and distribution systems. In general, Con Edison of New York's delivery rates for retail access customers are equal to the full-service rates applicable
to other comparable Con Edison of New York customers, less an amount reflecting costs otherwise associated with supplying customers with energy and capacity.

97

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Pursuant
to the 1997 Restructuring Agreement, Con Edison of New York reduced electric rates, on an annual basis, by $129 million in 1998, $80 million in April 1999,
$103 million in April 2000 and $209 million in April 2001. The effect of the April 2001 decrease for the rate year ended March 31, 2002 was partially offset
by recognition in income of $36 million relating to rates for distributing electricity to customers of the New York Power Authority (NYPA) and $50 million (after tax) of deferred
generation divestiture gain. Rates were also reduced, on an annual basis, effective September 2001 by $313 million to reflect the divestiture of the nuclear generating facility and the
Roseton generating plant, which resulted in a reduction in operating and other expenses. See Note I.

Pursuant
to the 1997 Restructuring Agreement, as amended by a July 1998 PSC order, Con Edison of New York sold approximately 7,790 MW of the approximately 8,300 MW of generating capacity that
it owned at the time the 1997 Restructuring Agreement was executed. See Note I.

In
November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revises and extends the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000
Electric Rate Agreement, Con Edison of New York reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

In
general, under the 2000 Electric Rate Agreement, Con Edison of New York's base electric transmission and distribution rates will not otherwise be changed during the five-year period
ending March 2005 except (i) with respect to certain changes in costs above anticipated annual levels resulting from legal or regulatory requirements, inflation in excess of a
4 percent annual rate, property tax changes and environmental cost increases or (ii) if the PSC determines that circumstances have occurred that either threaten Con Edison of New York's
economic viability or ability to provide, safe and adequate service, or render Con Edison of New York's rate of return unreasonable for the provision of safe and adequate service.

Under
the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through
2005 above a specified rate of return on electric common equity will be retained for shareholders and the balance will be applied for customer benefit as determined by the PSC. As of
December 31, 2002, Con Edison of New York established an electric shared earnings reserve of $40 million for the rate year ending March 2003. There was no sharing of earnings for
the rate years ended March 2002 and 2001. The earnings threshold for rate years ending March 2003 through March 2005 of 11.75 percent can be increased up to 50 basis
points. The threshold will increase by 25 basis points if certain demand reductions and supply increases exceed targeted projections and by an additional 25 basis points if certain customer service
and reliability objectives are achieved. Con Edison of New York could be required to pay up to $40 million annually in penalties if certain threshold service and reliability objectives are not
achieved.

Con
Edison of New York's potential electric strandable costs are utility investments and commitments that may not be recoverable in a competitive electric supply market. Con Edison of New York is
recovering these costs in the rates it charges all of its electric customers. The 2000 Electric Rate
Agreement continues the stranded cost recovery provisions of the 1997 Restructuring Agreement, stating that Con Edison of New York "will be given a reasonable opportunity to recover stranded and

98

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strandable costs remaining at March 31, 2005, including a reasonable return on investments, under the parameters and during the time periods set forth therein."

The
2000 Electric Rate Agreement also continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable
Energy Costs" below.

In
1997, the PSC approved a four-year O&R restructuring plan effective through December 31, 2002, pursuant to which O&R sold all of its generating assets, made retail access
available to all of its electric customers effective May 1999 and reduced its electric rates by $32.4 million through rate reductions implemented in December 1997 and 1998. In
1998 and 1999, similar plans for O&R's utility subsidiaries in Pennsylvania and New Jersey were approved by state regulators. The Pennsylvania plan provided for retail access for all customers
effective May 1999. The New Jersey plan provided for retail access for all customers effective August 1999 and rate reductions of $6.8 million effective August 1999, an
additional reduction of $2.7 million effective January 2001 and a final reduction of $6.2 million effective August 2002.

In
accordance with the April 1999 PSC order approving Con Edison's acquisition of O&R, Con Edison of New York has reduced its annual electric and gas rates by $12 million and
$2 million, respectively, and O&R has reduced its annual electric rates and gas rates by $6.1 million and $1.1 million, respectively.

In
October 2002, O&R's New Jersey utility subsidiary filed a request with the New Jersey Board of Public Utilities (NJBPU) seeking an increase in electric rates of $7.3 million
(5.5 percent) annually, to take effect on August 1, 2003, principally to reflect the costs of electric system infrastructure improvements required for service reliability and security. A
final ruling by the NJBPU is expected in the third quarter of 2003.

Gas

In November 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties that revised and extended the
1996 gas rate settlement agreement through September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

Under
the 2000 agreement, the rate of return on gas common equity above which Con Edison of New York shared with customers 50 percent of earnings was increased from 13 percent to
14 percent. In addition, customer bills were reduced by $20 million during the January through March 2001 period.

At
December 31, 2001, Con Edison of New York reserved $11.5 million for customers' share of gas earnings in excess of the 14 percent threshold for the rate year ended
September 2001. No additional amounts were reserved for the rate year ended September 2002.

In
April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The rate agreement reduces gas rates, on an
annualized basis, by $25 million.

During
the term of the 2002 agreement, Con Edison of New York retains 100 percent of the rate year return on equity up to 11.5 percent. If the return on equity is between
11.5 percent and 12.0 percent,

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100 percent of the incremental return over 11.5 percent will be set aside for customer benefit. If the return on equity is above 12.0 percent, 50 percent of the
incremental return over 12.0 percent will be retained by shareholders, and the remaining 50 percent will be shared with customers.

The
2002 agreement also continued the retail access credit for firm transportation customers and other programs designed to increase customer and marketer participation in the gas retail access
program, the net costs of which are to be recovered from customers.

Under
the 2002 agreement, in May 2002, Con Edison of New York established a $36.4 million reserve, funded by previously deferred customer credits, to recover unreimbursed costs directly
related to the World Trade Center attack.

In
December 2000, the PSC also authorized implementation of a gas rate settlement agreement between O&R, the PSC staff, and certain other parties covering the period November 2000
through April 2002. In October 2001, the PSC approved an extension of this agreement covering the period May 2002 through October 2003. With limited exceptions, the
agreement provides for no changes to base rates. O&R was permitted to retain, and is amortizing to income, $18.1 million of deferred credits that otherwise would have been credited to
customers.

In
November 2002, O&R filed a request with the PSC for approval of a $27.2 million gas rate increase effective November 2003. O&R also submitted a multi-year plan that
addresses rates for two additional years, with an increase of $2.5 million to cover infrastructure costs, inflation and property taxes. The Administrative Law Judge is expected to issue a
recommended decision in the third quarter 2003.

Steam

In November 2000, the PSC authorized implementation of an agreement between Con Edison of New York, the PSC staff and certain other parties, that
provided for a $16.6 million steam rate increase in October 2000 and, with limited exceptions, no further changes in steam rates prior to October 2004. Con Edison of New York is
required to share with customers 50 percent of any earnings for any rate year covered by the agreement above of a specified rate of return on steam common equity (11.0 percent for the
first rate year, the 12-month period ended September 2001; 10.5 percent thereafter if the repowering of its steam-electric generating plant is not completed). The net revenue
effect associated with sales increases related to colder than normal winter weather (November through April) will be excluded from any earnings measurement. Earnings on steam common equity did not
exceed the specific rates of return for the rate years ended September 30, 2001 and 2002.

Under
the steam rate agreement, upon completion of the project to add incremental generating capacity at the East River steam-electric generating plant, the net benefits of the project (including
the net after-tax gain from the sale of a nine-acre development site in mid-town Manhattan along the East River) allocable to steam operations will inure to the benefit of
steam customers.

The
agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased steam and fuel costs and requires Con Edison of New York to develop a
strategy for hedging price variations for a portion of the steam produced each year.

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Plant and Depreciation

Utility Plant

Utility plant is stated at original cost. The capitalized cost of additions to utility plant includes indirect costs such as engineering, supervision, payroll
taxes, pensions, other benefits and an allowance for funds used during construction (AFDC). The original cost of property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is charged to expense and the cost of betterments is capitalized.

Rates
used for AFDC include the cost of borrowed funds and a reasonable rate on the regulated utilities own funds when so used, determined in accordance with PSC and FERC regulations. The rate is
compounded semiannually, and the amounts applicable to borrowed funds are treated as a reduction of interest charges, while the amounts applicable to the regulated utilities' own funds were credited
to other income (deductions).

Con
Edison's utility subsidiaries generally compute annual charges for depreciation using the straight-line method for financial statement purposes, with rates based on average service
lives and net salvage factors. Con Edison's utility depreciation rates averaged 3.0 percent in 2002, 3.1 percent
in 2001 and 3.6 percent in 2000. The estimated lives for Con Edison's utility plant range from 5 to 80 years for electric, 7 to 75 years for gas, 30 to 75 years for steam
and 5 to 50 years for general plant.

Non-utility Plant

Non-utility plant is stated at original cost. For the regulated utilities, non-utility plant consists primarily of land and
telecommunication facilities that are currently not utilized within utility operations. For the unregulated subsidiaries, non-utility plant consists primarily of generating assets and
telecommunication facilities that are in-service or under construction. Depreciation is computed using the straight-line method for financial statement purposes, over the
estimated useful lives of the assets, which range from 5 to 40 years for generating assets and 3 to 50 years for other property.

In
2002, in accordance with SFAS No. 34, "Capitalization of Interest Costs," Con Edison capitalized interest on its borrowings associated with the unregulated subsidiaries' capital projects in
progress. Capitalized interest is added to the asset cost, and is amortized over the useful lives of the assets. The amount of such capitalized interest cost for 2002 is $14.3 million. No
amounts were capitalized in 2001 and 2000.

Revenues

Con Edison's utility subsidiaries and Con Edison Solutions recognize revenues for electric, gas or steam service on a monthly billing cycle basis. O&R and Con
Edison Solutions accrue revenues at the end of each month for estimated energy usage not yet billed to customers, while Con Edison of New York does not accrue such revenues, in accordance with current
regulatory agreements. The accrued unbilled revenue included in Con Edison's balance sheet at December 31, 2002 and 2001 was $54.1 million and $47.7 million, respectively.

Recoverable Energy Costs

Con Edison's utility subsidiaries generally recover all of their prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in
accordance with rate provisions approved by the

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applicable state public utility commissions. If the actual energy costs for a given month are more or less than the amounts billed to customers for that month, the difference is recoverable from or
refundable to customers. Differences between actual and billed energy costs are generally deferred for charge or refund to customer during the next billing cycle (normally within one or two months).
For Con Edison of New York, the rate provisions also include a possible incentive or penalty of up to $25 million annually relating to electric costs (see "Energy Price Hedging" in
Note O). Con Edison of New York defers over a 12-month period all net interruptible gas revenues not authorized by the PSC to be retained by Con Edison of New York for refund to
firm gas sales and transportation customers.

In
August 2002, O&R's New Jersey utility subsidiary submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act of
$110 million of electric purchased power costs in excess of amounts previously billed to customers, associated interest and other deferred charges. Recovery of these costs from customers is
requested over a four-year period or pursuant to a plan to securitize the costs (under which O&R's subsidiary would be reimbursed these costs with the proceeds of a financing that would be
repaid over time by its customers). In January 2003, the initial results of an independent audit, commissioned by the NJBPU to review the prudence of these deferred costs, were issued. The
audit recommends that the utility be disallowed recovery of $26.8 million of such costs and associated interest of $2.6 million. O&R believes that its actions were prudent and has filed
a response to the audit findings. A decision on the recovery of these purchased power costs by the NJBPU is expected in the third quarter of 2003.

The
difference between amounts for purchased power initially billed to the utility subsidiaries by the New York Independent System Operator (NYISO) and amounts subsequently determined by the NYISO to
have actually been supplied by the NYISO is refunded by the NYISO to the utility subsidiaries, or paid to the NYISO by the utility subsidiaries. The reconciliation payments or receipts are recoverable
from or refundable to the utility subsidiaries' customers. At December 31, 2002, the utility subsidiaries had deferred $106.9 million of refunds received from the NYISO as a regulatory
liability.

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at
cost, which approximates market. Con Edison considers temporary cash investments to be cash equivalents.

Investments

Investments consist primarily of the investments of Con Edison's unregulated subsidiaries, which, depending on the subsidiaries' percentage ownership, are
recorded at cost, accounted for under the equity method or accounted for as leveraged leases in accordance with SFAS No. 13, "Accounting for Leases." See Note J for a discussion of
investments in Lease In/Lease Out transactions.

Federal Income Tax

In accordance with SFAS No. 109, "Accounting for Income Taxes," Con Edison has recorded an accumulated deferred federal income tax liability for
temporary differences between the book and tax basis of assets and liabilities at current tax rates. In accordance with rate agreements, the utility subsidiaries have recovered amounts from customers
for a portion of the tax liability they will pay in the

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future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining tax liability, in accordance with SFAS No. 71, the utility subsidiaries have
established regulatory assets for the net revenue requirements to be recovered from customers for the related future tax expense (see Note L). In 1993, the PSC issued a Policy Statement
approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates.

Accumulated
deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction to future federal income tax expense.

Con
Edison and its subsidiaries file a consolidated federal income tax return. The consolidated income tax liability is allocated to each member of the consolidated group using the separate
return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of the consolidated group.

State Income Tax

The New York State tax laws applicable to utility companies were changed effective January 1, 2000. Certain revenue-based taxes were repealed or reduced
and replaced by a net income-based tax. In June 2001, the PSC issued its final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the
difference between taxes being collected and the tax expense resulting from the tax law changes, until those changes are incorporated in base rates.

Con
Edison and its subsidiaries file a combined New York State Corporation Business Franchise Tax Return. Similar to a federal consolidated income tax return, the income of all entities in the
combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of income among the states in which the company does
business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

Taxes Other than Income Taxes

The PSC requires New York regulated utility companies to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e.,
included in both revenue and expense). The recovery of these taxes is part of the PSC approved revenue requirement within each of the respective rate agreements.

Research and Development Costs

Research and development costs relating to specific utility construction projects are capitalized. All other such costs are charged to operating expenses as
incurred. Research and development costs in 2002, 2001 and 2000 amounting to $11.2 million, $14.0 million and $14.1 million, respectively, were charged to operating expenses. No
research and development costs were capitalized in these years.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Earnings Per Common Share

In accordance with SFAS No. 128, "Earnings per Share," Con Edison presents basic and diluted earnings per share on the face of the consolidated income
statement. Basic earnings per share is calculated by

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dividing earnings available to common shareholders ("Net income for common stock" on the consolidated income statement) by the weighted average number of common shares outstanding during the period.
In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

Potentially
dilutive securities for Con Edison consist of restricted stock and stock options whose exercise price is less than the average market price of the common shares during the reporting
period. See Note M.

Basic
and diluted EPS are calculated as follows:

|                                                                       |  | For the Years Ended December 31,
|---------------------------------------------------------------------- |  | --------------------------------
|
|
|
|Net income                                                             |  | $                               
|Less: Preferred stock dividend requirements                            |  |                                 
|                                                                      
|Income available to common shareholders                                |  | $                               
|Less cumulative effect of changes in accounting principles, net of tax |  |                                 
|                                                                      
|Net income applicable to common stock                                  |  | $                               
|                                                                      
|Number of shares on which basic EPS is calculated                      |  |                                 
|Add: Incremental shares attributable to effect of dilutive securities: |  |                                 
|                                                                      
|Number of share on which diluted EPS is calculated                     |  |                                 
|                                                                      
|EARNINGS PER COMMON SHARE - BASIC                                      |  |                                 
|Before cumulative effect of changes in accounting principles           |  | $                               
|Cumulative effect of changes in accounting principles                  |  |                                 
|                                                                      
|After cumulative effect of changes in accounting principles            |  | $                               
|                                                                      
|EARNINGS PER COMMON SHARE - DILUTED                                    |  |                                 
|Before cumulative effect of changes in accounting principles           |  | $                               
|Cumulative effect of changes in accounting principles                  |  |                                 
|                                                                      
|After cumulative effect of changes in accounting principles            |  | $                               
|                                                                      

Stock
options to purchase 6.08 million, 5.33 million and 4.67 million common shares for the years ended December 31, 2002, 2001 and 2000, respectively, were not included in
the respective period's computation of diluted earnings per share because the exercise price of the option was greater than the average market price of the common shares.

Stock-Based Compensation

Con Edison applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based compensation plans. See Note M. The following table illustrates the effect on net

104

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income and earnings per share if Con Edison had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

|                                                                                                                                      |                       | For the Years Ended December 31, |        
|------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------------- | -------
|
|
|
|Net income, as reported                                                                                                               |                       | $                                | 646    
|Add: Stock-based compensation expense included in reported net income, net of related tax effects                                     |                       |                                  | 6      
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |                       |                                  | (13    
|                                                                                                                                      |                      
|Pro forma net income                                                                                                                  |                       |                                  | 639    
|                                                                                                                                      |                      
|Number of shares on which basic EPS is calculated                                                                                     |                       |                                  | 212,990
|Add: Incremental shares attributable to effect of dilutive securities:                                                                |                       |                                  | 1,060  
|                                                                                                                                      |                      
|Number of share on which diluted EPS is calculated                                                                                    |                       |                                  | 214,050
|                                                                                                                                      |                      
|Earnings per share:                                                                                                                   |                       |                                  |        
|                                                                                                                                      | Basic - as reported   |                                  | $      
|                                                                                                                                      | Basic - pro forma     |                                  | $      
|                                                                                                                                      |                      
|                                                                                                                                      | Diluted - as reported |                                  | $      
|                                                                                                                                      | Diluted - pro forma   |                                  | $      
|                                                                                                                                      |                      

These
pro forma amounts may not be representative of future year pro forma amount disclosures due to changes in future market conditions and additional grants in future years.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Note B - Capitalization

Capitalization of Con Edison

Con Edison's outstanding capitalization, on a consolidated basis, consists of its common shareholders' equity and long-term debt and the outstanding
preferred stock and long-term debt of its subsidiaries. Con Edison's authorized capitalization also includes six million authorized, but unissued, Preferred Shares, $1.00 par value.

Preferred Stock of Utility Subsidiaries

As of December 31, 2002, 1,915,319 shares of Con Edison of New York's $5 Cumulative Preferred Stock (the "$5 Preferred") and 375,626 shares of its
Cumulative Preferred Stock ($100 par value) were outstanding.

Dividends
on the $5 Preferred stock are $5 per share per annum, payable quarterly, and dividends on the Cumulative Preferred Stock are $4.65 per share per annum, payable quarterly. The preferred
dividends

105

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must be declared by Con Edison of New York's Board of Trustees to become payable. See "Dividends" below.

With
respect to any corporate action to be taken by a vote of shareholders of Con Edison of New York, Con Edison (which owns all of the 235,488,094 shares of Con Edison of New York's Common Shares
($2.50 par value) that are outstanding) and the holders of the $5 Preferred are
each entitled to one vote for each share held. Except as otherwise required by law, holders of the Cumulative Preferred Stock have no right to vote; provided, however, that, if the $5 Preferred is no
longer outstanding, the holders of the Cumulative Preferred Stock are entitled to one vote for each share with respect to any corporate action to be taken by a vote of the shareholders of Con Edison
of New York. In addition, if dividends are in arrears for certain periods, the holders are entitled to certain rights with respect to the election of Con Edison of New York's Trustees. Without the
consent of the holders of the Cumulative Preferred Stock, Con Edison of New York may not create or authorize any kind of stock ranking prior to the Cumulative Preferred Stock or, if such actions would
affect the holders of the Cumulative Preferred Stock adversely, be a party to any consolidation or merger, create or amend the terms of the Cumulative Preferred Stock or reclassify the Cumulative
Preferred Stock. Con Edison of New York may redeem the $5 Preferred at a redemption price of $105 per share and the Cumulative Preferred Stock at a redemption price of $101 per share (in each case,
plus accrued and unpaid dividends). In the event of the dissolution, liquidation or winding up of the affairs of Con Edison of New York, before any distribution of capital assets could be made to the
holders of the company's common stock, the holders of the $5 Preferred and the Cumulative Preferred Stock would each be entitled to receive $100 per share, in the case of an involuntary liquidation,
or an amount equal to the redemption price per share, in the case of a voluntary liquidation, in each case together with all accrued and unpaid dividends.

Dividends

In accordance with PSC requirements, the dividends that the utility subsidiaries may pay are limited to not more than 100 percent of their respective
income available for dividends calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income
resulting from accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison
proceeds from major transactions, such as asset sales, or to dividends reducing each utility subsidiary's equity ratio to a level appropriate to its business risk.

In
addition, no dividends may be paid, or funds set apart for payment, on Con Edison of New York common stock until all dividends accrued on the $5 Preferred Stock and Cumulative Preferred Stock have
been paid, or declared and set apart for payment.

Long-term Debt

Long-term debt maturing in the period 2003-2007 is as follows:

|     |  | (Millions of Dollars) |  
|---- |  | --------------------- | -
|
|2003 |  | $473                  | *
|2004 |  | 163                   |  
|2005 |  | 464                   |  
|2006 |  | 17                    |  
|2007 |  | 368                   |  
|     | 



106

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Long-term debt includes notes issued by O&R to the New York State Energy Research and Development Authority (NYSERDA) for the net proceeds of
NYSERDA's $55 million aggregate principal amount of Series 1994A and $44 million aggregate principal amount of Series 1995A Pollution Control Refunding Revenue Bonds. The
interest rate determination method for this debt is subject to change in accordance with the related indenture, and the debt currently bears interest at a weekly rate determined by its remarketing
agent. The debt is subject to optional and, in certain circumstances, mandatory tender for purchase by O&R. See "Interest Rate Hedging" in Note O.

Long-term
debt is stated at cost, which, as of December 31, 2002, approximates fair value (estimated based on current rates for debt of the same remaining maturities), except for
$224.6 million of Con Edison of New York's tax-exempt financing. See "Interest Rate Hedging" in Note O.

At
December 31, 2002, long-term debt includes $23.2 million of mortgage bonds collateralized by substantially all the utility plant and other physical property of O&R's New
Jersey and Pennsylvania utility subsidiaries, and $148.8 million of debt of a Con Edison Development subsidiary collateralized by a pledge of a power plant, a related power purchase agreement
and project assets. At December 31, 2002, restricted cash was $14.6 million relating to this project.

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any
other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the debentures of Con Edison, Con Edison of New York or O&R. The
tax-exempt financing arrangements of Con Edison of New York and O&R are subject to these covenants and the covenants discussed below.

The
tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of Con Edison of New York and O&R to NYSERDA in exchange for the net proceeds of a like
amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA.

The
tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to the use of the facilities
financed. The failure to comply with these covenants would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. Certain series of
Con Edison of New York's tax-exempt financing (Series 1993A, B and C, Series 1994A and Series 1995A), aggregating $476.8 million, each contain as events of
default a default in the payment of the other series and events of default under the company's mortgage trust indenture (which has been satisfied and discharged). The arrangements for the other series
of Con Edison of New York's tax-exempt financing (Series 1999A, 2001A and 2001B), aggregating $615.3 million, and O&R's tax-exempt financing (Series 1994A
and Series 1995A), aggregating $99.0 million, include provisions for the maintenance of liquidity and credit facilities, the failure to comply with which would, except as otherwise
provided, constitute an event of default with respect to the debt to which such provisions applied. If an event of default occurred, the principal and accrued interest
on the debt to which such event of default applied may and, in certain circumstances would, become due and payable immediately.

107

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The
liquidity and credit facilities currently in effect for the tax-exempt financing include covenants that the ratio of debt to total capital of the company does not at any time exceed
0.65 to 1 and that, subject to certain exceptions, the company shall not mortgage, lien, pledge or otherwise encumber its assets. Certain of the facilities also include as events of default, defaults
in payments of other debt obligations in excess of specified levels ($100 million for Con Edison of New York; $12.5 million for O&R).

Note C - Short Term Borrowing

At December 31, 2002, Con Edison and its utility subsidiaries had commercial paper programs under which short-term borrowings are made at
prevailing market rates, totaling $950 million. These programs are supported by revolving credit agreements with banks. At December 31, 2002, $149.5 million, at a weighted average
interest rate of 1.2 percent, was outstanding under Con Edison's $350 million program; no commercial paper was outstanding under Con Edison of New York's $500 million program; and
$1 million, at a weighted average interest rate of 1.3 percent, was outstanding under O&R's $100 million program. Con Edison of New York changes the amount of its program from
time to time, subject to a $1 billion FERC-authorized limit.

Bank
commitments under the revolving credit agreements total $950 million, of which $775 million was renewed in November 2002. The commitments may terminate upon a change of
control of Con Edison, and borrowings under the agreements are subject to certain conditions, including that the ratio (calculated in accordance with the agreements) of debt to total capital of the
borrower not at any time exceed 0.65 to 1. At December 31, 2002, this ratio was 0.54 to 1 for Con Edison, 0.53 to 1 for Con Edison of New York and 0.49 to 1 for O&R. Borrowings under the
agreements are not subject to maintenance of credit rating levels. The fees charged for the revolving credit facilities and borrowings under the agreements reflect the credit ratings of the respective
companies.

During
2002, Con Edison borrowed funds on a short-term basis from an affiliate of the lessor of the Newington Project. See Note S. The average daily outstanding amount was
$28.9 million at an average interest rate of 4.2 percent. At December 31, 2002, $11.1 million was outstanding at an interest rate of 4.2 percent.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees of Con Edison of New York
and O&R and certain employees of other Con Edison subsidiaries. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment
gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period. This
amortization is in accordance with the Statement of Policy issued by the New York State Public Service Commission (PSC) and is permitted under SFAS No. 87, "Employers' Accounting for Pensions,"
which provides a "corridor method" for moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains
and losses that is faster than the corridor method and is applied consistently to both gains and losses.

Consistent
with the provisions of SFAS No. 71, O&R defers for future recovery any difference between expenses recognized under SFAS No. 87 and the current rate allowance authorized by
each regulatory jurisdiction in which it operates.

108

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The components of Con Edison of New York and O&R's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

|                                                 |  | 2002 |        | 2001 |   | 2000   |  
|------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|
|
|Service cost - including administrative expenses |  | $    | 93.9   |      | $ | 95.3   |  
|Interest cost on projected benefit obligation    |  |      | 440.1  |      |   | 425.2  |  
|Expected return on plan assets                   |  |      | (685.5 | )    |   | (657.4 | )
|Amortization of net actuarial (gain)             |  |      | (173.2 | )    |   | (193.9 | )
|Amortization of prior service cost               |  |      | 14.1   |      |   | 13.6   |  
|Amortization of transition (asset)/obligation    |  |      | (0.6   | )    |   | 3.0    |  
|                                                 | 
|NET PERIODIC BENEFIT COST                        |  |      | (311.2 | )    |   | (314.2 | )
|                                                 | 
|Amortization of regulatory asset*                |  |      | 4.2    |      |   | 4.2    |  
|                                                 | 
|TOTAL PERIODIC BENEFIT COST                      |  | $    | (307.0 | )    | $ | (310.0 | )
|                                                 | 
|Cost capitalized                                 |  |      | (51.2  | )    |   | (61.4  | )
|Cost charged to operating expenses               |  | $    | (255.8 | )    | $ | (248.6 | )
|                                                 | 



The funded status at December 31, 2002, 2001 and 2000 was as follows:

|                                                                  |  | 2002 |         | 2001 |   | 2000    |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|
|CHANGE IN BENEFIT OBLIGATION                                      |  |      |         |      |   |         |  
|Projected benefit obligation at beginning of year                 |  | $    | 5,904.3 |      | $ | 5,630.4 |  
|Service cost - excluding administrative expenses                  |  |      | 92.2    |      |   | 93.6    |  
|Interest cost on projected benefit obligation                     |  |      | 440.1   |      |   | 425.2   |  
|Plan amendments                                                   |  |      | -       |      |   | 9.8     |  
|Net actuarial loss                                                |  |      | 299.0   |      |   | 30.4    |  
|Benefits paid                                                     |  |      | (302.0  | )    |   | (285.1  | )
|                                                                  | 
|PROJECTED BENEFIT OBLIGATION AT END OF YEAR                       |  | $    | 6,433.6 |      | $ | 5,904.3 |  
|                                                                  | 
|CHANGE IN PLAN ASSETS                                             |  |      |         |      |   |         |  
|Fair value of plan assets at beginning of year                    |  | $    | 6,633.7 |      | $ | 7,347.5 |  
|Actual return on plan assets                                      |  |      | (553.1  | )    |   | (406.6  | )
|Employer contributions                                            |  |      | 3.9     |      |   | 3.7     |  
|Benefits paid                                                     |  |      | (302.0  | )    |   | (285.1  | )
|Administrative expenses                                           |  |      | (22.8   | )    |   | (25.8   | )
|                                                                  | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR                          |  | $    | 5,759.7 |      | $ | 6,633.7 |  
|                                                                  | 
|Funded status                                                     |  | $    | (673.9  | )**  | $ | 729.4   |  
|Unrecognized net loss/(gain)                                      |  |      | 1,547.7 |      |   | (184.2  | )
|Unrecognized prior service costs                                  |  |      | 81.8    |      |   | 95.9    |  
|Unrecognized net transition (asset)/liability at January 1, 1987* |  |      | -       |      |   | (0.6    | )
|                                                                  | 
|NET PREPAID BENEFIT COST                                          |  | $    | 955.6   |      | $ | 640.5   |  
|                                                                  | 



109

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The amounts recognized in the consolidated balance sheet at December 31, 2002 and 2001 were as follows:

|                                                 |  | 2002 |         | 2001 |  
|------------------------------------------------ |  | ---- | ------- | ---- | -
|
|
|Accrued pension credits - Con Edison of New York |  | $    | 1,024.2 |      | $
|Accrued benefit cost - O&R                       |  |      | (57.5   | )    |  
|Additional minimum pension liability             |  |      | (12.2   | )    |  
|Intangible asset                                 |  |      | 0.2     |      |  
|Accumulated other comprehensive income           |  |      | 12.0    |      |  
|1993 special retirement program                  |  |      | (11.1   | )    |  
|                                                 | 
|Net prepaid benefit cost                         |  | $    | 955.6   |      | $
|                                                 | 

The actuarial assumptions for Con Edison of New York and O&R at December 31, 2002, 2001 and 2000 were as follows:

|                                           |  | 2002  |  | 2001  |  | 2000 
|------------------------------------------ |  | ----- |  | ----- |  | -----
|
|Discount Rate                              |  | 6.75% |  | 7.50% |  | 7.75%
|Expected Return on Plan Assets             |  | 9.20% |  | 9.20% |  | 8.50%
|Rate of Compensation Increase - Con Edison |  | 4.30% |  | 4.30% |  | 4.55%
|Rate of Compensation Increase - O&R        |  | 4.15% |  | 4.15% |  | 4.40%

Con Edison also offers a defined contribution savings plan that covers substantially all employees and made contributions to the plan of $16.8 million,
$16.7 million and $16.4 million for years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

Con Edison of New York and O&R have contributory comprehensive hospital, medical and prescription drug programs for all retirees, their dependents and surviving
spouses.

Con
Edison of New York also has a contributory life insurance program for bargaining unit employees and provides basic life insurance benefits up to a specified maximum at no cost to retired
management employees. O&R has a non-contributory life insurance program for retirees.

Certain
employees of other Con Edison subsidiaries are eligible to receive benefits under these programs. The company has reserved the right to amend or terminate these programs.

Investment
plan gains and losses are fully recognized in expense over a 15-year period for Con Edison of New York and O&R. Other actuarial gains and losses are fully recognized in expense
over a 10-year period.

For
O&R, plan assets are used to pay benefits and expenses for participants who retired on or after January 1, 1995. O&R pays benefits for other participants who retired prior to
January 1, 1995. Plan assets include amounts owed by the trust to O&R of $0.8 million in 2002, $0.3 million in 2001, $2.2 million in 2000.

Consistent
with the provisions of SFAS No. 71, O&R defers for future recovery any difference between expenses recognized under SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other

110

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Than Pensions," and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The
components of Con Edison of New York and O&R's net periodic postretirement benefit costs for 2002, 2001 and 2000 were as follows:

|                                                               |  | 2002 |       | 2001 |   | 2000  |  
|-------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|
|
|Service cost                                                   |  | $    | 10.0  |      | $ | 12.2  |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 87.7  |      |   | 88.4  |  
|Expected return on plan assets                                 |  |      | (79.7 | )    |   | (73.8 | )
|Amortization of net actuarial loss                             |  |      | 24.2  |      |   | 10.2  |  
|Amortization of prior service cost                             |  |      | (0.1  | )    |   | 1.4   |  
|Amortization of transition obligation                          |  |      | 5.0   |      |   | 17.4  |  
|                                                               | 
|NET PERIODIC POSTRETIREMENT BENEFIT COST                       |  | $    | 47.1  |      | $ | 55.8  |  
|                                                               | 
|Cost capitalized/deferred                                      |  |      | 13.8  |      |   | 13.2  |  
|Cost charged to operating expenses                             |  |      | 33.3  |      |   | 42.6  |  
|                                                               | 

The funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

|                                                               |  | 2002 |         | 2001 |   | 2000    |  
|-------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|
|CHANGE IN BENEFIT OBLIGATION                                   |  |      |         |      |   |         |  
|Benefit obligation at beginning of year                        |  | $    | 1,351.1 |      | $ | 1,169.8 |  
|Service cost                                                   |  |      | 10.0    |      |   | 12.2    |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 87.7    |      |   | 88.4    |  
|Plan amendments                                                |  |      | (305.6  | )    |   | -       |  
|Net actuarial loss                                             |  |      | 177.6   |      |   | 148.7   |  
|Benefits paid and administrative expenses                      |  |      | (89.1   | )    |   | (82.0   | )
|Participant contributions                                      |  |      | 15.7    |      |   | 14.0    |  
|                                                               | 
|BENEFIT OBLIGATION AT END OF YEAR                              |  | $    | 1,247.4 |      | $ | 1,351.1 |  
|                                                               | 
|CHANGE IN PLAN ASSETS                                          |  |      |         |      |   |         |  
|Fair value of plan assets at beginning of year                 |  | $    | 804.2   |      | $ | 844.1   |  
|Actual return on plan assets                                   |  |      | (61.3   | )    |   | (29.3   | )
|Employer contributions                                         |  |      | 44.9    |      |   | 55.9    |  
|Participant contributions                                      |  |      | 15.6    |      |   | 13.9    |  
|Benefits paid                                                  |  |      | (81.9   | )    |   | (75.5   | )
|Administrative expenses                                        |  |      | (4.5    | )    |   | (4.9    | )
|                                                               | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR                       |  | $    | 717.0   |      | $ | 804.2   |  
|                                                               | 
|Funded status                                                  |  | $    | (530.4  | )    | $ | (546.9  | )
|Unrecognized net (gain)/loss                                   |  |      | 505.5   |      |   | 210.9   |  
|Unrecognized prior service costs                               |  |      | (147.9  | )    |   | 8.0     |  
|Unrecognized transition obligation at January 1, 1993*         |  |      | 36.7    |      |   | 191.4   |  
|                                                               | 
|ACCRUED POSTRETIREMENT BENEFIT COST                            |  | $    | (136.1  | )    | $ | (136.6  | )
|                                                               | 



111

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The actuarial assumptions for Con Edison of New York and O&R at December 31, 2002, 2001 and 2000 were as follows:

|                               |                   | 2002  |                        | 2001  |       | 2000 
|------------------------------ | ----------------- | ----- | ---------------------- | ----- | ----- | -----
|
|Discount rate                  |                   | 6.75% |                        | 7.50% |       | 7.75%
|EXPECTED RETURN ON PLAN ASSETS |                   |       |                        |       |       |      
|                               | Tax-exempt assets |       | 9.20%                  |       | 9.20% |      
|                               | Taxable assets:   |       |                        |       |       |      
|                               |                   |       | Con Edison of New York |       | 8.20% |      
|                               |                   |       | O&R                    |       | 8.70% |      

The health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent for 2009 and remain at
that level thereafter.

A
one-percentage point change in the assumed health care cost trend rate would have the following effects:

|                                                        |  | 1-Percentage-Point
Increase |       | 1-Percentage-Point
Decrease |  
|------------------------------------------------------- |  | --------------------------- | ----- | --------------------------- | -
|
|
|Effect on accumulated postretirement benefit obligation |  | $                           | 129.0 |                             | $
|Effect on service cost and interest cost components     |  | $                           | 11.8  |                             | $

Note F - Environmental Matters

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of Con Edison's
utility subsidiaries and are present in facilities and equipment currently or previously owned by the utility subsidiaries.

The
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liabilities, regardless of fault, upon
generators of hazardous substances for resulting removal and remediation costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.

The
environmental remediation costs for the sites at which Con Edison's utility subsidiaries have been asserted to have liability for remediation under Superfund or similar state statutes, including
their manufactured gas sites, (Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs.

For
sites where there are other potentially responsible parties and the utility subsidiaries are not managing the site investigation and remediation, the liability accrued represents the company's
estimate
of what it will need to pay to settle its obligations with respect to the site. For other sites, the liability accrued represents the company's estimate of its investigation and remediation costs for
the site. In either case, the company makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it
has available to it at the time

112

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about the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used.

For
the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the
cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $90 million to $1.2 billion. To develop these estimates, the
assumption was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of
cleanup required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

At
December 31, 2002, Con Edison had accrued $142.8 million as its estimate of its undiscounted liability for Superfund Sites, including approximately $110 million relating to
manufactured gas sites. Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating
to the Superfund Sites and other sites, the amount of which is not presently determinable but may be material to Con Edison's financial position, results of operations or liquidity.

In
2002, Con Edison's utility subsidiaries incurred $23.1 million for environmental remediation costs, and received an insurance recovery of $7.2 million related to Superfund Sites.

Con
Edison's utility subsidiaries are permitted under current rate agreements to defer certain site investigation and remediation costs for subsequent recovery through rates. At December 31,
2002, $83.1 million of such costs had been deferred as a regulatory asset.

Suits
have been brought in New York State and federal courts against Con Edison's utility subsidiaries 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 utility subsidiaries. The suits that have been resolved, which are many,
have been resolved without any payment by the utility subsidiaries, or for amounts that were not, in the aggregate, material to the company. The amounts specified in all the remaining thousands of
suits total billions of dollars but Con Edison believes that these amounts are greatly exaggerated, as experienced through the disposition of previous claims. Based upon a combination of modeling,
historical data analysis and risk factor assessment, Con Edison of New York's undiscounted potential liability over the next 50 years is estimated to range between $37.7 million and
$162.1 million for these suits and additional such suits that may be brought (with no amount within the range considered more reasonable than any other). At December 31, 2002, Con Edison
had accrued a $37.7 million provision for these suits, and a like amount had been deferred as a regulatory asset in accordance with PSC authorization.

Workers'
compensation administrative proceedings have been commenced, wherein current and former employees claim benefits based upon alleged disability from exposure to asbestos. Based on the
information and relevant circumstances known to Con Edison at this time, these claims are not expected to have

113

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a material adverse effect on Con Edison's financial position, results of operations or liquidity. At December 31, 2002, the company had accrued a $130.5 million provision as its
estimate of the utility subsidiaries' liability for workers' compensation claims, including those related to asbestos exposure. Of this amount $55.9 million was deferred as a regulatory asset
in accordance with PSC authorization.

In
May 2000, the New York State Department of Environmental Conservation issued notices of violation to O&R and four other companies that have operated coal-fired electric
generating facilities in New York State. The notices allege violations of the Federal Clean Air Act and the New York State Environmental Conservation Law resulting from the alleged failure to install
pollution control equipment that would have reduced emissions of certain chemicals deemed potentially hazardous. The notice of violations received by O&R relates to the Lovett Generating Station that
it sold in June 1999. O&R is unable to predict whether or not alleged violations will have a material adverse effect on its financial position, results of operations or liquidity.

Note G - Nuclear Generation

In September 2001, Con Edison of New York completed the sale of its nuclear generating facilities. See Note I.

The
PSC is investigating a February 2000 to January 2001 outage of the nuclear generating unit, its causes and the prudence of Con Edison of New York's actions regarding the operation
and maintenance of the generating unit. The proceeding covers, among other things, Con Edison of New York's inspection practices, the circumstances surrounding prior outages, the basis for
postponement of the unit's steam generator replacement and whether, and to what extent, increased replacement power costs and repair and replacement costs should be borne by Con Edison's shareholders.

Con
Edison of New York has not billed to customers $90 million of replacement power costs incurred during the outage. In addition, in 2000, Con Edison of New York accrued a $40 million
liability for the possible disallowance of replacement power costs that it had previously recovered from customers.

Con
Edison of New York is unable to predict whether or not any proceedings, lawsuits, legislation or other actions relating to the nuclear generating unit will have a material adverse effect on its
financial position, results of operations or liquidity.

Note H - Non-utility Generators

Con Edison's utility subsidiaries have long-term contracts with non-utility generators (NUGs) for approximately 3,100 MW of electric generating
capacity. Assuming performance by the NUGs, the utility subsidiaries are obligated over the terms of the contracts (which extend for various periods, up to 2036) to make capacity and other fixed
payments.

For
the years 2003 through 2007, the capacity and other fixed payments under the contracts are estimated to be $543 million, $547 million, $529 million, $526 million and
$535 million. Such payments gradually increase to approximately $600 million in 2013, and thereafter decline significantly. For energy delivered under most of these contracts, the
utility subsidiaries are obligated to pay variable prices that are estimated to be lower overall than expected market levels.

114

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The NUG contracts include firm contracts for capacity (commitment ends 2005) and energy (commitment ends 2004) from the approximately 1,000 MW nuclear generating unit that Con Edison of New York sold
in 2001. For energy from the unit, Con Edison of New York is obligated to pay an average annual price of 3.9 cents per kWh. From time to time, certain parties have petitioned governmental authorities
to shut down the nuclear generating unit. In the event that government authorities did not permit the unit to operate, the unit's owner would not be obligated to provide Con Edison of New York with
power to replace the power the unit would have provided.

Under
the terms of its electric rate agreements, Con Edison of New York is recovering in rates the charges it incurs under mandated contracts with NUGs. The 2000 Electric Rate Agreement provides that,
following March 31, 2005, Con Edison of New York will be given a reasonable opportunity to recover, through a non-bypassable charge to customers, the amount, if any, by which the
actual costs of its purchases under the contracts exceed market value. The PSC specifically approved rate recovery of the nuclear energy purchase.

O&R
recovers its costs under the contracts pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction.

Note I - Generation Divestiture

Pursuant to restructuring agreements approved by the PSC (See "Rate and Restructuring Agreements" in Note A), Con Edison of New York and O&R have
divested all of their electric generating assets other than approximately 630 MW of Con Edison of New York's electric generating stations located in New York City. Con Edison of New York sold
approximately 6,300 MW of electric generating assets in 1999 and approximately 1,480 MW in 2001. O&R completed the sale of all of its generating assets prior to the completion of Con Edison's purchase
of O&R in 1999.

Pursuant
to the 2000 Electric Rate Agreement, the net after-tax gain (including interest accrued thereon) from Con Edison of New York's 1999 generation divestiture was applied in 2000 as
follows: $188.2 million was credited against electric distribution plant balances; $107.3 million was used to offset a like amount of regulatory assets (including deferred power contract
termination costs); $50 million (after tax) was deferred for recognition in income during the 12 months ended March 31, 2002; and $12 million was deferred to be used for
low-income customer programs. In addition, $30 million of employee retirement incentive expenses related to the generation divestiture was deferred for amortization over
15 years and $15 million of such expenses was charged to income in 2000.

The
2000 Electric Rate Agreement provides for Con Edison of New York to amortize to income a $74 million regulatory asset representing incremental electric capacity costs incurred prior to
May 2000 to purchase capacity from the buyers of the generating assets the company sold in 1999. Amortization to income will take place in years in which the company would otherwise share
excess earnings with customers, in amounts corresponding to the company's share of the excess earnings. By March 2005, any remaining unrecovered balance will be charged to expense. Of this
amount, $30 million was charged to expense in 2002 and $15 million was expensed in 2001.

115

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In
January 2001, Con Edison of New York completed the sale of its 480 MW interest in the jointly-owned Roseton generating station for $138 million. The net after-tax gain
from the sale, which has been deferred as a regulatory liability, was $37.1 million. In September 2001, Con Edison of New York completed the sale of its approximately 1,000 MW nuclear
generating plant and related assets for $504.5 million. The proceeds were net of a $73.8 million payment to increase the value of the nuclear decommissioning trust funds being
transferred to $430 million (the amount
provided for in the sales agreement). The net after-tax loss from the sale, which was deferred as a regulatory asset, was $174.8 million at December 31, 2001 and
$127.2 million at December 31, 2002. Con Edison of New York was authorized, effective September 2001, to continue to recover the cost of the deferred nuclear assets, which is
included in rates, and to amortize the regulatory asset, until the loss on divestiture has been recovered. The 2000 Electric Agreement provides that Con Edison of New York "will be given a reasonable
opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments."

Note J - Leases

Con Edison's subsidiaries lease electric generating and gas distribution facilities, other electric transmission and distribution facilities, office buildings
and equipment. In accordance with SFAS No. 13, these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair
rental value for future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

Capital
leases: For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with SFAS No. 71, the amortization of the leased asset is based on the rental
payments recovered through rates. The following assets and obligations under capital leases are included in the accompanying consolidated balance sheet at December 31, 2002 and 2001:

|                        |              | 2002  |      | 2001
|----------------------- | ------------ | ----- | ---- | ----
|
|
|UTILITY PLANT           |              |       |      |     
|                        | Transmission |       | $    | 12.1
|                        | Common       |       |      | 29.0
|                       
|                        |              | TOTAL |      | $   
|                       
|CURRENT LIABILITIES     |              | $     | 2.6  |     
|                       
|NON-CURRENT LIABILITIES |              |       | 38.5 |     
|                       
|TOTAL LIABILITIES       |              | $     | 41.1 |     
|                       

The
accumulated amortization of the capital leases was $28.8 million and $26.8 million as of December 31, 2002 and 2001, respectively.

116

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The
future minimum lease commitments for the above assets are as follows:

|                                            |       | (Millions of Dollars)
|------------------------------------------- | ----- | ---------------------
|
|2003                                        |       | $                    
|2004                                        |       |                      
|2005                                        |       |                      
|2006                                        |       |                      
|2007                                        |       |                      
|All years thereafter                        |       |                      
|                                           
|                                            | Total |                      
|Less: amount representing interest          |       |                      
|                                           
|Present value of net minimum lease payments |       | $                    
|                                           

In
November 2000, a Con Edison Development subsidiary entered into an operating lease arrangement with a limited partnership (Lessor) to finance construction of a 525 MW gas-fired
electric generating facility in Newington, New Hampshire (Newington Project). See Note S.

Operating
leases: The future minimum lease commitments under Con Edison's non-cancelable operating lease agreements, excluding the Newington Project, are as follows:

|                     |       | (Millions of Dollars)
|-------------------- | ----- | ---------------------
|
|2003                 |       | $                    
|2004                 |       |                      
|2005                 |       |                      
|2006                 |       |                      
|2007                 |       |                      
|All years thereafter |       |                      
|                    
|                     | Total |                      
|                    

As
part of a broad initiative, the Internal Revenue Service is reviewing certain categories of transactions. Among these are transactions in which a taxpayer leases property and then immediately
subleases it back to the lessor (termed "Lease In/Lease Out," or LILO transactions). In 1997 and 1999, Con Edison's unregulated subsidiaries invested $93 million in two LILO transactions,
involving gas distribution and electric generating facilities in the Netherlands, which represented approximately 36 percent of the
purchase price; the remaining 64 percent or $166 million was furnished by third-party financing in the form of long-term debt that provides no recourse against the
subsidiaries and is primarily secured by the assets, except for guarantees of up to $10 million of the debt. Approximately half of these guarantees expired prior to December 31, 2002 and
the other half will expire at the end of May 2004. At December 31, 2002, the company's investment ($187 million) in these leveraged leases net of deferred tax liabilities
($117 million) amounted to $70 million, which was included at cost on Con Edison's consolidated balance sheet. On audit, the Internal Revenue Service has proposed that the tax losses
recognized in connection with the 1997 LILO transaction be disallowed. Con Edison believes its position is correct and is currently appealing the auditors' proposal within the Internal Revenue
Service. The estimated total tax savings from the two LILO transactions during the tax years 1997 through 2002, in the aggregate, was $82 million.

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Note K - Goodwill and Intangible Assets

On January 1, 2002, Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill (i.e., the
excess of cost over fair value of the net assets of a business acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least
annually. Other intangible assets will continue to be amortized over their finite useful lives. The goodwill impairment test is a two-step process. The first step identifies potential
impairment by comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill. If the fair value is less than the carrying amount, the second step of the impairment
test is performed. The second step compares the implied fair value of goodwill, determined in the same manner as the amount of goodwill recognized in a business combination under SFAS No. 141,
"Business Combinations," to its carrying amount to determine the amount of the impairment loss, if any.

Con
Edison completed its initial goodwill impairment test and recorded a loss of $34.1 million ($20.2 million after-tax) as an offset to goodwill recorded in Con Edison's
"Unregulated Subsidiaries and Other" business segment relating to certain generation assets owned by Con Edison Development. The fair values of the reporting units were estimated using the expected
present value of future cash flows. The impairment loss reflects changes in forecast market prices of energy and capacity and in risk-adjusted discount rates. The impairment loss is
recognized net of taxes as a cumulative effect of a change in accounting principle at January 1, 2002.

The
change in the carrying amount of goodwill at December 31, 2002 is as follows:

|                                                         |  |   |      
|-------------------------------------------------------- |  | - | -----
|
|Balance at the beginning of the period (January 1, 2002) |  | $ | 439.9
|Impairment loss recognized                               |  |   | (34.1
|                                                         | 
|Balance at the end of the period (December 31, 2002)     |  | $ | 405.8
|                                                         | 

Had
Con Edison been accounting for goodwill under SFAS No. 142 for all periods presented, its income and earnings per share would have been as follows:

|                                             |  | For the years ended December 31,
|-------------------------------------------- |  | --------------------------------
|
|
|
|Net income for common stock                  |  |                                 
|As reported                                  |  | $                               
|Add back: goodwill amortization (net of tax) |  |                                 
|                                            
|Adjusted                                     |  | $                               
|                                            
|Basic earnings per share                     |  |                                 
|As reported                                  |  | $                               
|Add back: goodwill amortization (net of tax) |  |                                 
|                                            
|Adjusted                                     |  | $                               
|                                            
|Diluted earnings per share                   |  |                                 
|As reported                                  |  | $                               
|Add back: goodwill amortization (net of tax) |  |                                 
|                                            
|Adjusted                                     |  | $                               
|                                            

118

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In
July 1999, Con Edison acquired O&R and accounted for the acquisition under the purchase method of accounting in accordance with generally accepted accounting principles. Con Edison recorded
in its consolidated financial statements goodwill in the amount of $437 million and began the amortization of goodwill to income over a 40-year period. Upon adoption of SFAS
No. 142 in January 2002, Con Edison discontinued the amortization of goodwill. The unamortized goodwill of $405.8 million was tested for impairment and determined not to be impaired.

Con
Edison's finite life intangible asset relates to a power purchase agreement of an unregulated subsidiary and is being amortized on a straight-line basis over an approximately
25-year contract period. At December 31, 2002, the gross carrying amount and accumulated amortization were $91.7 million and $9.7 million, respectively. Amortization
expense was $3.8 million at December 31, 2002 and is estimated to remain at $3.8 million per year from 2003 to 2007.

Note L - Income Tax

The components of income tax are as follows:

|                                  |                                       | For the Years Ended December 31, |                              
|--------------------------------- | ------------------------------------- | -------------------------------- | -----------------------------
|
|
|
|Charge/(benefit) to operations:   |                                       |                                  |                              
|State                             |                                       |                                  |                              
|                                  | Current                               |                                  | $                            
|                                  | Deferred - net                        |                                  |                              
|Federal                           |                                       |                                  |                              
|                                  | Current                               |                                  |                              
|                                  | Deferred - net                        |                                  |                              
|                                  | Amortization of investment tax credit |                                  |                              
|                                  |                                      
|                                  |                                       |                                  | TOTAL CHARGE TO OPERATIONS   
|                                  |                                      
|Charge/(benefit) to other income: |                                       |                                  |                              
|State                             |                                       |                                  |                              
|                                  | Current                               |                                  |                              
|                                  | Deferred - net                        |                                  |                              
|Federal                           |                                       |                                  |                              
|                                  | Current                               |                                  |                              
|                                  | Deferred - net                        |                                  |                              
|                                  | Amortization of investment tax credit |                                  |                              
|                                  |                                      
|                                  |                                       |                                  | TOTAL BENEFIT TO OTHER INCOME
|                                  |                                      
|TOTAL                             |                                       | $                                | 376,392                      
|                                  |                                      

119

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The
tax effect of temporary differences, which gave rise to deferred tax assets and liabilities, is as follows:

|              |                                                  | For the Years Ended December 31, |                  
|------------- | ------------------------------------------------ | -------------------------------- | -----------------
|
|
|
|Liabilities:  |                                                  |                                  |                  
|              | Depreciation                                     |                                  | $                
|              | Regulatory Liability - Future Federal Income Tax |                                  |                  
|              | Other                                            |                                  |                  
|              |                                                 
|              |                                                  |                                  | TOTAL LIABILITIES
|              |                                                 
|Assets:       |                                                  |                                  |                  
|              | Other                                            |                                  |                  
|              |                                                 
|              |                                                  |                                  | TOTAL ASSETS     
|              |                                                 
|NET LIABILITY |                                                  | $                                | 2,575.6          
|              |                                                 

Reconciliation
of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

|                                          |                                  | For the Years Ended December 31, |   
|----------------------------------------- | -------------------------------- | -------------------------------- | --
|
|
|
|STATUTORY TAX RATE                        |                                  |                                  |   
|                                          | Federal                          |                                  | 35
|Changes in computed taxes resulting from: |                                  |                                  |   
|                                          | State income tax                 |                                  | 6 
|                                          | Depreciation related differences |                                  | 5 
|                                          | Cost of removal                  |                                  | (5
|                                          | Other                            |                                  | (6
|                                          |                                 
|Effective Tax Rate                        |                                  | 35                               | % 
|                                          |                                 

Note M - Stock-based Compensation

Under Con Edison's Stock Option Plan (the Plan), options may be granted to officers and key employees of Con Edison and its subsidiaries for up to a total of
10 million shares of Con Edison's common stock. Generally options become exercisable three years after the grant date and remain exercisable until 10 years from the grant date.

As
permitted by SFAS No. 123, Con Edison elected to follow APB No. 25 and related interpretations in accounting for its employee stock options. Under the intrinsic value method of APB
No. 25, no compensation expense is recognized because the exercise price of Con Edison's employee stock options equals the market price of the underlying stock on the date of grant.

Under
the plan, exercise of Con Edison's employee stock options requires payment in full of the exercise price, unless the committee of Con Edison's Board of Directors that administers the Plan
determines that options may be settled by paying to the option holder the difference between the fair market value of the common stock subject to the option and the exercise price (cash settlement).
In 2002, to ensure that the exercise of currently exercisable options would comply with certain technical requirements of the Sarbanes-Oxley Act of 2002 applicable to certain officers of Con Edison
and its subsidiaries, the

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committee determined that 1996 and 1997 stock options covering 295,500 shares of common stock held by those officers may be settled by the cash settlement method. A $3.8 million charge to
expense was recognized for Con Edison in 2002 for these options. Additional changes to expense
will be recognized with respect to these options to the extent the fair market value of the common shares changes in future periods.

Disclosure
of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and
Disclosures." See "Stock-Based Compensation" in Note A for an illustration of the effect on net income and earnings per share if Con Edison had applied the fair value recognition provisions of
SFAS No. 123 to its stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date
of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

|                          |  | 2002   |  | 2001   |  | 2000  
|------------------------- |  | ------ |  | ------ |  | ------
|
|Risk-free interest rate   |  | 5.08%  |  | 5.22%  |  | 6.25% 
|Expected lives - in years |  | 6      |  | 8      |  | 8     
|Expected stock volatility |  | 21.43% |  | 21.32% |  | 20.51%
|Dividend yield            |  | 5.22%  |  | 5.83%  |  | 6.60% 

A
summary of changes in the status of stock options awarded to officers and employees of Con Edison as of December 31, 2002, 2001 and 2000 is as follows:

|                        |           | Shares    |           | Weighted
Average
Price
|----------------------- | --------- | --------- | --------- | ----------------------
|
|Outstanding at 12/31/99 |           | 3,556,210 |           | $                     
|                        | Granted   |           | 1,349,500 |                       
|                        | Exercised |           | (68,697   | )                     
|                        | Forfeited |           | (46,100   | )                     
|                       
|Outstanding at 12/31/00 |           | 4,790,913 |           |                       
|                        | Granted   |           | 1,487,050 |                       
|                        | Exercised |           | (363,013  | )                     
|                        | Forfeited |           | (160,300  | )                     
|                       
|Outstanding at 12/31/01 |           | 5,754,650 |           |                       
|                        | Granted   |           | 1,584,350 |                       
|                        | Exercised |           | (413,899  | )                     
|                        | Forfeited |           | (127,450  | )                     
|                       
|Outstanding at 12/31/02 |           | 6,797,651 |           | $                     

121

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The
following summarizes the Plan's stock options outstanding at December 31, 2002 for each plan year:

|Plan Year |  | Weighted
Average
Exercise Price |        | Shares
Outstanding
At 12/31/02 |           | Remaining
Contractual
Life
|--------- |  | ------------------------------- | ------ | ------------------------------ | --------- | --------------------------
|
|2002      |  | $                               | 42.510 |                                | 1,581,850 |                           
|2001      |  |                                 | 37.758 |                                | 1,474,050 |                           
|2000      |  |                                 | 32.499 |                                | 1,283,750 |                           
|1999      |  |                                 | 47.876 |                                | 1,149,900 |                           
|1998      |  |                                 | 42.609 |                                | 747,450   |                           
|1997      |  |                                 | 31.500 |                                | 395,526   |                           
|1996      |  |                                 | 27.875 |                                | 165,125   |                           

As
of December 31, 2002, 2001 and 2000 there were vested options outstanding to purchase 1,308,101, 939,850 and 1,304,863 shares of common stock, respectively, at an exercise price below the
closing market price on that day. The weighted average exercise prices were $37.36, $30.11 and $31.50, respectively.

As
of December 31, 2002, 2001 and 2000 the total number of vested options outstanding were 2,458,001, 1,765,200 and 1,304,863 with weighted average exercise prices of $42.28, $35.95 and $31.50,
respectively.

Pursuant
to employment agreements, effective September 2000, certain senior officers of Con Edison and its subsidiaries were granted an aggregate of 350,000 restricted stock units, subject to
the officers meeting the terms and conditions of the agreements. In June 2002, an additional 150,000 restricted stock units were granted to certain senior officers of Con Edison and its
subsidiaries under similar terms. The units, each of which represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or
immediately upon the occurrence of certain events. Pursuant to APB No. 25, Con Edison is recognizing compensation expense and accruing a liability for the units over the vesting period. The
expense recognized for restricted stock during 2002, 2001 and 2000 was $4.4 million, $3.1 million and $0.9 million, respectively.

In
June 2002, Con Edison terminated its Directors' Retirement Plan applicable to non-officer directors (the termination is not applicable to directors who had previously retired
from the board) and adopted a deferred stock compensation plan for these directors. Under the plan, directors were granted stock units for accrued service. Pursuant to APB No. 25, Con Edison
recognizes compensation expense and accrues a liability for the units. An expense of $2.4 million was recorded in 2002.

Note N - Financial Information By Business Segment

Con Edison's business segments were determined based on similarities in economic characteristics, the regulatory environment, and management's reporting
requirements. Con Edison's principal business segments are:



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All
revenues of Con Edison's business segments, excluding revenues earned by Con Edison Development on certain energy infrastructure projects, which are deemed to be immaterial, are from customers
located in the United States of America. Also, all assets of its business segments, excluding certain investments in energy infrastructure projects by Con Edison Development, are located in the United
States of America. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See Note A.

Common
services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

The
financial data for business segments are as follows:

|                                 |  | Regulated Electric
|-------------------------------- |  | ------------------
|
|
|
|Operating revenues               |  | $                 
|Intersegment revenues            |  |                   
|Depreciation and amortization    |  |                   
|Income tax expense               |  |                   
|Operating income                 |  |                   
|Interest charge                  |  |                   
|Changes in accounting principles |  |                   
|Total assets                     |  |                   
|Construction expenditures        |  |                   

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|                                 |  | Regulated Gas
|-------------------------------- |  | -------------
|
|
|
|Operating revenues               |  | $            
|Intersegment revenues            |  |              
|Depreciation and amortization    |  |              
|Income tax expense               |  |              
|Operating income                 |  |              
|Interest charge                  |  |              
|Changes in accounting principles |  |              
|Total assets                     |  |              
|Construction expenditures        |  |              

|                                 |  | Regulated Steam
|-------------------------------- |  | ---------------
|
|
|
|Operating revenues               |  | $              
|Intersegment revenues            |  |                
|Depreciation and amortization    |  |                
|Income tax expense               |  |                
|Operating income                 |  |                
|Interest charge                  |  |                
|Changes in accounting principles |  |                
|Total assets                     |  |                
|Construction expenditures        |  |                

|                                 |  | Unregulated Subsidiaries
|-------------------------------- |  | ------------------------
|
|
|
|Operating revenues               |  | $                       
|Intersegment revenues            |  |                         
|Depreciation and amortization    |  |                         
|Income tax expense               |  |                         
|Operating income                 |  |                         
|Interest charge                  |  |                         
|Changes in accounting principles |  |                         
|Total assets                     |  |                         
|Construction expenditures        |  |                         

124

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|                                 |  | Other |        
|-------------------------------- |  | ----- | -------
|
|
|
|Operating revenues               |  | $     | (24,392
|Intersegment revenues            |  |       | 24,392 
|Depreciation and amortization    |  |       | 40     
|Income tax expense               |  |       | -      
|Operating income                 |  |       | 990    
|Interest charge                  |  |       | 6,024  
|Changes in accounting principles |  |       | -      
|Total assets                     |  |       | 309,861
|Construction expenditures        |  |       | -      

|                                 |  | Total
|-------------------------------- |  | -----
|
|
|
|Operating revenues               |  | $    
|Intersegment revenues            |  |      
|Depreciation and amortization    |  |      
|Income tax expense               |  |      
|Operating income                 |  |      
|Interest charge                  |  |      
|Changes in accounting principles |  |      
|Total assets                     |  |      
|Construction expenditures        |  |      

Note O - Derivative Instruments and Hedging Activities

Effective
January 2001, Con Edison adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133). Upon adoption, Con Edison's
subsidiaries recognized after-tax transition gains of $1.7 million in other comprehensive income (OCI) and $0.4 million in current income.

Energy Price Hedging

Con Edison's subsidiaries use derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of
electricity and gas (hedges). As of December 31, 2002, the fair value of the derivatives for such use was $38.8 million, comprised of $16.9 million at the regulated utility
subsidiaries and $21.9 million at the unregulated subsidiaries.

Con
Edison's regulated utility subsidiaries, pursuant to SFAS No. 71, defer recognition in income of gains and losses on hedges until the underlying transactions are completed. In accordance
with rate provisions that permit the recovery of the cost of purchased power and gas for resale, Con Edison's regulated utility subsidiaries credit or charge to their customer's gains or losses on
hedges and related transaction costs. See "Recoverable Energy Costs" in Note A.

For
Con Edison of New York, the 2000 Electric Rate Agreement provides that 10 percent of gains or losses on hedges flow to net income as rewards or penalties. Con Edison of New York has elected
cash flow hedge accounting under SFAS No. 133 for a qualifying portion of its electric hedges. Con Edison

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Solutions, which provides competitive gas and electric supply and energy-related products and services, has also elected cash flow hedge accounting.

Pursuant
to cash flow hedge accounting, except as described below, the mark-to-market unrealized gain or loss on each hedge is recorded in OCI and reclassified to income at the
time the underlying transaction is completed.

Unrealized
gains and losses on cash flow hedges for energy transactions, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

|                                                                                                                                                    |  | 2002 |      | 2001 |   
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- | --
|
|
|Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $0 and $1.2 taxes |  | $    | -    |      | $ 
|Unrealized gains/(losses) on derivatives qualified as hedges, net of $19.1 and ($18.8) taxes                                                        |  |      | 27.5 |      |   
|Less: Reclassification adjustment for gains/(losses) included in net income, net of $1.1 and ($8.6) taxes                                           |  |      | 1.6  |      |   
|                                                                                                                                                    |  |      |      |      |   
|Unrealized gains/(losses) on derivatives qualified as hedges for the period                                                                         |  | $    | 25.9 |      | ($
|                                                                                                                                                    |  |      |     

As
of December 31, 2002, the cash flow hedges had a remaining term of less than two years and $13.2 million of existing after-tax net gains relating to these hedges are
expected to be reclassified from accumulated OCI to income within the next 12 months.

Under
cash flow hedge accounting, any gain or loss relating to any portion of the hedge determined to be "ineffective" is recognized in income in the period in which such determination is made. As a
result, changes in value of a hedge may be recognized in income in an earlier period than the period in which the underlying transaction is recognized in income. Con Edison recognized in income
mark-to-market unrealized pre-tax net gains of $6.2 million in 2002 and $6.2 million of pre-tax net losses in 2001 relating to hedge
ineffectiveness at Con Edison Solutions.

Interest Rate Hedging

Con Edison's subsidiaries use interest rate swaps to manage interest rate exposures associated with debt. In October 2002, Con Edison of New York entered
into a swap agreement in connection with its $224.6 million tax-exempt Facilities Revenue Bonds, Series 2001A. Pursuant to the swap agreement provisions, Con Edison of New
York pays interest at a variable rate equal to the three-month
London Inter-Bank Offered Rate (LIBOR) and is paid interest at a fixed rate of 5.375 percent. The agreement has a term of 10 years and is callable at par after three years.
The swap is designated as a fair value hedge and qualifies for "short-cut" hedge accounting under SFAS No. 133. Under this method, changes in the fair value of the swap instrument
are recorded directly against the carrying value of the hedged bonds and have no impact on earnings. As of December 31, 2002, the fair value of the interest rate swap was $7.7 million
and recorded as an asset and the fair value of the hedged bonds was $232.3 million.

O&R
and Con Edison Development use interest rate swaps to convert a portion of their variable-rate debt into fixed-rate debt. The swap agreements, displayed in the table below,
are designated as cash flow

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hedges under SFAS No. 133. Any gain or loss on the hedges is recorded in OCI and reclassified to interest expense and included in earnings during the periods in which the hedged interest
payments occur. At December 31, 2002 and 2001, the fair value of the O&R interest rate swap was a loss of $19.1 million and $14.2 million, respectively, and the fair value of the
Con Edison Development interest rate swap was a loss of $9.7 million and $5.7 million, respectively.

The
contractual components of the interest rate swaps accounted for as cash flow hedges are as follows:

|Debt                                                    |  | Maturity Date of
Swaps |  | Notional Amount
($000) |  | Fixed Rate
Paid |   | Variable Rate Received
|------------------------------------------------------- |  | ---------------------- |  | ---------------------- |  | --------------- | - | ----------------------
|
|Pollution Control Refunding Revenue Bond, 1994 Series A |  | 2014                   |  | 55,000                 |  | 6.09            | % | Current bond rate     
|Variable rate loans - Lakewood                          |  | 2008                   |  | 77,500                 |  | 6.68            | % | LIBOR                 
|

Unrealized
gains and losses on cash flow hedges for interest rate swaps, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

|                                                                                                                                                      |  | 2002 |      | 2001 |   
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- | --
|
|Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of $0 and ($6.8) taxes |  | $    | -    |      | ($
|Unrealized gains/(losses) on derivatives qualified as hedges, net of ($6.4) and ($3.1) taxes                                                          |  |      | (9.1 | )    |   
|Less: Reclassification adjustment for gains/(losses) included in net income, net of ($2.8) and ($1.7) taxes                                           |  |      | (3.9 | )    |   
|                                                                                                                                                      |  |      |      |      |   
|Unrealized gains/(losses) on derivatives qualified as hedges for the period                                                                           |  | ($   | 5.2  | )    | ($
|                                                                                                                                                      |  |      |     

As
of December 31, 2002, $3.5 million of existing after-tax losses relating to the interest rate swap agreements are expected to be reclassified from accumulated OCI to
income within the next 12 months.

Energy Trading Activities

Unregulated subsidiaries of Con Edison engage in energy trading activities that are accounted for at fair value. Con Edison Energy utilizes commodity contracts
such as two-party forward contracts for the purchase or sale of electricity and capacity, over-the-counter swap contracts, exchange-traded natural gas and crude oil
futures and options, transmission congestion contracts, natural gas transportation contracts, and other physical and financial contracts.

Prior
to October 1, 2002, these contracts were accounted for under FASB's Emerging Issues Task Force (EITF) No. 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." As of October 1, 2002, energy and energy-related trading contracts that meet the definition of derivatives are accounted for under SFAS No. 133. Such
contracts are marked to market, with gains and losses recognized in earnings. For the years ended December 31, 2002 and 2001, Con Edison recognized
in income net unrealized pre-tax losses of $1.4 million, excluding the effect of a cumulative adjustment due to a change in accounting principle, and net gains of
$9.6 million, respectively. Contracts that did not fall within the scope of SFAS No. 133 were included in the cumulative effect of a change in accounting principle. See Note T for
further discussion.

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The
fair value of energy trading net assets as of December 31, 2002 and 2001 was $4.9 million and $11.2 million, respectively.

Note P - Northeast Utilities

In March 2001, Con Edison commenced an action in the United States District Court for the Southern District of New York, entitled Consolidated
Edison, Inc. v. Northeast Utilities, seeking a declaratory judgment that Northeast Utilities has failed to meet certain conditions precedent to Con Edison's obligation to complete its
acquisition of Northeast Utilities pursuant to their agreement and plan of merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000 (the merger agreement). In
May 2001, Con Edison amended its complaint. As amended, Con Edison's complaint seeks, among other things, recovery of damages sustained by it as a result of the material breach of the merger
agreement by Northeast Utilities, the court's declaration that under the merger agreement Con Edison has no further or continuing obligations to Northeast Utilities and that Northeast Utilities has no
further or continuing rights against Con Edison.

In
June 2001, Northeast Utilities withdrew the separate action it commenced in March 2001 in the same court and filed as a counter-claim to Con Edison's amended complaint its claim that
Con Edison materially breached the merger agreement and that, as a result, Northeast Utilities and its shareholders have suffered substantial damages, including the difference between the
consideration to be paid to Northeast Utilities shareholders pursuant to the merger agreement and the market value of Northeast Utilities common stock, expenditures in connection with regulatory
approvals and lost business opportunities. Pursuant to the merger agreement, Con Edison agreed to acquire Northeast Utilities for $26.00 per share (an estimated aggregate of not more than
$3.9 billion) plus $0.0034 per share for each day after August 5, 2000 through the day prior to the completion of the transaction, payable 50 percent in cash and 50 percent
in stock.

Con
Edison believes that Northeast Utilities has materially breached the merger agreement, and that Con Edison has not materially breached the merger agreement. Con Edison believes it is not obligated
to acquire Northeast Utilities because Northeast Utilities does not meet the merger agreement's conditions that Northeast Utilities perform all of its obligations under the merger agreement. Those
obligations include the obligation that it carry on its businesses in the ordinary course consistent with past practice; that the representations and warranties made by it in the merger agreement were
true and correct when made and remain true and correct; and that there be no material adverse change with respect to Northeast Utilities.

Both
parties have filed motions for summary judgment. Con Edison is unable to predict whether or not any Northeast Utilities related lawsuits or other actions will have a material adverse effect on
Con Edison's financial position, results of operations or liquidity.

Note Q - World Trade Center Attack

Con Edison of New York estimates that it will incur $430 million of costs for emergency response, temporary restoration and permanent replacement of
electric, gas and steam transmission and distribution facilities damaged as a result of the September 11, 2001 attack on the World Trade Center. Most of

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the costs are expected to be capital in nature. The company estimates that $96 million of the costs will be covered by insurance. In December 2001, Con Edison of New York filed a
petition with the PSC for authorization to defer these costs, which the company expects the PSC to permit it to recover from customers, net of any federal reimbursement, insurance payment and tax
savings. In August 2002, President Bush signed into law an appropriations bill that authorizes funds, for which the company is eligible to apply, to recover costs it incurred in connection with
the attack. The procedural guidelines for disbursement of the federal funds are in the process of being developed. At December 31, 2002, the company had capitalized $134 million of such
costs as utility plant and deferred $63 million of such costs as a regulatory asset. In addition, at December 31, 2001, the company accrued a regulatory liability to defer recognition in
income of an $81.5 million tax refund claim resulting from a casualty loss deduction taken by the company relating to the attack.

Note R - Guarantees

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of certain types of guarantees, a guarantor recognize and account for the fair value of the guarantee as a liability. FIN 45
contains exclusions to this requirement, including the exclusion of a parent's guarantee of its subsidiaries' debt to a third party. FIN 45 is effective on a prospective basis to guarantees issued or
modified after December 31, 2002.

Con
Edison and its subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of their subsidiaries. In addition, a Con Edison Development
subsidiary has issued guarantees on behalf of entities in which it has an equity interest. Con Edison's guarantees had maximum limits totaling $1.1 billion at December 31, 2002 and 2001,
of which $588.2 million and $456.2 million, respectively, were outstanding. Management believes the likelihood that Con Edison would be required to perform with respect to these
guarantees is remote. The adoption of FIN 45 is not expected to have a material impact on Con Edison's consolidated financial position, results of operations or liquidity.

The
following table summarizes, by type and term, the total maximum amount of guarantees:

|                           |  | Maximum Amount
|-------------------------- |  | --------------
|
|
|
|Commodity Transactions     |  | $             
|Newington Lease Agreement  |  |               
|Affordable Housing Program |  |               
|Lease Obligations          |  |               
|Other Guarantees           |  |               
|                          
|TOTAL                      |  | $             
|                          

Commodity TransactionsCon Edison guarantees payments on behalf of its subsidiaries in order to facilitate physical and financial
transactions in gas, pipeline capacity, transportation, oil, electricity and related commodity services. In addition, a Con Edison Development subsidiary guaranteed payment for fuel oil purchases by a
foreign generating project in which it has an equity interest. To the extent that

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liabilities exist under the contracts subject to these guarantees, such liabilities are included in the consolidated balance sheet.

Newington Lease AgreementCon Edison guarantees the payment and performance obligations of a Con Edison Development subsidiary. See
Note S.

Affordable Housing ProgramCon Edison Development guarantees the repurchase and remarketing obligations of one of its subsidiaries with
respect to the debt ($56.7 million, including interest) relating to moderate-income rental apartment properties eligible for tax credits under Section 42 of the Internal Revenue Code. In
accordance with EITF Issue No. 94-01, "Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects," neither the rental apartment properties nor the
related indebtedness is included on Con Edison's consolidated balance sheet.

Lease ObligationsCon Edison guarantees certain rent payment obligations of its subsidiaries under various property lease agreements for
office buildings. Of the maximum guarantee amount, $15.0 million relates to a guarantee given to Con Edison of New York.

OtherCon Edison, Con Edison Development and its subsidiaries also guarantee the following:



Note S - Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses the consolidation
of variable interest entities (VIE's) by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its
activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise
with the majority of the risks or rewards associated with the VIE. The consolidation requirements apply immediately to VIE's created after January 31, 2003. For VIE's created earlier, the
consolidation requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after
January 31, 2003,
regardless of when the VIE was established. Con Edison has identified the Newington Project, which is described in the following paragraphs, as a VIE that will require consolidation upon adoption of
FIN 46. In addition, Con Edison is evaluating certain other investments to determine if they require consolidation or disclosure upon adoption of FIN 46. These include two LILO transactions that are
accounted for as leveraged leases under SFAS No. 13 (see Note J), an investment in the Affordable Housing Program (see Note R), and three investments in power and cogeneration
plants with assets of $82.9 million and debt of $42.5 million that are accounted for under the equity method. Con Edison is in the process of

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completing its evaluation but does not expect the results to have a material impact on its consolidated financial position, results of operation or liquidity.

In
November 2000, a Con Edison Development subsidiary entered into an operating lease arrangement with Hawkeye L.P. (Lessor) to finance construction of a 525 MW gas-fired electric
generating facility in Newington, New Hampshire. In accordance with SFAS No. 13, and related EITF issues (including EITF Issue No. 90-15, "Impact of
Non-substantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions" and EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset
Construction"), the Newington Project and the related obligations are not included on Con Edison's consolidated balance sheet.

At
the expiration of the initial lease term in June 2010, the subsidiary has the option to extend the lease or purchase the project for the then outstanding amounts expended by the Lessor for
the project. In the event the subsidiary chooses not to extend the lease or acquire the project, Con Edison has guaranteed a residual value of the Newington Project for an amount not to exceed
$239.7 million. The subsidiary also has contingent payment obligations to the Lessor if an event of default should occur during either the construction period or the lease period. If the
subsidiary were to default, its obligation would equal up to 100% of the Lessor's investment in the Newington Project, which could exceed the aforementioned residual value guarantee. At
December 31, 2002, projected project costs were $353 million. The subsidiary's payment and performance obligations relating to the Newington Project are fully and unconditionally
guaranteed by Con Edison. See Note R.

Future
minimum rental payments under the Newington Project operating lease are as follows:

|                     |  | (Millions of Dollars)
|-------------------- |  | ---------------------
|
|2003                 |  | $                    
|2004                 |  |                      
|2005                 |  |                      
|2006                 |  |                      
|2007                 |  |                      
|All years thereafter |  |                      
|                    
|Total                |  | $                    
|                    

Upon
adoption of FIN 46, Con Edison will be required to include the Newington Project assets and the related debt on its consolidated balance sheet. Con Edison estimates that this will result in a
decrease in annual after tax net income of $3.8 million and increases of $353 million in non-utility plant and long-term debt and other liabilities. Con Edison
expects that its maximum exposure to loss would equal the total assets of the project.

Substantial
completion on the Newington project occurred in the fourth quarter of 2002. The subsidiary and the construction contractor for this plant have initiated legal proceedings with respect to
whether the subsidiary is entitled to damages for a delay in completion of this plant and whether the contractor is entitled to additional project costs. Con Edison does not expect that this dispute
will have a material adverse effect on its financial position, results of operations or liquidity.

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Note T - New Financial Accounting Standards

During 2002, the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial
Institutions," and SFAS No. 148, "Accounting for Stock-Based Compensation." The FASB also issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002, and Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities," in
January 2003. In addition, during 2002, the EITF reached a consensus on several issues within EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF Issue No. 98-10, "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities."

SFAS
No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements," effective January 1, 2003. This statement also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have an economic
impact similar to sale-leaseback transactions and amends certain other authoritative pronouncements, effective May 15, 2002. SFAS No. 146, which was effective
January 1, 2003, requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 147, which was effective October 1, 2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS No. 148, which amends SFAS
No. 123, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the financial statements disclosure requirements of SFAS No. 123 regarding the method of accounting for stock-based employee compensation and the effects of the method used on reported
results. Finally, this statement amends APB No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The amendment of SFAS
No. 123 is effective for fiscal years ending after December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after December 15, 2002.
For information about the company's stock-based compensation, see Note M.

The
adoption of these statements had no impact on Con Edison's consolidated financial position, results of operations or liquidity.

See
Note R for a discussion on FIN 45 and Note S for a discussion on FIN 46.

In
June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities," which provides that revenue resulting from energy trading contracts, whether realized or unrealized and whether financially or physically
settled, should be shown net in the income statement. This ruling became effective for periods ending after July 2002, with reclassification of prior period amounts required. Beginning in the
third quarter of 2002, Con Edison is

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presenting all mark-to-market, realized and unrealized, gains and losses on a net basis. Upon the application of the consensus, comparative financial statements for prior
periods were reclassified to conform to the consensus. As a result, Con Edison's non-utility revenues and energy costs were reduced by $245 million in 2001 and $114 million
in 2000.

On
October 25, 2002, the EITF reached a consensus to rescind EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." As a
result, new energy trading and energy-related contracts entered into after October 25, 2002, that do not qualify as derivatives under SFAS No. 133 are not marked to market. All
derivative contracts will be accounted for in accordance with SFAS No. 133. Therefore, previously recognized mark-to-market gains and losses on
non-derivative contracts must be reversed upon adoption of this consensus. The effective date for the full rescission of EITF 98-10 was January 1, 2003, with early
application permitted. Con Edison adopted this consensus effective on October 1, 2002 and reported the effect of the transition as a cumulative effect of a change in accounting principle in the
after-tax loss amount of $1.9 million.

In
October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the
income statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus was effective January 1, 2003, with early adoption permitted.
Con Edison chose to adopt this consensus effective October 1, 2002. The adoption of the consensus had no impact on Con Edison's consolidated financial position, results of operations or
liquidity. Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission
of EITF Issue No. 98-10.

The
EITF did not reach consensus on whether or not recognition of unrealized gains and losses at inception of an energy-trading contract is appropriate. However, the FASB staff observed that
unrealized gains or losses at inception should not be recognized unless the fair value of the derivative instrument is evidenced by a quoted market price, similar current market transactions or
valuations based on observable market information. For the year ended December 31, 2002, Con Edison's unregulated subsidiaries recognized in income $10.9 million related to unrealized
gains at inception of contracts. There were no such amounts in 2001.

Con
Edison has also adopted the following accounting standards that were issued in 2001.

On
January 1, 2002, Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets." See Note K.

On
January 1, 2003 Con Edison adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires entities to record the fair value of a liability associated with an
asset retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be
increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation
for the amount recorded or incur a gain or loss.

133

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The adoption of SFAS No. 143 did not have a material impact on Con Edison's consolidated financial position, results of operations or liquidity.

SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which Con Edison adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting other
specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS
No. 144 had no impact on Con Edison's consolidated financial position, results of operations or liquidity.

134

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Trustees of Consolidated Edison Company of New York, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of
Consolidated Edison Company of New York, Inc. and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP
New York, NY
February 20, 2003

135

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Consolidated Edison Company of New York, Inc.CONSOLIDATED BALANCE SHEET

|                                                                |                                                                   | As at                                                     
|--------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------
|
|
|
|ASSETS                                                          |                                                                   |                                                           
|UTILITY PLANT, AT ORIGINAL COST(Note A)                         |                                                                   |                                                           
|                                                                | Electric                                                          |                                                           
|                                                                | Gas                                                               |                                                           
|                                                                | Steam                                                             |                                                           
|                                                                | General                                                           |                                                           
|                                                               
|                                                                | Total                                                             |                                                           
|                                                                | Less: Accumulated depreciation                                    |                                                           
|                                                               
|                                                                | Net                                                               |                                                           
|                                                                | Construction work in progress                                     |                                                           
|                                                               
|NET UTILITY PLANT                                               |                                                                   |                                                           
|                                                               
|NON-UTILITY PLANT(Note A)                                       |                                                                   |                                                           
|                                                                | Non-utility property                                              |                                                           
|                                                               
|NET PLANT                                                       |                                                                   |                                                           
|                                                               
|CURRENT ASSETS                                                  |                                                                   |                                                           
|                                                                | Cash and temporary cash investments (Note A)                      |                                                           
|                                                                | Funds held for the redemption of long-term debt                   |                                                           
|                                                                | Accounts receivable - customers, less allowance for uncollectible |                                                           
|                                                                | accounts of $29,200 and $29,400 in 2002 and 2001, respectively    |                                                           
|                                                                | Other receivables                                                 |                                                           
|                                                                | Accounts receivable - from affiliated companies                   |                                                           
|                                                                | Fuel, at average cost                                             |                                                           
|                                                                | Gas in storage, at average cost                                   |                                                           
|                                                                | Materials and supplies, at average cost                           |                                                           
|                                                                | Prepayments                                                       |                                                           
|                                                                | Other current assets                                              |                                                           
|                                                               
|TOTAL CURRENT ASSETS                                            |                                                                   |                                                           
|                                                               
|INVESTMENTS(Note A)                                             |                                                                   |                                                           
|DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS       |                                                                   |                                                           
|                                                                | Accrued pension credits (Note D)                                  |                                                           
|                                                                | Regulatory assets                                                 |                                                           
|                                                                |                                                                   | Future federal income tax (Notes A and J)                 
|                                                                |                                                                   | Sale of nuclear generating unit (Note I)                  
|                                                                |                                                                   | Recoverable energy costs (Note A)                         
|                                                                |                                                                   | Real estate sale costs - First Avenue properties          
|                                                                |                                                                   | Workers' compensation (Note F)                            
|                                                                |                                                                   | Divestiture - capacity replacement reconciliation (Note I)
|                                                                |                                                                   | Deferred unbilled gas revenue                             
|                                                                |                                                                   | Deferred environmental remediation costs (Note F)         
|                                                                |                                                                   | Deferred retirement program costs                         
|                                                                |                                                                   | Deferred revenue taxes                                    
|                                                                |                                                                   | World Trade Center restoration costs (Note P)             
|                                                                |                                                                   | Deferred asbestos-related costs (Note F)                  
|                                                                |                                                                   | Other                                                     
|                                                               
|                                                                | TOTAL REGULATORY ASSETS                                           |                                                           
|                                                               
|                                                                | Other deferred charges and noncurrent assets                      |                                                           
|                                                               
|TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS |                                                                   |                                                           
|                                                               
|TOTAL ASSETS                                                    |                                                                   | $                                                         
|                                                               

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

136

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Consolidated Edison Company of New York, Inc.CONSOLIDATED BALANCE SHEET

|                                                           |                                                         | As at
|---------------------------------------------------------- | ------------------------------------------------------- | -----
|
|
|
|CAPITALIZATION AND LIABILITIES                             |                                                         |      
|CAPITALIZATION(see Statement of Capitalization and Note B) |                                                         |      
|                                                           | Common shareholders' equity                             |      
|                                                           | Preferred stock (Note B)                                |      
|                                                           | Long-term debt                                          |      
|                                                          
|TOTAL CAPITALIZATION                                       |                                                         |      
|                                                          
|NONCURRENT LIABILITIES                                     |                                                         |      
|                                                           | Obligations under capital leases (Note N)               |      
|                                                           | Accumulated provision for injuries and damages (Note F) |      
|                                                           | Retiree benefit reserve                                 |      
|                                                           | Superfund and other environmental costs (Note F)        |      
|                                                           | Other noncurrent liabilities                            |      
|                                                          
|TOTAL NONCURRENT LIABILITIES                               |                                                         |      
|                                                          
|CURRENT LIABILITIES                                        |                                                         |      
|                                                           | Long-term debt due within one year                      |      
|                                                           | Preferred stock to be redeemed in one year              |      
|                                                           | Accounts payable                                        |      
|                                                           | Accounts payable to affiliated companies                |      
|                                                           | Customer deposits                                       |      
|                                                           | Accrued taxes                                           |      
|                                                           | Accrued interest                                        |      
|                                                           | System benefit charge                                   |      
|                                                           | Independent power producer buyout                       |      
|                                                           | Accrued wages                                           |      
|                                                           | Other current liabilities                               |      
|                                                          
|TOTAL CURRENT LIABILITIES                                  |                                                         |      
|                                                          
|DEFERRED CREDITS AND REGULATORY LIABILITIES                |                                                         |      
|                                                           | Accumulated deferred federal income tax (Note J)        |      
|                                                           | Accumulated deferred investment tax credits (Note A)    |      
|                                                           | Regulatory liabilities                                  |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                           |                                                         |      
|                                                          
|                                                           | TOTAL REGULATORY LIABILITIES                            |      
|                                                          
|TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES          |                                                         |      
|                                                          
|TOTAL CAPITALIZATION AND LIABILITIES                       |                                                         | $    
|                                                          

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

137

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Consolidated Edison Company Of New York, Inc.CONSOLIDATED INCOME STATEMENT

|                                       |                                                                | For the Years Ended December 31, |          
|-------------------------------------- | -------------------------------------------------------------- | -------------------------------- | ---------
|
|
|
|OPERATING REVENUES (NoteA)             |                                                                |                                  |          
|                                       | Electric                                                       |                                  | $        
|                                       | Gas                                                            |                                  |          
|                                       | Steam                                                          |                                  |          
|                                       |                                                               
|TOTAL OPERATING REVENUES               |                                                                |                                  | 7,223,961
|                                       |                                                               
|OPERATING EXPENSES                     |                                                                |                                  |          
|                                       | Purchased power                                                |                                  |          
|                                       | Fuel                                                           |                                  |          
|                                       | Gas purchased for resale                                       |                                  |          
|                                       | Other operations                                               |                                  |          
|                                       | Maintenance                                                    |                                  |          
|                                       | Depreciation and amortization (Note A)                         |                                  |          
|                                       | Taxes, other than income taxes (Note A)                        |                                  |          
|                                       | Income taxes (Notes A and J)                                   |                                  |          
|                                       |                                                               
|TOTAL OPERATING EXPENSES               |                                                                |                                  | 6,269,878
|                                       |                                                               
|OPERATING INCOME                       |                                                                |                                  | 954,083  
|                                       |                                                               
|OTHER INCOME (DEDUCTIONS)              |                                                                |                                  |          
|                                       | Investment income (Note A)                                     |                                  |          
|                                       | Allowance for equity funds used during construction (Note A)   |                                  |          
|                                       | Other income                                                   |                                  |          
|                                       | Other income deductions                                        |                                  |          
|                                       | Income taxes (Notes A and J)                                   |                                  |          
|                                       |                                                               
|TOTAL OTHER INCOME (DEDUCTIONS)        |                                                                |                                  | 55,539   
|                                       |                                                               
|INCOME BEFORE INTEREST CHARGES         |                                                                |                                  | 1,009,622
|                                       |                                                               
|                                       | Interest on long-term debt                                     |                                  |          
|                                       | Other interest                                                 |                                  |          
|                                       | Allowance for borrowed funds used during construction (Note A) |                                  |          
|                                       |                                                               
|NET INTEREST CHARGES                   |                                                                |                                  | 391,782  
|                                       |                                                               
|INCOME BEFORE PREFERRED STOCK DIVIDEND |                                                                |                                  | 617,840  
|                                       |                                                               
|PREFERRED STOCK DIVIDEND REQUIREMENTS  |                                                                |                                  | 12,458   
|                                       |                                                               
|NET INCOME FOR COMMON STOCK            |                                                                | $                                | 605,382  
|                                       |                                                               

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

138

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Consolidated Edison Company of New York, Inc.CONSOLIDATED STATEMENT OF RETAINED EARNINGS

|                                       |                                                | For the Years Ended December 31,
|-------------------------------------- | ---------------------------------------------- | --------------------------------
|
|
|
|BALANCE, JANUARY 1                     |                                                | $                               
|INCOME BEFORE PREFERRED STOCK DIVIDEND |                                                |                                 
|                                      
|TOTAL                                  |                                                |                                 
|                                      
|DIVIDENDS DECLARED ON CAPITAL STOCK    |                                                |                                 
|                                       | Cumulative preferred, at required annual rates |                                 
|                                       | Common                                         |                                 
|                                      
|TOTAL DIVIDENDS DECLARED               |                                                |                                 
|                                      
|BALANCE, DECEMBER 31                   |                                                | $                               
|                                      

Consolidated Edison Company of New York, Inc.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

|                                                      |                                                                                                                                            | For the Years Ended December 31, |        
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------- | -------
|
|
|
|NET INCOME FOR COMMON STOCK                           |                                                                                                                                            | $                                | 605,382
|OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES       |                                                                                                                                            |                                  |        
|                                                      | Minimum pension liability adjustments, net of ($2,550), ($1,402) and ($363) taxes in 2002, 2001 and 2000, respectively                     |                                  |        
|                                                      | Unrealized gains/(losses) on derivatives qualified as hedges, net of $2,348 and ($3,559) taxes in 2002 and 2001, respectively              |                                  |        
|                                                      | Less: Reclassification adjustment for gains/(losses) included in net income, net of $501 and ($2,087) taxes in 2002 and 2001, respectively |                                  |        
|                                                      |                                                                                                                                           
|TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES |                                                                                                                                            |                                  | (1,042 
|                                                      |                                                                                                                                           
|COMPREHENSIVE INCOME                                  |                                                                                                                                            | $                                | 604,340
|                                                      |                                                                                                                                           

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

139

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Consolidated Edison Company of New York, Inc.CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                 |                                                | For the Years Ended December 31, |                                                                          
|------------------------------------------------ | ---------------------------------------------- | -------------------------------- | -------------------------------------------------------------------------
|
|
|
|OPERATING ACTIVITIES                             |                                                |                                  |                                                                          
|                                                 | Income before preferred stock dividend         |                                  | $                                                                        
|                                                 | PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME |                                  |                                                                          
|                                                 |                                                |                                  | Depreciation and amortization                                            
|                                                 |                                                |                                  | Deferred income tax (excluding taxes resulting from divestiture of plant)
|                                                 |                                                |                                  | Common equity component of allowance for funds used during construction  
|                                                 |                                                |                                  | Accrued pension credits (net of capitalized amounts)                     
|                                                 |                                                |                                  | Other non-cash charges                                                   
|                                                 | CHANGES IN ASSETS AND LIABILITIES              |                                  |                                                                          
|                                                 |                                                |                                  | Accounts receivable - customers, less allowance for uncollectibles       
|                                                 |                                                |                                  | Materials and supplies, including fuel and gas in storage                
|                                                 |                                                |                                  | Prepayments, other receivables and other current assets                  
|                                                 |                                                |                                  | Recoverable energy costs                                                 
|                                                 |                                                |                                  | Accounts payable                                                         
|                                                 |                                                |                                  | Retiree benefit reserve                                                  
|                                                 |                                                |                                  | Accrued taxes                                                            
|                                                 |                                                |                                  | Accrued interest                                                         
|                                                 |                                                |                                  | Deferred charges and regulatory assets                                   
|                                                 |                                                |                                  | Deferred credits and regulatory liabilities                              
|                                                 |                                                |                                  | Transmission congestion contracts                                        
|                                                 |                                                |                                  | Other assets                                                             
|                                                 |                                                |                                  | Other liabilities                                                        
|                                                 |                                               
|NET CASH FLOWS FROM OPERATING ACTIVITIES         |                                                |                                  | 1,315,663                                                                
|                                                 |                                               
|INVESTING ACTIVITIES                             |                                                |                                  |                                                                          
|                                                 |                                                |                                  | Construction expenditures                                                
|                                                 |                                                |                                  | Cost of removal less salvage                                             
|                                                 |                                                |                                  | Common equity component of allowance for funds used during construction  
|                                                 |                                                |                                  | Nuclear fuel expenditures                                                
|                                                 |                                                |                                  | Contributions to nuclear decommissioning trust                           
|                                                 |                                                |                                  | Divestiture of utility plant (net of federal income tax)                 
|                                                 |                                                |                                  | Demolition and remediation costs for First Avenue properties             
|                                                 |                                                |                                  | Deposit received from sale of First Avenue properties                    
|                                                 |                                               
|NET CASH FLOWS USED IN INVESTING ACTIVITIES      |                                                |                                  | (1,279,023                                                               
|                                                 |                                               
|FINANCING ACTIVITIES                             |                                                |                                  |                                                                          
|                                                 |                                                |                                  | Repurchase of common stock                                               
|                                                 |                                                |                                  | Net repayments of short-term debt                                        
|                                                 |                                                |                                  | Issuance of long-term debt                                               
|                                                 |                                                |                                  | Retirement of long-term debt                                             
|                                                 |                                                |                                  | Redemption of preferred stock                                            
|                                                 |                                                |                                  | Advance refunding of long-term debt                                      
|                                                 |                                                |                                  | Issuance and refunding costs                                             
|                                                 |                                                |                                  | Common stock dividends                                                   
|                                                 |                                                |                                  | Preferred stock dividends                                                
|                                                 |                                               
|NET CASH FLOWS USED IN FINANCING ACTIVITIES      |                                                |                                  | (213,335                                                                 
|                                                 |                                               
|CASH AND TEMPORARY CASH INVESTMENTS:             |                                                |                                  |                                                                          
|                                                 |                                               
|NET CHANGE FOR THE PERIOD                        |                                                |                                  | (176,695                                                                 
|                                                 |                                               
|BALANCE AT BEGINNING OF PERIOD                   |                                                |                                  | 264,776                                                                  
|                                                 |                                               
|BALANCE AT END OF PERIOD                         |                                                | $                                | 88,081                                                                   
|                                                 |                                               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |                                                |                                  |                                                                          
|                                                 |                                                |                                  | Cash paid during the period for:                                         
|                                                 |                                                |                                  |                                                                          
|                                                 |                                                |                                  |                                                                          
|                                                 |                                               

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

140

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Consolidated Edison Company of New York, Inc.CONSOLIDATED STATEMENT OF CAPITALIZATION

|                                                                  |                                                                         | Shares outstanding                                                                   |                                                                                                                                                 |   |             |         |          
|----------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ------- | ---------
|
|
|
|
|COMMON SHAREHOLDER'S EQUITY (NOTE B)                              |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  | Common stock, $2.50 par value, authorized 340,000,000 shares            |                                                                                      | 235,488,094                                                                                                                                     |   | 235,488,094 |         | $        
|                                                                  | Retained earnings                                                       |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  | ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)                           |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  |                                                                         |                                                                                      | Minimum pension liability adjustments, net of ($4,315) and ($1,765) taxes in 2002 and 2001, respectively                                        |   |             |         |          
|                                                                  |                                                                         |                                                                                      | Unrealized gains/(losses) on derivatives qualified as hedges, net of ($1,211) and ($3,559) taxes in 2002 and 2001, respectively                 |   |             |         |          
|                                                                  |                                                                         |                                                                                      | Less: Reclassification adjustments for gains/(losses) included in net income, net of ($1,586) and ($2,087) taxes in 2002 and 2001, respectively |   |             |         |          
|                                                                  |                                                                        
|TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | (5,514   
|                                                                  |                                                                        
|REPURCHASED CONSOLIDATED EDISON, INC. COMMON STOCK                |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | (962,092 
|Capital stock expense                                             |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | (35,350  
|                                                                  |                                                                        
|TOTAL COMMON SHAREHOLDER'S EQUITY                                 |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | 4,890,486
|                                                                  |                                                                        
|PREFERRED STOCK (NOTE B)                                          |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  |                                                                         | Subject to mandatory redemption Cumulative Preferred, $100 par value, 61/8% Series J |                                                                                                                                                 | - |             | 370,500 |          
|                                                                  |                                                                        
|TOTAL SUBJECT TO MANDATORY REDEMPTION                             |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | -        
|                                                                  |                                                                        
|OTHER PREFERRED STOCK                                             |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  | $5 Cumulative Preferred, without par value, authorized 1,915,319 shares |                                                                                      | 1,915,319                                                                                                                                       |   | 1,915,319   |         |          
|                                                                  | Cumulative Preferred, $100 par value, authorized 6,000,000 shares*      |                                                                                      |                                                                                                                                                 |   |             |         |          
|                                                                  |                                                                         |                                                                                      | 4.65% Series C                                                                                                                                  |   | 153,296     |         | 153,296  
|                                                                  |                                                                         |                                                                                      | 4.65% Series D                                                                                                                                  |   | 222,330     |         | 222,330  
|                                                                  |                                                                        
|TOTAL OTHER PREFERRED STOCK                                       |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | 212,563  
|                                                                  |                                                                        
|TOTAL                                                             |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | 212,563  
|Less: Preferred stock due within one year                         |                                                                         |                                                                                      |                                                                                                                                                 |   |             |         | -        
|                                                                  |                                                                        
|TOTAL PREFERRED STOCK                                             |                                                                         |                                                                                      |                                                                                                                                                 |   |             | $       | 212,563  
|                                                                  |                                                                        

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

141

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Consolidated Edison Company of New York, Inc.CONSOLIDATED STATEMENT OF CAPITALIZATION

|Long-term debt (Note B)                                                                                                  |      |   |            |   |          | At December 31, |          
|------------------------------------------------------------------------------------------------------------------------ | ---- | - | ---------- | - | -------- | --------------- | ---------
|
|
|
|
|DEBENTURES:                                                                                                              |      |   |            |   |          |                 |          
|                                                                                                                         | 2002 |   | 65/8       |   | 1993C    |                 |          
|                                                                                                                         | 2002 |   | 2.06*      |   | 1997A    |                 |          
|                                                                                                                         | 2003 |   | 63/8       |   | 1993D    |                 |          
|                                                                                                                         | 2004 |   | 75/8       |   | 1992B    |                 |          
|                                                                                                                         | 2005 |   | 65/8       |   | 1995A    |                 |          
|                                                                                                                         | 2005 |   | 65/8       |   | 2000C    |                 |          
|                                                                                                                         | 2007 |   | 6.45       |   | 1997B    |                 |          
|                                                                                                                         | 2008 |   | 61/4       |   | 1998A    |                 |          
|                                                                                                                         | 2008 |   | 6.15       |   | 1998C    |                 |          
|                                                                                                                         | 2009 |   | 7.15       |   | 1999B    |                 |          
|                                                                                                                         | 2010 |   | 81/8       |   | 2000A    |                 |          
|                                                                                                                         | 2010 |   | 71/2       |   | 2000B    |                 |          
|                                                                                                                         | 2012 |   | 55/8       |   | 2002A    |                 |          
|                                                                                                                         | 2013 |   | 47/8       |   | 2002B    |                 |          
|                                                                                                                         | 2023 |   | 71/2       |   | 1993G    |                 |          
|                                                                                                                         | 2026 |   | 73/4       |   | 1996A    |                 |          
|                                                                                                                         | 2028 |   | 7.1        |   | 1998B    |                 |          
|                                                                                                                         | 2028 |   | 6.9        |   | 1998D    |                 |          
|                                                                                                                         | 2029 |   | 71/8       |   | 1994A    |                 |          
|                                                                                                                         | 2039 |   | 7.35       |   | 1999A    |                 |          
|                                                                                                                         | 2041 |   | 71/2       |   | 2001A    |                 |          
|                                                                                                                         |     
|TOTAL DEBENTURES                                                                                                         |      |   | 4,470,000  |   |          | 3,970,000       |          
|                                                                                                                         |     
|TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR FACILITIES REVENUE BONDS: |     
|                                                                                                                         | 2020 |   | 51/4       |   | 1993B    |                 |          
|                                                                                                                         | 2020 |   | 6.10       |   | 1995A    |                 |          
|                                                                                                                         | 2022 |   | 53/8       |   | 1993C    |                 |          
|                                                                                                                         | 2028 |   | 6.00       |   | 1993A    |                 |          
|                                                                                                                         | 2029 |   | 71/8       |   | 1994A    |                 |          
|                                                                                                                         | 2034 |   | 1.35**     |   | 1999A    |                 |          
|                                                                                                                         | 2036 |   | 4.70       |   | 2001A*** |                 |          
|                                                                                                                         | 2036 |   | 1.37**     |   | 2001B    |                 |          
|                                                                                                                         |     
|TOTAL TAX-EXEMPT DEBT                                                                                                    |      |   |            |   |          |                 | 1,099,762
|                                                                                                                         |     
|SUBORDINATED DEFERRABLE INTEREST DEBENTURES:                                                                             |      |   |            |   |          |                 |          
|                                                                                                                         | 2031 |   | 73/4       |   | 1996A    |                 |          
|                                                                                                                         |     
|UNAMORTIZED DEBT DISCOUNT                                                                                                |      |   | (25,741    | ) |          | (25,308         | )        
|                                                                                                                         |     
|TOTAL                                                                                                                    |      |   | 5,819,021  |   |          | 5,311,752       |          
|LESS: LONG-TERM DEBT DUE WITHIN ONE YEAR                                                                                 |      |   | 425,000    |   |          | 300,000         |          
|                                                                                                                         |     
|TOTAL LONG-TERM DEBT                                                                                                     |      |   | 5,394,021  |   |          | 5,011,752       |          
|                                                                                                                         |     
|TOTAL CAPITALIZATION                                                                                                     |      | $ | 10,497,070 |   | $        | 9,890,120       |          
|                                                                                                                         |     

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

142

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

These notes form an integral part of the accompanying consolidated financial statements of Consolidated Edison Company of New York, Inc. (Con Edison of
New York or the Company) and its subsidiaries.

Con Edison

Consolidated Edison, Inc. (Con Edison) is the parent holding company for Con Edison of New York. Con Edison owns all the issued and outstanding shares of
common stock, $2.50 par value, of Con Edison of New York.

Con
Edison of New York, a regulated utility, provides electric service to over 3.1 million customers and gas service to approximately 1.1 million customers in New York City and
Westchester County. It also provides steam service in parts of Manhattan.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

The Company's consolidated financial statements include the accounts of Con Edison of New York and its consolidated subsidiaries.

Accounting Policies

The accounting policies of the Company conform to accounting principles generally accepted in the United States of America. For regulated public utilities, like
Con Edison of New York, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and, in accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory Commission
(FERC) and the New York State Public Service Commission (PSC).

SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

The
Company's principal regulatory assets and liabilities are detailed on the consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for
which a cash outflow has been made, and is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. Regulatory assets and liabilities will
be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the PSC.

143

---

The
standards in SFAS No. 101, "Regulated EnterprisesAccounting for the Discontinuation of Application of FASB Statement No. 71," have been applied to the Company's electric
supply business, including electric generating assets (see Note I) and non-utility generator (NUG) contracts (see Note H) and related regulatory assets and liabilities,
following the 1997 Restructuring Agreement (defined below). The application of SFAS No. 101 to the electric supply business had no material effect on the financial position, results of
operations or liquidity of the Company.

Other
significant accounting policies of the Company are referenced in Note D (Pension Benefits), Note E (Other Postretirement Benefits), Note N (Leases) and Note O
(Derivative Instruments and Hedging Activities) to the financial statements.

Rate and Restructuring Agreements

Electric

In September 1997, the PSC approved a restructuring agreement between Con Edison of New York, the PSC staff and certain other parties (the 1997
Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access plan, a rate plan for the period ended
March 31, 2002, a reasonable opportunity for recovery of "strandable costs" and the divestiture of electric generation capacity by the Company.

At
December 31, 2002, approximately 163,000 Con Edison of New York customers representing approximately 25 percent of aggregate customer load were purchasing electricity from other
suppliers under the electric retail access program (which is available to all of the Company's electric customers). The Company delivers electricity to customers in this program through its regulated
transmission and distribution systems. In general, the Company's delivery rates for retail access customers
are equal to the full-service rates applicable to other comparable Con Edison of New York customers, less an amount reflecting costs otherwise associated with supplying customers with
energy and capacity.

Pursuant
to the 1997 Restructuring Agreement, the Company reduced electric rates, on an annual basis, by $129 million in 1998, $80 million in April 1999, $103 million in
April 2000 and $209 million in April 2001. The effect of the April 2001 decrease for the rate year ended March 31, 2002 was partially offset by recognition in income
of $36 million relating to rates for distributing electricity to customers of the New York Power Authority (NYPA) and $50 million (after tax) of deferred generation divestiture gain.
Rates were also reduced, on an annual basis, effective September 2001 by $313 million to reflect the divestiture of the nuclear generating facility and the Roseton generating plant,
which resulted in a reduction in operating and other expenses. See Note I.

Pursuant
to the 1997 Restructuring Agreement, as amended by a July 1998 PSC order, the Company sold approximately 7,790 MW of the approximately 8,300 MW of generating capacity that it owned at
the time the 1997 Restructuring Agreement was executed. See Note I.

In
November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revises and extends the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000
Electric Rate Agreement, the Company reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.

144

---

In
general, under the 2000 Electric Rate Agreement, the Company's base electric transmission and distribution rates will not otherwise be changed during the five-year period ending
March 2005 except (i) with respect to certain changes in costs above anticipated annual levels resulting from legal or regulatory requirements, inflation in excess of a 4 percent
annual rate, property tax changes and environmental cost increases or (ii) if the PSC determines that circumstances have occurred that either threaten the Company's economic viability or
ability to provide, safe and adequate service, or render the Company's rate of return unreasonable for the provision of safe and adequate service.

Under
the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through
2005 above a specified rate of return on electric common equity will be retained for shareholders and the balance will be applied for customer benefit as determined by the PSC. As of
December 31, 2002, the Company established an electric shared earnings reserve of $40 million for the rate year ending March 2003. There was no sharing of earnings for the rate
years ended March 2002 and 2001. The earnings threshold for rate years ending March 2003 through March 2005 of 11.75 percent can be increased up to 50 basis points. The
threshold will increase by 25 basis points if certain demand reductions and supply increases exceed targeted projections and by an additional 25 basis points if certain customer service and
reliability objectives are achieved. The Company could be required to pay up to $40 million annually in penalties if certain threshold service and reliability objectives are not achieved.

Con
Edison of New York's potential electric strandable costs are utility investments and commitments that may not be recoverable in a competitive electric supply market. The Company is recovering
these costs in the rates it charges all of its electric customers. The 2000 Electric Rate Agreement continues the stranded cost recovery provisions of the 1997 Restructuring Agreement, stating that
the Company "will be given a reasonable opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments, under the parameters and
during the time periods set forth therein."

The
2000 Electric Rate Agreement also continues the rate provisions pursuant to which the Company recovers prudently incurred purchased power and fuel costs from customers. See "Recoverable Energy
Costs" below.

Gas

In November 2000, the PSC approved an agreement between Con Edison of New York, the PSC staff and certain other parties that revised and extended the
1996 gas rate settlement agreement through September 2001. The 1996 agreement, with limited exceptions, continued base rates at September 1996 levels through September 2000.

Under
the 2000 agreement, the rate of return on gas common equity above which the Company shared with customers, 50 percent of earnings was increased from 13 percent to
14 percent. In addition, customer bills were reduced by $20 million during the January through March 2001 period.

145

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At
December 31, 2001, the Company reserved $11.5 million for customers' share of gas earnings in excess of the 14 percent threshold for the rate year ended September 2001.
No additional amounts were reserved for the rate year ended September 2002.

In
April 2002, the PSC approved a Con Edison of New York gas rate agreement for the three-year period ending September 30, 2004. The rate agreement reduces gas rates, on an
annualized basis, by $25 million.

During
the term of the 2002 agreement, the Company retains 100 percent of the rate year return on equity up to 11.5 percent. If the return on equity is between 11.5 percent and
12.0 percent then 100 percent of the incremental return over 11.5 percent will be set aside for customer benefit. If the return on equity is above 12.0 percent, then
50 percent of the incremental return over 12.0 percent will be retained by shareholders, and the remaining 50 percent will be shared with customers.

The
2002 agreement also continued the retail access credit for firm transportation customers and other programs designed to increase customer and marketer participation in the gas retail access
program, the net costs of which are deferred for future recovery from customers.

Under
the 2002 agreement, in May 2002, the Company established a $36.4 million reserve, funded by previously deferred customer credits, to recover unreimbursed costs directly related to
the World Trade Center attack.

Steam

In December 2000, the PSC authorized implementation of an agreement between Con Edison of New York, the PSC staff and certain other parties, that
provided for a $16.6 million steam rate increase in October 2000 and, with limited exceptions, no further changes in steam rates prior to
October 2004. The Company is required to share with customers 50 percent of any earnings for any rate year covered by the agreement above of a specified rate of return on steam common
equity (11.0 percent for the first rate year, the 12-month period ended September 2001; 10.5 percent thereafter if the repowering of the Company's East River
steam-electric generating plant is not completed). The net revenue effect associated with sales increases related to colder than normal winter weather (November through April) will be excluded from
any earnings measurement. Earnings on steam common equity did not exceed the specific rates of return for the rate years ended September 30, 2001 and 2002.

Under
the steam rate agreement, upon completion of the project to add incremental generating capacity at the Company's East River steam-electric generating plant, the net benefits of the project
(including the net after-tax gain from the sale of a nine-acre development site in mid-town Manhattan along the East River) allocable to steam operations will inure
to the benefit of steam customers.

The
agreement continues the rate provisions pursuant to which Con Edison of New York recovers prudently incurred purchased steam and fuel costs and requires the Company to develop a strategy for
hedging price variations for a portion of the steam produced each year.

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Plant and Depreciation

Utility
Plant

Utility plant is stated at original cost. The capitalized cost of additions to utility plant includes indirect costs such as engineering, supervision, payroll
taxes, pensions, other benefits and an allowance for funds used during construction (AFDC). The original cost of property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is charged to expense and the cost of betterments is capitalized.

Rates
used for AFDC include the cost of borrowed funds and a reasonable rate on the Company's own funds when so used, determined in accordance with PSC and FERC regulations. The AFDC rate was
6.8 percent in 2002, 6.8 percent in 2001 and 7.2 percent in 2000. The rate is compounded semiannually, and the amounts applicable to borrowed funds were treated as a reduction of
interest charges, while the amounts applicable to the regulated utilities' own funds were credited to other income (deductions).

The
Company generally computes annual charges for depreciation using the straight-line method for financial statement purposes, with rates based on appropriate average service lives and
net salvage factors. The Company's depreciation rates averaged 3.0 percent in 2002, 3.1 percent in 2001 and 3.7 percent in 2000. The estimated lives for utility plant range from
30 to 80 years for electric, 15 to 75 years for gas, 30 to 75 years for steam and 8 to 50 years for general plant.

Non-utility
Plant

Non-utility plant is stated at original cost and consists primarily of land and telecommunication facilities that are not currently utilized within
utility operations.

Revenues

Con Edison of New York recognizes revenues for electric, gas and steam service on a monthly billing cycle basis. In accordance with regulatory agreements, the
Company does not accrue unbilled revenues.

Recoverable Energy Costs

Con Edison of New York generally recovers all of its prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance
with PSC-approved rate provisions, which also include a $25 million annual incentive or penalty relating to electric costs (see "Energy Price Hedging" in Note O). If the actual
energy costs for a given month are more or less than the amounts billed to customers for that month, the difference is recoverable from or refundable to customers. Differences between actual and
billed energy costs are generally deferred for charge or refund to customers during the next billing cycle (normally within one or two months). The
Company defers all net interruptible gas revenues, not authorized by the PSC to be retained by the Company, for refund to firm gas sales and transportation customers.

The
difference between amounts for purchased power initially billed to the Company by the New York Independent System Operator (NYISO) and amounts subsequently determined by the NYISO to have actually
been supplied by the NYISO is refunded by the NYISO to the Company, or paid to the NYISO by the Company. The reconciliation payments or receipts are recoverable from or refundable to the

147

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Company's customers. At December 31, 2002, $106.9 million of refunds received from the NYISO were deferred as a regulatory liability.

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at
cost, which approximates market. The Company considers temporary cash investments to be cash equivalents.

Investments

Investments are recorded on the equity method.

Federal Income Tax

In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company has recorded an accumulated deferred federal income tax liability for
temporary differences between the book and tax basis of assets and liabilities at current tax rates. In accordance with rate agreements, the Company has recovered amounts from customers for a portion
of the tax liability it will pay in the future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining tax liability, in accordance with SFAS
No. 71, regulatory assets have been established for the net revenue requirements to be recovered from customers for the related future tax expense (see Note J). In 1993, the PSC issued a
Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates.

Accumulated
deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction in future federal income tax expense.

Con
Edison of New York files a federal income tax return on a consolidated basis with Con Edison and its other subsidiaries. The consolidated income tax liability is allocated to each member of the
consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of
the consolidated group.

State Income Tax

The New York State tax laws applicable to utility companies were changed effective January 1, 2000. Certain revenue-based taxes were repealed or reduced
and replaced by a net income-based tax. In June 2001, the PSC issued its final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the
difference between taxes being collected and the tax expense resulting from the tax law changes, until those changes are incorporated in base rates.

Con
Edison of New York files a combined New York State Corporation Business Franchise Tax Return on a consolidated basis with Con Edison and its other subsidiaries. Similar to a federal consolidated
income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of
income among the states in which the company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

148

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Taxes Other Than Income Taxes

The PSC requires the Company to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue
and expense). The recovery of
these taxes is part of the PSC approved revenue requirement within each of the respective rate agreements.

Research and Development Costs

Research and development costs relating to specific construction projects are capitalized. All other such costs are charged to operating expenses as incurred.
Research and development costs in 2002, 2001 and 2000 amounting to $11.0 million, $13.8 million and $14.0 million, respectively, were charged to operating expenses. No research
and development costs were capitalized in these years.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Stock-Based Compensation

Con Edison of New York applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. See Note K. The following table illustrates the effect on net income if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

|                                                                                                                                      |  | For the Years Ended
December 31, |    
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---
|
|
|
|Net income, as reported                                                                                                               |  | $                                | 605
|Add: Stock-based compensation expense included in reported net income, net of related tax effects                                     |  |                                  | 6  
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |  |                                  | (12
|                                                                                                                                      | 
|Pro forma net income                                                                                                                  |  | $                                | 599
|                                                                                                                                      | 

These
pro forma amounts may not be representative of future disclosures due to changes in future market conditions and additional grants in future years.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Note B - Capitalization

Common Stock

At December 31, 2002 and 2001, Con Edison owned all of the issued and outstanding shares of common stock ($2.50 par value) of Con Edison of New York. Con
Edison of New York owns $962.1 million of

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Con Edison stock, which it purchased in 1998 and 1999 in connection with Con Edison's stock repurchase plan.

Preferred Stock

Con Edison of New York has outstanding 1,915,319 shares of its $5 Cumulative Preferred Stock (the "$5 Preferred") and 375,626 shares of its Cumulative Preferred
Stock ($100 par value) at December 31, 2002 and 2001.

Dividends
on the $5 Preferred stock are $5 per share per annum, payable quarterly, and dividends on the Cumulative Preferred Stock are $4.65 per share per annum, payable quarterly. The preferred
dividends must be declared by Con Edison of New York's Board of Trustees to become payable. See "Dividends" below.

With
respect to any corporate action to be taken by a vote of the shareholders of Con Edison of New York, Con Edison of New York has outstanding, 235,488,094 shares of its common stock, and the
holders of the $5 Preferred are each entitled to one vote for each share held. Except as otherwise required by law, holders of the Cumulative Preferred Stock have no right to vote; provided, however,
that, if the $5 Preferred is no longer outstanding, the holders of the Cumulative Preferred Stock are entitled to one vote for each share with respect to any corporate action to be taken by a vote of
the shareholders of Con Edison of New York. In addition, if dividends are in arrears for certain periods the holders are entitled to certain rights with respect to the election of
Con Edison of New York's Trustees. Without the consent of the holders of the Cumulative Preferred Stock, the Company may not create or authorize any kind of stock ranking prior to the Cumulative
Preferred Stock or, if such actions would affect the holders of the Cumulative Preferred Stock adversely, be a party to any consolidation or merger, create or amend the terms of the Cumulative
Preferred Stock or reclassify the Cumulative Preferred Stock. The Company may redeem the $5 Preferred at a redemption price of $105 per share and the Cumulative Preferred Stock at a redemption price
of $101 per share (in each case, plus accrued and unpaid dividends). In the event of the dissolution, liquidation or winding up of the affairs of Con Edison of New York, before any distribution of
capital assets could be made to the holders of the Company's common stock, the holders of the $5 Preferred and the Cumulative Preferred Stock would each be entitled to receive $100 per share, in the
case of an involuntary liquidation, or an amount equal to the redemption price per share, in the case of a voluntary liquidation, in each case together with all accrued and unpaid dividends.

Dividends

In accordance with PSC requirements, the dividends that Con Edison of New York may pay are limited to not more than 100 percent of its income available
for dividends, calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from
accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison proceeds from major
transactions, such as asset sales, or to dividends reducing Con Edison of New York's equity ratio to a level appropriate to its business risk.

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In
addition, no dividends may be paid, or funds set apart for payment, on Con Edison of New York's common stock until all dividends accrued on the $5 Preferred Stock and Cumulative Preferred Stock
have been paid, or declared and set apart for payment.

Long-Term Debt

Long-term debt maturing in the period 2003-2007 is as follows:

|     |  | (Millions of Dollars) |    
|---- |  | --------------------- | ---
|     | 
|2003 |  | $                     | 425
|2004 |  |                       | 150
|2005 |  |                       | 450
|2006 |  |                       | -  
|2007 |  |                       | 330
|     | 



Long-term debt is principally stated at cost, which, as of December 31, 2002, approximates fair value (estimated based on current rates for
debt of the same remaining maturities), except for $224.6 million of the Company's tax-exempt financing. See "Interest Rate Hedging" in Note O.

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any
other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the debentures of the Company. The tax-exempt financing
arrangements of the Company are subject to these covenants and the covenants discussed below.

The
tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of the Company to the New York State Energy Research and Development Authority (NYSERDA) in
exchange for the net proceeds of a like amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA.

The
tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to the use of the facilities
financed. The failure to comply with these covenants would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. Certain series of
Con Edison of New York's tax-exempt financing (Series 1993A, B and C, Series 1994A and Series 1995A), aggregating $476.8 million, each contain as events of
default a default in the payment of the other series and events of default under the Company's mortgage trust indenture (which has been satisfied and discharged). The arrangements for the other series
of Con Edison of New York's tax-exempt financing (Series 1999A, 2001A and 2001B), aggregating $615.3 million, include provisions for the maintenance of liquidity and credit
facilities, the failure to comply with which would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied. If an event of default
occurred, the principal and accrued interest on the debt to which such event of default applied may, and in certain circumstances would, become due and payable immediately.

151

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The
liquidity and credit facilities currently in effect for the tax-exempt financing include covenants that the ratio of debt to total capital of the Company does not at any time exceed
0.65 to 1 and that, subject to certain exceptions, the Company shall not mortgage, lien, pledge or otherwise encumber its assets. Certain of the facilities also include as events of default, defaults
in payments of other debt obligations in excess of specified levels ($100 million for Con Edison of New York).

Note C - Short Term Borrowing

At December 31, 2002, the Company had a $500 million commercial paper program under which short-term borrowings are made at prevailing
market rates. The program is supported by a revolving credit agreement with banks. At December 31, 2002, there was no commercial paper outstanding under the program. The Company changes the
amount of its program from time to time, subject to a $1 billion FERC-authorized limit.

Bank
commitments under the revolving credit agreement were renewed in November 2002. The commitments may terminate upon a change of control of Con Edison or Con Edison of New York, and
borrowings under the agreements are subject to certain conditions, including that the ratio (calculated in accordance with the agreements) of debt to total capital of the borrower not at any time
exceed 0.65 to 1. At December 31, 2002, this ratio was 0.53 to 1 for the Company. Borrowings under the agreements are not subject to maintenance of credit rating levels. The fees charged for
the revolving credit agreement and borrowing under the agreement reflect the Company's credit rating.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees and retirees of Con Edison
of New York. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment
gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period. This
amortization is in accordance with the Statement of Policy issued by the PSC and is permitted under SFAS No. 87, "Employers' Accounting for Pensions," which provides a "corridor method" for
moderating the effect of investment gains and losses on pension expense, or alternatively, allows for any systematic method of amortization of unrecognized gains and losses that is faster than the
corridor method and is applied consistently to both gains and losses.

152

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The
components of the Company's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

|                                                 |  | 2002 |        | 2001 |   | 2000   |  
|------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|                                                 |  |      |       
|
|Service cost - including administrative expenses |  | $    | 87.5   |      | $ | 89.0   |  
|Interest cost on projected benefit obligation    |  |      | 412.5  |      |   | 398.2  |  
|Expected return on plan assets                   |  |      | (660.7 | )    |   | (632.6 | )
|Amortization of net actuarial (gain)             |  |      | (179.0 | )    |   | (198.4 | )
|Amortization of prior service cost               |  |      | 13.7   |      |   | 13.2   |  
|Amortization of transition (asset)/obligation    |  |      | (0.6   | )    |   | 3.0    |  
|                                                 | 
|NET PERIODIC BENEFIT COST                        |  |      | (326.6 | )    |   | (327.6 | )
|                                                 | 
|Amortization of regulatory asset*                |  |      | 4.2    |      |   | 4.2    |  
|                                                 | 
|TOTAL PERIODIC BENEFIT COST                      |  | $    | (322.4 | )    | $ | (323.4 | )
|                                                 | 
|Cost capitalized                                 |  |      | (64.2  | )    |   | (72.0  | )
|Cost charged to operating expenses               |  |      | (258.2 | )    |   | (251.4 | )
|                                                 | 



The funded status at December 31, 2002, 2001 and 2000 was as follows:

|                                                                  |  | 2002 |         | 2001 |   | 2000    |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                  |  |      |        
|
|CHANGE IN PROJECTED BENEFIT OBLIGATION                            |  |      |         |      |   |         |  
|Projected benefit obligation at beginning of year                 |  | $    | 5,530.0 |      | $ | 5,272.3 |  
|Service cost - excluding administrative expenses                  |  |      | 86.2    |      |   | 87.7    |  
|Interest cost on projected benefit obligation                     |  |      | 412.5   |      |   | 398.2   |  
|Plan amendments                                                   |  |      | -       |      |   | 9.5     |  
|Net actuarial loss                                                |  |      | 282.5   |      |   | 27.7    |  
|Benefits paid                                                     |  |      | (281.0  | )    |   | (265.4  | )
|                                                                  | 
|PROJECTED BENEFIT OBLIGATION AT END OF YEAR                       |  | $    | 6,030.2 |      | $ | 5,530.0 |  
|                                                                  | 
|CHANGE IN PLAN ASSETS                                             |  |      |         |      |   |         |  
|Fair value of plan assets at beginning of year                    |  | $    | 6,397.5 |      | $ | 7,077.4 |  
|Actual return on plan assets                                      |  |      | (533.7  | )    |   | (391.6  | )
|Employer contributions                                            |  |      | 2.0     |      |   | 1.9     |  
|Benefits paid                                                     |  |      | (281.0  | )    |   | (265.4  | )
|Administrative expenses                                           |  |      | (21.8   | )    |   | (24.8   | )
|                                                                  | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR                          |  | $    | 5,563.0 |      | $ | 6,397.5 |  
|                                                                  | 
|Funded status                                                     |  | $    | (467.2  | )**  | $ | 867.5   |  
|Unrecognized net loss/(gain)                                      |  |      | 1,403.0 |      |   | (273.5  | )
|Unrecognized prior service costs                                  |  |      | 77.3    |      |   | 91.0    |  
|Unrecognized net transition (asset)/liability at January 1, 1987* |  |      | -       |      |   | (0.6    | )
|                                                                  | 
|NET PREPAID BENEFIT COST                                          |  | $    | 1,013.1 |      | $ | 684.4   |  
|                                                                  | 



153

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The amounts recognized in the consolidated balance sheet at December 31, 2002 and 2001 were as follows:

|                                       |  | 2002 |         | 2001 |  
|-------------------------------------- |  | ---- | ------- | ---- | -
|                                       |  |      |        
|
|Accrued pension credits                |  | $    | 1,024.2 |      | $
|Additional minimum pension liability   |  |      | (10.5   | )    |  
|Intangible asset                       |  |      |        |      |  
|Accumulated other comprehensive income |  |      | 10.5    |      |  
|1993 Special retirement program        |  |      | (11.1   | )    |  
|                                       | 
|Net prepaid benefit cost               |  | $    | 1,013.1 |      | $
|                                       | 

The
actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

|                               |  | 2002 |   | 2001 |   | 2000 |  
|------------------------------ |  | ---- | - | ---- | - | ---- | -
|                               |  |      |  
|Discount Rate                  |  | 6.75 | % | 7.50 | % | 7.75 | %
|Expected Return on Plan Assets |  | 9.20 | % | 9.20 | % | 8.50 | %
|Rate of Compensation Increase  |  | 4.30 | % | 4.30 | % | 4.55 | %

Con
Edison of New York also offers a defined contribution savings plan that covers substantially all of its employees. The Company made contributions to the plan of $15.8 million,
$15.7 million and $15.6 million for years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

Con Edison of New York has a contributory comprehensive hospital, medical and prescription drug program for all retirees, their dependents and surviving
spouses. The Company also has a contributory life insurance program for bargaining unit employees. In addition, the Company provides basic life insurance benefits up to a specified maximum at no cost
to retired management employees.

Certain
employees of other Con Edison subsidiaries are eligible to receive benefits under these programs. Con Edison of New York has reserved the right to amend or terminate these programs.

Investment
gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

The
components of the Company's net periodic postretirement benefit costs for 2002, 2001 and 2000 were as follows:

|                                                               |  | 2002 |       | 2001 |   | 2000  |  
|-------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                                               |  |      |      
|
|Service cost                                                   |  | $    | 8.1   |      | $ | 10.6  |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 79.7  |      |   | 81.3  |  
|Expected return on plan assets                                 |  |      | (75.5 | )    |   | (70.1 | )
|Amortization of net actuarial loss                             |  |      | 21.4  |      |   | 9.0   |  
|Amortization of prior service cost                             |  |      | 0.0   |      |   | 1.5   |  
|Amortization of transition obligation                          |  |      | 5.0   |      |   | 17.4  |  
|                                                               | 
|NET PERIODIC POSTRETIREMENT BENEFIT COST                       |  | $    | 38.7  |      | $ | 49.7  |  
|                                                               | 
|Cost capitalized/deferred                                      |  |      | 9.3   |      |   | 11.0  |  
|Cost charged to operating expenses                             |  |      | 29.4  |      |   | 38.7  |  
|                                                               | 

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The
funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

|                                                               |  | 2002 |         | 2001 |   | 2000    |  
|-------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|
|CHANGE IN BENEFIT OBLIGATION                                   |  |      |         |      |   |         |  
|Benefit obligation at beginning of year                        |  | $    | 1,249.4 |      | $ | 1,075.8 |  
|Service cost                                                   |  |      | 8.1     |      |   | 10.6    |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 79.7    |      |   | 81.3    |  
|Plan amendments                                                |  |      | (305.6  | )    |   | -       |  
|Net actuarial loss                                             |  |      | 150.7   |      |   | 143.6   |  
|Benefits paid and administrative expenses                      |  |      | (82.2   | )    |   | (75.7   | )
|Participant contributions                                      |  |      | 15.4    |      |   | 13.8    |  
|                                                               | 
|BENEFIT OBLIGATION AT END OF YEAR                              |  | $    | 1,115.5 |      | $ | 1,249.4 |  
|                                                               | 
|CHANGE IN PLAN ASSETS                                          |  |      |         |      |   |         |  
|Fair value of plan assets at beginning of year                 |  | $    | 763.5   |      | $ | 805.0   |  
|Actual return on plan assets                                   |  |      | (61.3   | )    |   | (29.4   | )
|Employer contributions                                         |  |      | 38.6    |      |   | 49.8    |  
|Participant contributions                                      |  |      | 15.4    |      |   | 13.8    |  
|Benefits paid                                                  |  |      | (77.7   | )    |   | (70.8   | )
|Administrative expenses                                        |  |      | (4.5    | )    |   | (4.9    | )
|                                                               | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR                       |  | $    | 674.0   |      | $ | 763.5   |  
|                                                               | 
|Funded status                                                  |  | $    | (441.5  | )    | $ | (485.9  | )
|Unrecognized net (gain)/loss                                   |  |      | 454.7   |      |   | 188.6   |  
|Unrecognized prior service costs                               |  |      | (147.1  | )    |   | 8.9     |  
|Unrecognized transition obligation at January 1, 1993*         |  |      | 36.7    |      |   | 191.4   |  
|                                                               | 
|ACCRUED POSTRETIREMENT BENEFIT COST                            |  | $    | (97.2   | )    | $ | (97.0   | )
|                                                               | 



The actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

|                               |                   | 2002 |      | 2001 |      | 2000 |     
|------------------------------ | ----------------- | ---- | ---- | ---- | ---- | ---- | ----
|
|
|Discount Rate                  |                   | 6.75 | %    | 7.50 | %    | 7.75 | %   
|EXPECTED RETURN ON PLAN ASSETS |                   |      |      |      |      |      |     
|                               | Tax-exempt assets |      | 9.20 | %    | 9.20 | %    | 8.50
|                               | Taxable assets    |      | 8.20 | %    | 8.20 | %    | 7.50

The
health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent for 2009 and remain at that level thereafter.

A
one-percentage point change in the assumed health care cost trend rate would have the following effects:

|                                                        |  | 1-Percentage-Point
Increase |       | 1-Percentage-Point
Decrease |  
|------------------------------------------------------- |  | --------------------------- | ----- | --------------------------- | -
|
|
|Effect on accumulated postretirement benefit obligation |  | $                           | 116.3 |                             | $
|Effect on service cost and interest cost components     |  | $                           | 10.6  |                             | $

155

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Note F - Environmental Matters

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar have been used or generated in the course of operations of the Company and
are present in its facilities and equipment currently or previously owned.

The
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liabilities, regardless of fault,
upon generators of hazardous substances for resulting removal and remediation costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.

The
environmental remediation costs for the sites at which Con Edison of New York has been asserted to have liability for remediation under Superfund or similar state statutes, including its
manufactured gas sites, (Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs. For sites where there are other potentially
responsible parties and the Company is not managing the site investigation and remediation, the liability accrued represents the Company's estimate of what it will need to pay to settle its
obligations with respect to the site. For other sites, the liability accrued represents the Company's estimate of its investigation and remediation costs for the site. In either case, the Company
makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it has available to it at the time about
the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used.

For
the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the
cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $65 million to $1.1 billion. To develop these estimates, the
assumption was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of
cleanup required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

At
December 31, 2002, the Company had accrued $107.5 million as its estimate of its undiscounted liability for Superfund Sites, including approximately $76 million relating to
manufactured gas sites. Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating
to the Superfund Sites and other sites, the amount of which is not presently determinable but may be material to Con Edison of New York's financial position, results of operations or liquidity.

In
2002, the Company incurred $21.6 million for environmental remediation costs, and received no insurance recoveries related to Superfund Sites.

156

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Under
the Company's current electric, gas and steam rate agreements site investigation and remediation costs in excess of $5 million annually incurred with respect to hazardous waste for which
it is responsible are to be deferred and subsequently reflected in rates. At December 31, 2002, $52.3 million of such costs had been deferred as a regulatory asset.

Suits
have been brought in New York State and federal courts against Con Edison of New York 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 Company. The suits that have been resolved, which are many, have been resolved without any
payment by Con Edison of New York, or for amounts that were not, in the aggregate, material to the Company. The amounts specified in all the remaining thousands of suits total billions of dollars.
However, the Company believes that these amounts are greatly exaggerated, as experienced through the disposition of previous claims. Based upon a combination of modeling, historical data analysis and
risk factor assessment, the Company's undiscounted potential liability over the next 50 years is estimated to range between $37.7 million and $162.1 million for these suits and
additional such suits that may be brought (with no amount within the range considered more reasonable than any other). At December 31, 2002, the Company had accrued a $37.7 million
provision for these suits, and a like amount had been deferred as a regulatory asset in accordance with PSC authorization.

Workers'
compensation administrative proceedings have been commenced, wherein current and former employees claim benefits based upon alleged disability from exposure to asbestos. Based on the
information and relevant circumstances known to Con Edison of New York, at December 31, 2002, a provision of $125.1 million was accrued as its estimate of its liability for workers'
compensation claims, including those related to asbestos exposure. Of this amount, $54.3 million was deferred as a regulatory asset in accordance with PSC authorization.

Note G - Nuclear Generation

In September 2001, Con Edison of New York completed the sale of its nuclear generating facilities. See Note I.

The
PSC is investigating the February 2000 to January 2001 outage of the nuclear generating unit, its causes and the prudence of the Company's actions regarding the operation and
maintenance of the generating unit. The proceeding covers, among other things, Con Edison of New York's inspection practices, the circumstances surrounding prior outages, the basis for postponement of
the unit's steam generator replacement and whether, and to what extent, increased replacement power costs and repair and replacement costs should be borne by Con Edison's shareholders.

Con
Edison of New York has not billed to customers $90 million of replacement power costs incurred during the outage. In addition, in 2000, the Company accrued a $40 million liability
for the possible disallowance of replacement power costs that it had previously recovered from customers.

The
Company is unable to predict whether or not any proceedings, lawsuits, legislation or other actions relating to the nuclear generating unit will have a material adverse effect on its financial
position, results of operations or liquidity.

157

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Note H - Non-Utility Generators

Con Edison of New York has long-term contracts with non-utility generators (NUGs) for approximately 3,100 MW of electric generating capacity.
Assuming performance by the NUGs, the Company is obligated over the terms of the contracts (which extend for various periods, up to 2036) to make capacity and other fixed payments.

For
the years 2003 through 2007, the capacity and other fixed payments under the contracts are estimated to be $526 million, $530 million, $513 million, $520 million and
$531 million. Such payments gradually increase to approximately $600 million in 2013, and thereafter decline significantly. For energy delivered under most of these contracts, the
Company is obligated to pay variable prices that are estimated to be lower than expected market levels.

The
NUG contracts include firm contracts for capacity (ends 2005) and energy (ends 2004) from the approximately 1,000 MW nuclear generating unit that the Company sold in 2001. For energy from the
unit, the Company is obligated to pay an average annual price of 3.9 cents per kWh. From time to time, certain parties have petitioned governmental authorities to shut down the nuclear generating
unit. In the event that government authorities did not permit the unit to operate, the unit's owner would not be obligated to provide the Company with power to replace the power the unit would have
provided.

Under
the terms of its electric rate agreements, the Company is recovering in rates the charges it incurs under mandated contracts with NUGs. The 2000 Electric Rate Agreement provides that, following
March 31, 2005, the Company will be given a reasonable opportunity to recover, through a non-bypassable charge to customers, the amount, if any, by which the actual costs of its
purchases under the contracts exceed market value. The PSC specifically approved rate recovery of the nuclear energy purchase.

Note I - Generation Divestiture

Pursuant to restructuring agreements approved by the PSC (see "Rate and Restructuring Agreements" in Note A). The Company has divested all of its
electric generating assets other than approximately 630 MW of electric generating stations located in New York City. The Company sold approximately 6,300 MW of electric generating assets in 1999 and
approximately 1,480 MW in 2001.

Pursuant
to the 2000 Electric Rate Agreement, the net after-tax gain (including interest accrued thereon) from Con Edison of New York's 1999 generation divestiture was applied in 2000 as
follows: $188.2 million was credited against electric distribution plant balances; $107.3 million was used to offset a like amount of regulatory assets (including deferred power contract
termination costs); $50 million (after tax) was deferred for recognition in income during the 12 months ended March 31, 2002; and $12 million was deferred to be used for
low-income customer programs. In
addition, $30 million of employee retirement incentive expense related to the generation divestiture was deferred for amortization over 15 years and $15 million of such expenses
was charged to income in 2000.

The
2000 Electric Rate Agreement provides for the Company to amortize to income recovery of a $74 million regulatory asset representing incremental electric capacity costs incurred prior to
May 2000 to purchase capacity from the buyers of the generating assets the Company sold in 1999. Amortization to

158

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income will take place in years in which the Company would otherwise share excess earnings with customers, in amounts corresponding to the Company's share of the excess earnings. By
March 2005, any remaining unrecovered balance will be charged to expense. Of this amount, $30 million dollars was charged to expense in 2002 and $15 million was expensed in 2001.

In
January 2001, Con Edison of New York completed the sale of its 480 MW interest in the jointly- owned Roseton generating station for $138 million. The net after-tax gain
from the sale, which has been deferred as a regulatory liability, was $37.1 million. In September 2001, the Company completed the sale of its approximately 1,000 MW nuclear generating
plant and related assets for $504.5 million. The proceeds were net of a $73.8 million payment to increase the value of the nuclear decommissioning trust funds being transferred to
$430 million (the amount provided for in the sales agreement). The net after-tax loss from the sale, which was been deferred as a regulatory asset, was $174.8 million at
December 31, 2001 and $127.2 million at December 31, 2002. The Company was authorized, effective September 2001, to continue to recover the cost of the deferred nuclear
assets, which is included in rates, and to amortize the regulatory asset, until the loss on divestiture has been recovered. The 2000 Electric Rate Agreement provides that the Company "will be given a
reasonable opportunity to recover stranded and strandable costs remaining at March 31, 2005, including a reasonable return on investments."

Note J - Income Tax

The components of income tax are as follows:

|                                  |                                       | For the Year Ended December 31 |                              
|--------------------------------- | ------------------------------------- | ------------------------------ | -----------------------------
|
|
|
|Charge/(benefit) to operations:   |                                       |                                |                              
|State                             |                                       |                                |                              
|                                  | Current                               |                                | $                            
|                                  | Deferred - net                        |                                |                              
|Federal                           |                                       |                                |                              
|                                  | Current                               |                                |                              
|                                  | Deferred - net                        |                                |                              
|                                  | Amortization of investment tax credit |                                |                              
|                                  |                                      
|                                  |                                       |                                | TOTAL CHARGE TO OPERATIONS   
|                                  |                                      
|Charge/(benefit) to other income: |                                       |                                |                              
|State                             |                                       |                                |                              
|                                  | Current                               |                                | $                            
|                                  | Deferred - net                        |                                |                              
|Federal                           |                                       |                                |                              
|                                  | Current                               |                                |                              
|                                  | Deferred - net                        |                                |                              
|                                  | Amortization of investment tax credit |                                |                              
|                                  |                                      
|                                  |                                       |                                | TOTAL BENEFIT TO OTHER INCOME
|                                  |                                      
|TOTAL                             |                                       | $                              | 341,758                      
|                                  |                                      

159

---

The
tax effect of temporary differences, which gave rise to deferred tax assets and liabilities, is as follows:

|              |                                                  | For the Year Ended December 31, |                  
|------------- | ------------------------------------------------ | ------------------------------- | -----------------
|
|
|
|Liabilities:  |                                                  |                                 |                  
|              | Depreciation                                     |                                 | $                
|              | Regulatory Liability - Future Federal income tax |                                 |                  
|              | Other                                            |                                 |                  
|              |                                                 
|              |                                                  |                                 | TOTAL LIABILITIES
|              |                                                 
|Assets:       |                                                  |                                 |                  
|              | Other                                            |                                 |                  
|              |                                                 
|              |                                                  |                                 | TOTAL ASSETS     
|              |                                                 
|NET LIABILITY |                                                  | $                               | 2,322.3          
|              |                                                 

Reconciliation
of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

|                                          |                                  | For the Year Ended December 31, |   
|----------------------------------------- | -------------------------------- | ------------------------------- | --
|
|
|
|Statutory tax rate                        |                                  | 35                              | % 
|                                          | Federal                          |                                 |   
|Changes in computed taxes resulting from: |                                  |                                 |   
|                                          | State Income Tax                 |                                 | 6 
|                                          | Depreciation related differences |                                 | 5 
|                                          | Cost of removal                  |                                 | (5
|                                          | Other                            |                                 | (5
|                                          |                                 
|Effective Tax Rate                        |                                  | 36                              | % 
|                                          |                                 

Note K - Stock-Based Compensation

Con Edison maintains a stock option plan (the Plan) that covers employees of Con Edison of New York. Options may be granted to officers and key employees of Con
Edison and its subsidiaries, for up to a total 10 million shares of Con Edison's common stock. Generally, options become exercisable three years after the grant date and remain exercisable
until 10 years from the grant date.

As
permitted by SFAS No. 123, the Company elected to follow APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock
options. Under the intrinsic value method of APB No. 25, "Accounting for Stock Issued to Employees," no compensation expense is recognized because the exercise price of Con Edison's employee
stock options equals the market price of the underlying stock on the date of grant.

Under
the plan, exercise of Con Edison's employee stock options requires payment in full of the exercise price, unless the committee of Con Edison's Board of Directors that administers the Plan
determines that options may be settled by paying to the option holder the difference between the fair market value of the common stock subject to the option and the exercise price (cash settlement).
In 2002, to ensure that the exercise of currently exercisable options would comply with certain technical requirements of the Sarbanes-Oxley Act of 2002 applicable to certain officers of Con Edison
and its subsidiaries, the committee determined that, 1996 and 1997 stock options covering 295,500 shares of common stock held

160

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by those officers may be settled by the cash settlement method. A $3.3 million charge to expense was recognized for Con Edison of New York in 2002 for these options. Additional changes to
expense will be recognized with respect to these options to the extent the fair market value of the common shares change in future periods.

Disclosure
of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and
Disclosures." See "Stock-Based Compensation" in Note A for an illustration of the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123 to
its stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average assumptions:

|                          |  | 2002   |  | 2001   |  | 2000  
|------------------------- |  | ------ |  | ------ |  | ------
|
|Risk-free interest rate   |  | 5.08%  |  | 5.22%  |  | 6.25% 
|Expected livesin years   |  | 6      |  | 8      |  | 8     
|Expected stock volatility |  | 21.43% |  | 21.32% |  | 20.51%
|Dividend yield            |  | 5.22%  |  | 5.83%  |  | 6.60% 

A
summary of changes in the status of stock options awarded to officers and employees of the Company as of December 31, 2002, 2001 and 2000 is as follows:

|                        |           | Shares    |           | Weighted
Average
Price
|----------------------- | --------- | --------- | --------- | ----------------------
|
|Outstanding at 12/31/99 |           | 3,433,410 |           | $                     
|                        | Granted   |           | 1,166,500 |                       
|                        | Exercised |           | (68,697   | )                     
|                        | Forfeited |           | (46,100   | )                     
|                       
|Outstanding at 12/31/00 |           | 4,485,113 |           |                       
|                        | Granted   |           | 1,287,550 |                       
|                        | Exercised |           | (363,013  | )                     
|                        | Forfeited |           | (63,200   | )                     
|                       
|Outstanding at 12/31/01 |           | 5,346,450 |           |                       
|                        | Granted   |           | 1,349,850 |                       
|                        | Exercised |           | (413,199  | )                     
|                        | Forfeited |           | (116,950  | )                     
|                       
|Outstanding at 12/31/02 |           | 6,166,151 |           | $                     

The
following summarizes the Plan's stock options outstanding at December 31, 2002:

|Plan Year |  | Weighted
Average
Exercise Price |        | Shares
Outstanding
At 12/31/02 |           | Remaining
Contractual Life
|--------- |  | ------------------------------- | ------ | ------------------------------ | --------- | --------------------------
|
|2002      |  | $                               | 42.510 |                                | 1,347,350 |                           
|2001      |  |                                 | 37.760 |                                | 1,278,050 |                           
|2000      |  |                                 | 32.499 |                                | 1,143,250 |                           
|1999      |  |                                 | 47.873 |                                | 1,098,200 |                           
|1998      |  |                                 | 42.610 |                                | 738,650   |                           
|1997      |  |                                 | 31.500 |                                | 395,526   |                           
|1996      |  |                                 | 27.875 |                                | 165,125   |                           

161

---

As of December 31, 2002, 2001 and 2000 there were vested options outstanding to purchase 1,299,301, 939,850 and 1,304,863 shares of common stock, respectively, at an exercise price below the
closing market price on that day. The weighted average exercise prices were $37.33, $30.11 and $31.50, respectively.

As
of December 31, 2002, 2001 and 2000 the total number of vested options outstanding were 2,397,501, 1,765,200 and 1,304,863 with weighted average exercise prices of $42.16, $35.90 and $31.50,
respectively.

Pursuant
to employment agreements, effective September 2000, certain senior officers of Con Edison of New York were granted an aggregate of 350,000 restricted stock units, subject to the
officers meeting the terms and conditions of the agreements. In June 2002, an additional 130,000 restricted stock units were granted to certain senior officers of Con Edison of New York under
similar terms. The units, each of which represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or immediately upon the
occurrence of certain events. Pursuant to APB No. 25, Con Edison is recognizing compensation expense and accruing a liability for the units over the vesting period. The expense recognized for
restricted stock during 2002, 2001 and 2000 was $4.2 million, $3.1 million and $0.9 million, respectively.

In
June 2002, Con Edison terminated its Directors' Retirement Plan applicable to non-officer directors (the termination is not applicable to directors who had previously retired
from the board) and adopted a deferred stock compensation plan for these directors. Under the plan, directors were granted stock units for accrued service. Pursuant to APB No. 25, Con Edison
recognizes compensation expense and accrues a liability for the units. An expense of $2.2 million was recorded in 2002.

Note L - Financial Information by Business Segment

Con Edison of New York's business segments were determined based on similarities in economic characteristics, the regulatory environment and management's
reporting requirements. The principal business segments are:



All
revenues of the business segments are from customers located in the United States of America. Also, all assets of its business segments are located in the United States of America. The accounting
policies of the segments are the same as those described in the summary of significant accounting policies. See Note A.

Common
services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

162

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The
financial data for business segments are as follows:

|                              |  | Regulated Electric
|----------------------------- |  | ------------------
|
|
|
|Operating revenues            |  | $                 
|Intersegment revenues         |  |                   
|Depreciation and amortization |  |                   
|Income tax expense            |  |                   
|Operating income              |  |                   
|Interest charge               |  |                   
|Total assets                  |  |                   
|Construction expenditures     |  |                   

|                              |  | Regulated Gas
|----------------------------- |  | -------------
|
|
|
|Operating revenues            |  | $            
|Intersegment revenues         |  |              
|Depreciation and amortization |  |              
|Income tax expense            |  |              
|Operating income              |  |              
|Interest charge               |  |              
|Total assets                  |  |              
|Construction expenditures     |  |              

|                              |  | Regulated Steam
|----------------------------- |  | ---------------
|
|
|
|Operating revenues            |  | $              
|Intersegment revenues         |  |                
|Depreciation and amortization |  |                
|Income tax expense            |  |                
|Operating income              |  |                
|Interest charge               |  |                
|Total assets                  |  |                
|Construction expenditures     |  |                

|                              |  | Total
|----------------------------- |  | -----
|
|
|
|Operating revenues            |  | $    
|Intersegment revenues         |  |      
|Depreciation and amortization |  |      
|Income tax expense            |  |      
|Operating income              |  |      
|Interest charge               |  |      
|Total assets                  |  |      
|Construction expenditures     |  |      

163

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Note M - Related Party Transactions

Con Edison of New York and Con Edison and its other subsidiaries provide administrative and other services to each other pursuant to cost allocation procedures
approved by the PSC. The cost of the services provided by the Company to Con Edison and its other subsidiaries was $30.5 million in 2002, $40.3 million in 2001 and $21.1 million
in 2000. Con Edison and its other subsidiaries, including Orange and Rockland Utilities, Inc. (O&R), also provide services to Con Edison of New York. The cost of the services provided to the
Company by Con Edison and its other subsidiaries was $24.4 million in 2002, $23.8 million in 2001 and $18.7 million in 2000. In addition, Con Edison of New York and O&R jointly
purchase gas, the cost of which is allocated between the companies based on throughput and other factors. For its share of the gas, O&R paid the Company $102.0 million in 2002,
$140.9 million in 2001 and $103.9 million in 2000.

In
February 2002 the FERC authorized Con Edison of New York to lend funds to O&R, for periods of not more than 12 months, in amounts not to exceed $150 million outstanding at any
time, at prevailing market rates. Through December 31, 2002, O&R has not borrowed any funds from the Company.

Note N - Leases

The principal kinds of property leased by the Company include office buildings, transmission and distribution facilities, and equipment. In accordance with SFAS
No. 13, "Accounting for Leases," these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair rental value for
future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

Capital
leases: For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with SFAS No. 71, the amortization of the leased asset is based on the rental
payments recovered through rates. The following assets and obligations under capital leases are included in the accompanying consolidated balance sheet at December 31, 2002 and 2001:

|                        |              | 2002  |      | 2001
|----------------------- | ------------ | ----- | ---- | ----
|
|
|UTILITY PLANT           |              |       |      |     
|                        | Production   |       | $    | -   
|                        | Transmission |       |      | 12.1
|                        | Common       |       |      | 29.0
|                       
|                        |              | TOTAL |      | $   
|                       
|CURRENT LIABILITIES     |              | $     | 2.6  |     
|NON-CURRENT LIABILITIES |              |       | 38.5 |     
|                       
|TOTAL LIABILITIES       |              | $     | 41.1 |     
|                       

The
accumulated amortization of the capital leases was $28.8 million and $26.8 million as of December 31, 2002 and 2001, respectively.

164

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The
future minimum lease commitments for the above assets are as follows:

|                                            |  | (Millions of Dollars)
|------------------------------------------- |  | ---------------------
|                                           
|                                            |  |                      
|2003                                        |  | $                    
|2004                                        |  |                      
|2005                                        |  |                      
|2006                                        |  |                      
|2007                                        |  |                      
|All years thereafter                        |  |                      
|                                           
|Total                                       |  | $                    
|Less: amount representing interest          |  |                      
|                                           
|Present value of net minimum lease payments |  | $                    
|                                           

Operating
leases: In 2002, the Company made payments under non-cancelable operating lease agreements amounting to $36.9 million, of which $27.5 million related to transformer
vault rentals. The payments applicable to transformer vault rentals are expected to escalate by 5 percent per year until the agreement expires in 2004, at which time a new long-term
lease is expected to be signed. The future minimum lease commitments for operating lease agreements are as follows:

|                     |  | (Millions of Dollars)
|-------------------- |  | ---------------------
|                    
|                     |  |                      
|2003                 |  | $                    
|2004                 |  |                      
|2005                 |  |                      
|2006                 |  |                      
|2007                 |  |                      
|All years thereafter |  |                      
|                    
|Total                |  | $                    
|                    

Note O - Derivative Instruments and Hedging Activities

Effective January 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS
No. 133).

Energy Price Hedging

The Company uses derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity
and gas (hedges). As of December 31, 2002 and December 31, 2001, the fair value of the derivatives for such use was a gain of $15.8 million and a loss of $10.3 million,
respectively.

Pursuant
to SFAS No. 71, the Company defers recognition in income of gains and losses on a hedge until the underlying transaction is completed. In accordance with rate provisions that permit
the recovery of the cost of purchased power and gas purchased for resale, the Company credits or charges to its customers gains or losses on hedges and related transaction costs. See "Recoverable
Energy Costs" in Note A.

165

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The
Company's 2000 Electric Agreement provides that 10 percent of gains or losses on hedges flow to net income as rewards or penalties. The Company has elected cash flow hedge accounting under
SFAS No. 133 for a qualifying portion of its electric hedges.

Pursuant
to cash flow hedge accounting, the mark-to-market unrealized gain or loss on each hedge is recorded in other comprehensive income (OCI) and reclassified to income at
the time the underlying transaction is completed. However, any gain or loss relating to any portion of a hedge determined to be "ineffective" is recognized in income in the period in which such
determination is made.

Unrealized
gains and losses on cash flow hedges for energy transactions, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

|                                                                                                          |  | 2002 |     | 2001 |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- | -
|
|
|Unrealized gains/(losses) on derivatives qualifed as hedges, net of $2.3 and ($3.6) taxes                 |  | $    | 3.4 |      | $
|Less: Reclassification adjustment for gains/(losses) included in net income, net of $0.5 and ($2.1) taxes |  |      | 0.7 |      |  
|                                                                                                          | 
|Unrealized gains/(losses) on derivatives qualifed as hedges for the period                                |  | $    | 2.7 |      | $
|                                                                                                          | 

As
of December 31, 2002, $0.6 million of after-tax net gains relating to hedges are expected to be reclassified from accumulated OCI to income within the next
12 months.

Interest Rate Hedging

In October 2002, the Company entered into a swap agreement in connection with its $224.6 million tax-exempt Facilities Revenue Bonds,
Series 2001A. Pursuant to the swap agreement provisions, the Company pays interest at a variable rate equal to the three-month LIBOR and is paid interest at a fixed rate of
5.375 percent. The agreement has a term of 10 years and is callable at par after three years. The swap is designated as a fair value hedge and qualifies for "short-cut" hedge
accounting under SFAS No. 133. Under this method, changes in the fair value of the swap instrument are recorded directly against the carrying value of the hedged bonds and have no impact on
earnings. As of December 31, 2002, the fair value of the interest rate swap was $7.7 million and recorded as an asset and the fair value of the hedged bond was $232.3 million.

Note P - World Trade Center Attack

The Company estimates that it will incur $430 million of costs for emergency response, temporary restoration and permanent replacement of electric, gas
and steam transmission and distribution facilities damaged as a result of the September 11, 2001 attack on the World Trade Center. Most of the costs are expected to be capital in nature. The
Company estimates that $96 million of the costs will be covered by insurance. In December 2001, Con Edison of New York filed a petition with the PSC for authorization to defer these
costs. The Company expects the PSC to permit recovery from customers of the costs, net of any Federal reimbursement, insurance payment and tax savings. In August 2002, President Bush signed
into law an appropriations bill that authorizes funds for which the Company is eligible to apply to recover costs it incurred in connection with the attack. The procedural guidelines for disbursement
of the federal funds are in the process of being developed. At December 31, 2002, $134.4 million of such costs

166

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as utility plant were capitalized and $62.9 million of such costs were deferred as a regulatory asset. In addition, at December 31, 2001, the Company accrued a regulatory liability to
defer recognition in income of an $81.5 million tax refund claim resulting from a casualty loss deduction taken by the Company relating to the attack.

Note Q - New Financial Accounting Standards

During 2002 the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial
Institutions," and SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." The FASB also issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002, and Interpretation No. 46, "Consolidation of Variable Interest
Entities," in January 2003. In addition, during 2002, the FASB's Emerging Issues Task Force (EITF) reached a consensus on several issues within EITF Issue No. 02-3 "Issues
Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF Issue
No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."

SFAS
No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements," effective January 1, 2003. This statement also amends SFAS No. 13 to require sale-leaseback accounting for
certain lease modifications that have an economic impact similar to sale-leaseback transactions and amends certain other authoritative pronouncements, effective May 15, 2002. SFAS
No. 146, which was effective January 1, 2003, requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 147, which was effective October 1, 2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS
No. 148, which amends SFAS No. 123, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the financial statements disclosure requirements of SFAS No. 123 regarding the method of accounting for stock-based employee compensation and the effects
of the method used on reported results. Finally, this statement amends APB No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The
amendment of SFAS No. 123 is effective for fiscal years ended after December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after
December 15, 2002. For information about the Company's stock-based compensation, see Note K.

The
adoption of these statements had no impact on the Company's consolidated financial position, results of operations or liquidity.

Interpretation
No. 45 (FIN 45) requires a guarantor to recognize a liability at the inception of a guarantee for the fair value of the obligations it assumes under that guarantee. It
also requires a guarantor to make significant new disclosures for guarantees even if the likelihood of the guarantor's having to make

167

---

payments under the guarantee is remote. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective December 15, 2002. The adoption of FIN 45 had no impact on the Company's consolidated financial position, results of operation or liquidity.

Interpretation
No. 46 (FIN 46) addresses the consolidation by business enterprises of variable interest entities of which the enterprise is the primary beneficiary. The consolidation
requirements apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was
established. The adoption of FIN 46 is not
expected to have any impact on the Company's consolidated financial position, results of operation or liquidity.

In
June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3 that revenue resulting from energy trading contracts, whether realized or unrealized and whether
financially or physically settled, should be shown net in the income statement. This ruling became effective for periods ending after July 2002, with reclassification of prior period amounts
required.

On
October 25, 2002, the EITF reached a consensus to rescind EITF Issue No. 98-10. As a result, new energy trading and energy-related contracts entered into after
October 25, 2002 that do not qualify as derivatives under SFAS No. 133 are not marked to market. All derivative contracts will be accounted for in accordance with SFAS No. 133.
Therefore, previously recognized mark-to-market gains and losses on non-derivative contracts must be reversed upon adoption of this consensus. The effective date
for the full rescission of EITF Issue No. 98-10 is January 1, 2003, with early application permitted.

In
October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the
income statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus is effective January 1, 2003, with early adoption permitted.
Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission of EITF
Issue No. 98-10.

The
EITF did not reach consensus on whether or not recognition of unrealized gains and losses at inception of an energy-trading contract is appropriate. However, the FASB staff observed that
unrealized gains or losses at inception should not be recognized unless the fair value of the derivative instrument is evidenced by a quoted market price, similar current market transactions or
valuations based on observable market information.

The
above consensus had no impact on the Company's consolidated financial position, results of operation or liquidity.

The
Company also adopted the following accounting standards that were issued in 2001.

On
January 1, 2002, Con Edison adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill (i.e., the excess of cost over fair value of the
net assets of a business

168

---

acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. Other intangible assets will continue to be amortized
over their finite useful lives. The adoption of SFAS No. 142 had no impact on the Company's consolidated financial position, results of operations or liquidity.

SFAS
No. 143, "Accounting for Asset Retirement Obligations," which the Company adopted on January 1, 2003, requires entities to record the fair value of a liability associated with an
asset retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be
increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation
for the amount recorded or incur a gain or loss. The Company has not identified any significant asset retirement obligations. The adoption of SFAS No. 143 did not have a material impact on the
Company's consolidated financial position, results of operations, or liquidity.

SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which the Company adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting
other specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS
No. 144 had no impact on the Company's consolidated financial position, results of operations or liquidity.

169

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors of Orange and Rockland Utilities, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of
Orange and Rockland Utilities, Inc. and its subsidiaries (the Company) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule
listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

PricewaterhouseCoopers
LLP
New York, NY
February 20, 2003

170

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Orange and Rockland Utilities, Inc.CONSOLIDATED BALANCE SHEET

|                                                                |                                                                                                               | As At
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | -----
|
|
|
|ASSETS                                                          |                                                                                                               |      
|UTILITY PLANT, AT ORIGINAL COST(Note A)                         |                                                                                                               |      
|                                                                | Electric                                                                                                      |      
|                                                                | Gas                                                                                                           |      
|                                                                | General                                                                                                       |      
|                                                               
|                                                                | Total                                                                                                         |      
|                                                                | Less: accumulated depreciation                                                                                |      
|                                                               
|                                                                | Net                                                                                                           |      
|                                                                | Construction work in progress                                                                                 |      
|                                                               
|NET UTILITY PLANT                                               |                                                                                                               |      
|                                                               
|NON-UTILITY PLANT(Note A)                                       |                                                                                                               |      
|                                                                | Non-utility property, less accumulated depreciation of $2,055 and $2,339 in 2002 and 2001, respectively       |      
|                                                               
|NET PLANT                                                       |                                                                                                               |      
|                                                               
|CURRENT ASSETS                                                  |                                                                                                               |      
|                                                                | Cash and temporary cash investments (Note A)                                                                  |      
|                                                                | Accounts receivable  customers, less allowance for uncollectible accounts of $1,725 and $2,625, respectively |      
|                                                                | Other accounts receivable, less allowance for uncollectible accounts of $1,070 and $860, respectively         |      
|                                                                | Accrued unbilled revenue (Note A)                                                                             |      
|                                                                | Gas in storage, at average cost                                                                               |      
|                                                                | Materials and supplies, at average cost                                                                       |      
|                                                                | Prepayments                                                                                                   |      
|                                                                | Other current assets                                                                                          |      
|                                                               
|TOTAL CURRENT ASSETS                                            |                                                                                                               |      
|                                                               
|DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS       |                                                                                                               |      
|                                                                | Regulatory assets                                                                                             |      
|                                                                |                                                                                                               |      
|                                                                |                                                                                                               |      
|                                                                |                                                                                                               |      
|                                                                |                                                                                                               |      
|                                                                |                                                                                                               |      
|                                                                |                                                                                                               |      
|                                                               
|                                                                | TOTAL REGULATORY ASSETS                                                                                       |      
|                                                                | Other deferred charges and noncurrent assets                                                                  |      
|                                                               
|TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS |                                                                                                               |      
|                                                               
|TOTAL ASSETS                                                    |                                                                                                               | $    
|                                                               

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

171

---

Orange and Rockland Utilities, Inc.CONSOLIDATED BALANCE SHEET

|                                                            |                                                      | As At
|----------------------------------------------------------- | ---------------------------------------------------- | -----
|
|
|
|CAPITALIZATION AND LIABILITIES                              |                                                      |      
|CAPITALIZATION (see Statement of Capitalization and Note B) |                                                      |      
|                                                            | Common shareholders' equity                          |      
|                                                            | Long-term debt                                       |      
|                                                           
|TOTAL CAPITALIZATION                                        |                                                      |      
|                                                           
|NONCURRENT LIABILITIES                                      |                                                      |      
|                                                            | Pension and benefits reserve                         |      
|                                                            | Hedges on variable rate long term-debt (Note N)      |      
|                                                            | Superfund and other environmental costs (Note F)     |      
|                                                            | Other noncurrent liabilities                         |      
|                                                           
|TOTAL NONCURRENT LIABILITIES                                |                                                      |      
|                                                           
|CURRENT LIABILITIES                                         |                                                      |      
|                                                            | Long-term debt due within one year                   |      
|                                                            | Notes payable                                        |      
|                                                            | Accounts payable                                     |      
|                                                            | Accounts payable to affiliated companies             |      
|                                                            | Accrued taxes                                        |      
|                                                            | Customer deposits                                    |      
|                                                            | Accrued interest                                     |      
|                                                            | Other current liabilities                            |      
|                                                           
|TOTAL CURRENT LIABILITIES                                   |                                                      |      
|                                                           
|DEFERRED CREDITS AND REGULATORY LIABILITIES                 |                                                      |      
|                                                            | Accumulated deferred federal income tax (Note K)     |      
|                                                            | Accumulated deferred investment tax credits (Note A) |      
|                                                            | Regulatory liabilities                               |      
|                                                            |                                                      |      
|                                                            |                                                      |      
|                                                            |                                                      |      
|                                                            |                                                      |      
|                                                            |                                                      |      
|                                                           
|                                                            | TOTAL REGULATORY LIABILITIES                         |      
|                                                            | Other deferred credits                               |      
|                                                           
|TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES           |                                                      |      
|                                                           
|TOTAL CAPITALIZATION AND LIABILITIES                        |                                                      | $    
|                                                           

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

172

---



Orange and Rockland Utilities, Inc.CONSOLIDATED INCOME STATEMENT

|                                |                                                                | For the Years Ended December 31, |        
|------------------------------- | -------------------------------------------------------------- | -------------------------------- | -------
|
|
|
|OPERATING REVENUES (NOTE A)     |                                                                |                                  |        
|                                | Electric                                                       |                                  | $      
|                                | Gas                                                            |                                  |        
|                                | Non-utility                                                    |                                  |        
|                                |                                                               
|TOTAL OPERATING REVENUES        |                                                                |                                  | 634,300
|                                |                                                               
|OPERATING EXPENSES              |                                                                |                                  |        
|                                | Purchased power                                                |                                  |        
|                                | Fuel                                                           |                                  |        
|                                | Gas purchased for resale                                       |                                  |        
|                                | Other operations                                               |                                  |        
|                                | Maintenance                                                    |                                  |        
|                                | Depreciation and amortization (Note A)                         |                                  |        
|                                | Taxes, other than income taxes (Note A)                        |                                  |        
|                                | Income taxes (Notes A and K)                                   |                                  |        
|                                |                                                               
|TOTAL OPERATING EXPENSES        |                                                                |                                  | 562,640
|                                |                                                               
|OPERATING INCOME                |                                                                |                                  | 71,660 
|                                |                                                               
|OTHER INCOME (DEDUCTIONS)       |                                                                |                                  |        
|                                | Investment income (Note A)                                     |                                  |        
|                                | Allowance for equity funds used during construction (Note A)   |                                  |        
|                                | Other income                                                   |                                  |        
|                                | Other income deductions                                        |                                  |        
|                                | Income taxes (Notes A and K)                                   |                                  |        
|                                |                                                               
|TOTAL OTHER INCOME (DEDUCTIONS) |                                                                |                                  | 1,456  
|                                |                                                               
|INCOME BEFORE INTEREST CHARGES  |                                                                |                                  | 73,116 
|                                | Interest on long-term debt                                     |                                  |        
|                                | Other interest                                                 |                                  |        
|                                | Allowance for borrowed funds used during construction (Note A) |                                  |        
|                                |                                                               
|NET INTEREST CHARGES            |                                                                |                                  | 28,220 
|                                |                                                               
|NET INCOME FOR COMMON STOCK     |                                                                | $                                | 44,896 
|                                |                                                               

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

173

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Orange and Rockland Utilities, Inc.CONSOLIDATED STATEMENT OF RETAINED EARNINGS

|                     |                             | For the Years Ended December 31, |        
|-------------------- | --------------------------- | -------------------------------- | -------
|
|
|
|BALANCE, JANUARY 1   |                             | $                                | 151,792
|                     | Net income for common stock |                                  |        
|                     |                            
|TOTAL                |                             |                                  | 196,688
|                     |                            
|                     | Dividends to parent         |                                  |        
|                     | Capital stock expense       |                                  |        
|                     |                            
|BALANCE, DECEMBER 31 |                             | $                                | 168,688
|                     |                            

Orange and Rockland Utilities, Inc.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

|                                                      |                                                                                                                                                              | For the Years Ended December 31, |       
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------- | ------
|
|
|
|NET INCOME FOR COMMON STOCK                           |                                                                                                                                                              | $                                | 44,896
|OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES       |                                                                                                                                                              |                                  |       
|                                                      | Investment in marketable securities, net of ($854), ($703) and ($454) taxes in 2002, 2001 and 2000, respectively                                             |                                  |       
|                                                      | Minimum pension liability adjustments, net of $14, ($278) and ($340) taxes in 2002, 2001 and 2000, respectively                                              |                                  |       
|                                                      | Unrealized gains/(losses) on derivatives qualified as hedges due to the cumulative effect of a change in accounting principle, net of ($5,709) taxes in 2001 |                                  |       
|                                                      | Unrealized gains/(losses) on derivatives qualified as hedges net of ($3,101) and ($999) taxes in 2002 and 2001, respectively                                 |                                  |       
|                                                      | Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,096) and ($844) taxes in 2002 and 2001, respectively                 |                                  |       
|                                                      |                                                                                                                                                             
|TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES |                                                                                                                                                              |                                  | (4,060
|                                                      |                                                                                                                                                             
|COMPREHENSIVE INCOME                                  |                                                                                                                                                              | $                                | 40,836
|                                                      |                                                                                                                                                             

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

174

---



Orange and Rockland Utilities, Inc.CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                 |                                                | For the Years Ended December 31, |                                                                        
|------------------------------------------------ | ---------------------------------------------- | -------------------------------- | -----------------------------------------------------------------------
|
|
|
|OPERATING ACTIVITIES                             |                                                |                                  |                                                                        
|                                                 | Net income for common stock                    |                                  | $                                                                      
|                                                 | PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME |                                  |                                                                        
|                                                 |                                                |                                  | Depreciation and amortization                                          
|                                                 |                                                |                                  | Deferred income tax                                                    
|                                                 |                                                |                                  | Common equity component of allowance for funds used during construction
|                                                 |                                                |                                  | Other comprehensive income                                             
|                                                 |                                                |                                  | Unrealized hedges on variable rate long term debt and energy trading   
|                                                 |                                                |                                  | Gain on sale of land (net of tax)                                      
|                                                 | CHANGES IN ASSETS AND LIABILITIES              |                                  |                                                                        
|                                                 |                                                |                                  | Accounts receivable  customers, less allowance for uncollectibles     
|                                                 |                                                |                                  | Materials and supplies, including fuel and gas in storage              
|                                                 |                                                |                                  | Prepayments, other receivables and other current assets                
|                                                 |                                                |                                  | Recoverable energy costs                                               
|                                                 |                                                |                                  | Retiree benefit reserve                                                
|                                                 |                                                |                                  | Accounts payable                                                       
|                                                 |                                                |                                  | Accrued taxes                                                          
|                                                 |                                                |                                  | Accrued interest                                                       
|                                                 |                                                |                                  | Deferred debits and regulatory assets                                  
|                                                 |                                                |                                  | Deferred credits and regulatory liabilities                            
|                                                 |                                                |                                  | Other assets                                                           
|                                                 |                                                |                                  | Other liabilities                                                      
|                                                 |                                               
|NET CASH FLOWS FROM OPERATING ACTIVITIES         |                                                |                                  | 102,877                                                                
|                                                 |                                               
|INVESTING ACTIVITIES                             |                                                |                                  |                                                                        
|                                                 |                                                |                                  | Construction expenditures                                              
|                                                 |                                                |                                  | Cost of removal less salvage                                           
|                                                 |                                                |                                  | Common equity component of allowance for funds used during construction
|                                                 |                                                |                                  | Proceeds from sale of land (net of tax)                                
|                                                 |                                               
|NET CASH FLOWS USED IN INVESTING ACTIVITIES      |                                                |                                  | (58,520                                                                
|                                                 |                                               
|FINANCING ACTIVITIES                             |                                                |                                  |                                                                        
|                                                 |                                                |                                  | Short-term debt                                                        
|                                                 |                                                |                                  | Issuance of long-term debt                                             
|                                                 |                                                |                                  | Retirement of long-term debt                                           
|                                                 |                                                |                                  | Dividend to parent                                                     
|                                                 |                                               
|NET CASH FLOWS USED IN FINANCING ACTIVITIES      |                                                |                                  | (43,600                                                                
|                                                 |                                               
|CASH AND TEMPORARY CASH INVESTMENTS:             |                                                |                                  |                                                                        
|NET CHANGE FOR THE PERIOD                        |                                                |                                  | 757                                                                    
|BALANCE AT BEGINNING OF PERIOD                   |                                                |                                  | 1,785                                                                  
|                                                 |                                               
|BALANCE AT END OF PERIOD                         |                                                | $                                | 2,542                                                                  
|                                                 |                                               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |                                                |                                  |                                                                        
|                                                 |                                                |                                  | Cash paid during the period for:                                       
|                                                 |                                                |                                  |                                                                        
|                                                 |                                                |                                  |                                                                        
|                                                 |                                               

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

175

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Orange and Rockland Utilities, Inc. and SubsidiariesCONSOLIDATED STATEMENT OF CAPITALIZATION

|                                     |                                                                                          |  |                                                                                                                                                          |  |  | Shares outstanding |         | Years Ended December 31, |      
|------------------------------------ | ---------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------ | ------- | ------------------------ | -----
|
|
|
|
|                                     |                                                                                          |  |                                                                                                                                                          |  |  |                    |         |                          |      
|COMMON SHAREHOLDER'S EQUITY (NOTE B) |                                                                                          |  |                                                                                                                                                          |  |  |                    |         |                          |      
|                                     | Common stock                                                                             |  |                                                                                                                                                          |  |  |                    | 1,000   |                          | 1,000
|                                     | Retained earnings                                                                        |  |                                                                                                                                                          |  |  |                    |         |                          |      
|                                     | Additional Paid in Capital                                                               |  |                                                                                                                                                          |  |  |                    |         |                          |      
|                                     | ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)                                            |  |                                                                                                                                                          |  |  |                    |         |                          |      
|                                     |                                                                                          |  | Investment in marketable securities, net of ($2,011) and ($1,157) taxes in 2002 and 2001, respectively                                                   |  |  |                    |         |                          |      
|                                     |                                                                                          |  | Minimum pension liability adjustments, net of ($604) and ($618) taxes in 2002 and 2001, respectively                                                     |  |  |                    |         |                          |      
|                                     |                                                                                          |  | Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5,709) taxes in 2001 |  |  |                    |         |                          |      
|                                     |                                                                                          |  | Unrealized gains/(losses) on derivatives qualified as hedges, net of ($9,809) and ($999) taxes in 2002 and 2001, respectively                            |  |  |                    |         |                          |      
|                                     |                                                                                          |  | Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1,940) and ($844) taxes in 2002 and 2001, respectively             |  |  |                    |         |                          |      
|                                     |                                                                                          |  |                                                                                                                                                          |  |  |                    |         |                          |      
|                                     | TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) INCLUDED IN NET INCOME, NET OF TAXES |  |                                                                                                                                                          |  |  |                    |         | (14,965                  | )    
|                                     |                                                                                         
|TOTAL COMMON SHAREHOLDER'S EQUITY    |                                                                                          |  |                                                                                                                                                          |  |  | $                  | 348,227 |                          | $    
|                                     |                                                                                         

Long-term debt (Note B)

|                                                                                                                                |      | Interest Rate |       |   |      |   |  |  |  | At December 31, |        
|------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------- | ----- | - | ---- | - |  |  |  | --------------- | -------
|
|
|
|Debentures:                                                                                                                     |      |               |       |   |      |   |  |  |  |                 |        
|                                                                                                                                | 2003 |               | 6.560 | % | 1993 | D |  |  |  |                 |        
|                                                                                                                                | 2007 |               | 7.125 | % | 1997 | J |  |  |  |                 |        
|                                                                                                                                | 2010 |               | 7.50  | % | 2000 | A |  |  |  |                 |        
|                                                                                                                                | 2018 |               | 7.07  | % | 1998 | C |  |  |  |                 |        
|                                                                                                                                | 2027 |               | 6.50  | % | 1997 | F |  |  |  |                 |        
|                                                                                                                                | 2029 |               | 7.0   | % | 1999 | G |  |  |  |                 |        
|                                                                                                                                |     
|TOTAL DEBENTURES                                                                                                                |      |               |       |   |      |   |  |  |  |                 | 238,200
|                                                                                                                                |     
|TAX-EXEMPT DEBT - NOTES ISSUED TO NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FOR POLLUTION CONTROL REVENUE BONDS: |     
|                                                                                                                                | 2014 |               | 6.09  | % | 1994 |   |  |  |  |                 |        
|                                                                                                                                | 2015 |               | 1.45  |   | 1995 | * |  |  |  |                 |        
|                                                                                                                                |     
|TOTAL TAX-EXEMPT DEBT                                                                                                           |      |               |       |   |      |   |  |  |  |                 | 99,000 
|                                                                                                                                |     
|UNAMORTIZED DEBT DISCOUNT                                                                                                       |      |               |       |   |      |   |  |  |  |                 | (1,310 
|                                                                                                                                |     
|Total                                                                                                                           |      |               |       |   |      |   |  |  |  |                 | 335,890
|Less: Long-term debt due within one year                                                                                        |      |               |       |   |      |   |  |  |  |                 | 35,000 
|                                                                                                                                |     
|TOTAL LONG-TERM DEBT                                                                                                            |      |               |       |   |      |   |  |  |  |                 | 300,890
|                                                                                                                                |     
|TOTAL CAPITALIZATION                                                                                                            |      |               |       |   |      |   |  |  |  | $               | 649,117
|                                                                                                                                |     



176

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ORANGE AND ROCKLAND UTILITIES, INC.

These notes form an integral part of the accompanying consolidated financial statements of Orange and Rockland Utilities, Inc. (O&R or the Company) and
its subsidiaries.

Con Edison

Consolidated Edison, Inc. (Con Edison) acquired O&R in July 1999. Con Edison owns all the issued and outstanding shares of O&R's common stock,
$5.00 par value per share.

O&R,
a regulated utility, along with its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike), provide electric service to over 285,000 customers
in southeastern New York and in adjacent sections of New Jersey and northeastern Pennsylvania. O&R and Pike provide gas service to over 120,000 customers in southeastern New York and northeastern
Pennsylvania.

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of O&R and all of its subsidiaries. All intercompany balances and transactions have been eliminated.

Accounting Policies

The accounting policies of O&R and its subsidiaries conform to accounting principles generally accepted in the United States of America. For regulated public
utilities, like O&R, RECO and Pike, accounting principles generally accepted in the United States of America include the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." In accordance with SFAS No. 71, the accounting requirements of the Federal Energy Regulatory
Commission (FERC) and the state public utility regulatory authority having jurisdiction are followed. The Company is subject to regulation by the New York State Public Service Commission (PSC); RECO
by the New Jersey Board of Public Utilities (NJBPU) and Pike by the Pennsylvania Public Utility Commission (PPUC).

SFAS
No. 71 specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be
accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will
be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under SFAS No. 71. If revenues are recorded for costs that are expected to be incurred in
the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under SFAS No. 71.

The
Company's principal regulatory assets and liabilities are detailed on the consolidated balance sheet. The Company is receiving or being credited with a return on all of its regulatory assets for
which a cash
outflow has been made, and is paying or being charged with a return on all of its regulatory liabilities for which a cash inflow has been received. Regulatory assets and liabilities will be recovered
from customers,

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or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

Rate and Restructuring Agreements

Electric

In 1997 the PSC, in its Competitive Opportunities proceeding, approved a four-year Restructuring Plan pursuant to which the Company reduced its
electric rates in 1997 and 1998, and in 1999 sold all of its generating assets and made retail access available to all of its electric customers.

The
RECO plan approved by the NJBPU in 1999 provided rate reductions of $6.8 million effective August 1999 and an additional rate reduction of $2.7 million implemented in
January 2001. A final rate reduction of $6.2 million was implemented in August 2002.

The
Pike plan approved by the PPUC in 1998 provided retail access to all customers effective May 1999.

In
1999, the PSC ratified a settlement agreement approving the acquisition of O&R by Con Edison. As part of this settlement, gas rates were reduced by $1.1 million in August 1999 and
electric rates were reduced by $6.1 million in December 1999. This settlement allowed for a five-year amortization of transaction costs. The NJBPU and the PPUC also issued
orders approving the transaction. The NJBPU's order provided for a 75/25 percent customer/shareholder sharing of net synergy savings and a ten-year amortization of
transaction costs. The customers' 75 percent share of net synergy savings is being returned to them as part of the rate reduction effective August 1999. The PPUC agreement allows Pike to
retain all net synergy savings until its next general rate case and provides for a five-year amortization of transaction costs.

In
October 2002, RECO filed a request with the NJBPU seeking an increase in electric rates of $7.3 million (5.5 percent) annually, to take effect on August 1, 2003,
principally to reflect the costs of electric system infrastructure improvements required for service reliability and security. A final ruling by the NJBPU is expected in the third quarter of 2003.

In
August 2002, the PPUC approved a settlement agreement covering the rates Pike charges for energy cost recoveries. As part of this settlement, Pike agreed to terminate its Competitive
Transition Charge (CTC) and not to file for an increase in delivery rates that would be effective prior to December 31, 2004. The settlement provides for an increase in Pike's Provider of Last
Resort (POLR) energy rates of .577 cents per kWh, inclusive of gross receipts tax, retroactive to July 1, 2002. This represents approximately a 6.0 percent increase in Pike's overall
rates. A potential further increase of 5.0 percent of the POLR energy rate or an addition of .28 cents per kWh effective January 2005 is contingent on the actual and projected cost of
energy at that time. The settlement is estimated to increase revenues by a net $1.4 million between September 2002 and December 2005.

Gas

In November 2000, the PSC authorized implementation of an agreement among O&R, the PSC Staff, and the Consumer Protection Board covering the period from
November 2000 through April 2002. In October 2001, the PSC approved an extension of this agreement covering the period May 2002 through October 2003. With limited
exceptions, the agreement, as extended, provides for no changes to base rates. The Company was permitted to retain, and is amortizing to income, $18.1 million of deferred

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credits that otherwise would have been returned to customers. Earnings for gas operations above a threshold of 11.1 percent are subject to a 50/50 sharing mechanism between
customer and shareholder. The 11.1 percent sharing threshold is subject to a positive adjustment of up to 85 basis points for the attainment of competitive awareness and customer migration
goals. The Company is subject to a potential earnings penalty of $450,000 per year for failure to meet minimum levels of performance regarding main replacement, gas leak backlog, customer safety
complaints and protection of underground facilities.

In
November 2002, O&R filed a request with the PSC for approval of a $27.2 million rate gas increase effective November 2003. The Company also submitted a multi-year
plan that addresses
rates for two additional years, with an increase of $2.5 million to cover infrastructure costs, inflation and property taxes. The Administrative Law Judge is expected to issue a recommended
decision in the third quarter 2003.

Utility Revenues

Utility revenues are recorded on the basis of monthly customer cycle billings. Unbilled revenues are accrued at the end of each month for estimated energy usage
since the last meter reading. Accrued unbilled revenue included in the Company's balance sheet at December 31, 2002 and 2001 was $20.4 million and $20.7 million, respectively.

The
level of revenues from gas sales in New York is subject to a weather normalization clause that requires recovery from or refund to firm customers of the shortfalls or excesses of firm net revenues
that result from variations of more than plus or minus four percent in actual degree days from the number of degree days used to project heating season sales.

Recoverable Energy Costs

O&R generally recovers all of its prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions
approved by the applicable state public utility commissions. If the actual energy costs for a given month are more or less than amounts billed to customers for that month, the difference is
recoverable from or refundable to customers. Differences between actual and billed energy costs are generally deferred for charge or refund to customers during the next billing cycle (normally within
one or two months). For gas costs, differences between actual and billed gas costs during the 12-month period ending each August are charged or refunded to customers during a subsequent
12-month period.

RECO
recovers all of its prudently incurred purchased power costs pursuant to rate provisions approved by the NJBPU. Differences between actual and billed electricity costs (which, for the period
August 1, 1999 through December 31, 2002 amounted to $79.7 million) are deferred for charge or refund to customers in the manner and at such time as is to be determined by the
NJBPU. In August 2002, RECO submitted a petition to the NJBPU requesting recovery under New Jersey's 1999 Electric Discount and Energy Competition Act of $110 million of electric
purchased power costs in excess of amounts previously billed to customers, associated interest and other deferred charges. Recovery of these costs from
customers is requested over a four-year period or pursuant to a plan to "securitize" the costs (under which RECO would be reimbursed these costs with the proceeds of a financing that would
be repaid over

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time by its customers). In January 2003, the initial results of an independent audit, commissioned by the NJBPU to review the prudence of these deferred costs, were issued. The audit
recommends that RECO be disallowed recovery of $26.8 million of such costs and associated interest of $2.6 million. The Company believes that its actions were prudent and has filed a
response to the audit findings. A decision on the recovery of these purchased power costs by the NJBPU is expected in the third quarter of 2003.

Pike's
recoveries of its energy costs are limited to a fixed price reflected in its current rates. In August 2002, the PPUC approved a settlement agreement covering the rates Pike charges for
energy cost recoveries. See "Rate and Restructuring Agreements" above.

Plant and Depreciation

Utility
Plant

Utility plant is stated at original cost. The capitalized cost of additions to utility plant includes indirect costs such as engineering, supervision, payroll
taxes, pensions, other benefits and an allowance for funds used during construction (AFDC). The original cost of property, together with removal cost, less salvage, is charged to accumulated
depreciation as property is retired. The cost of repairs and maintenance is charged to expense and the cost of betterments is capitalized.

Rates
used for AFDC include the cost of borrowed funds and a reasonable rate on the utility's own funds when so used, determined in accordance with regulations of FERC and the state public utility
regulatory authority having jurisdiction. The AFDC rate for O&R was 8.4 percent in 2002, 4.6 percent in 2001 and 7.4 percent in 2000. The AFDC rate for RECO was 9.2 percent
in 2002, 9.1 percent in 2001 and 9.1 percent in 2000. The rate was compounded semiannually, and the amounts applicable to borrowed funds were treated as a reduction of interest charges
while the amounts applicable to the regulated utilities' own funds is credited to other income (deductions).

For
financial reporting purposes, depreciation rates are computed on the straight-line method based on the estimated average service lives and net salvage factors of the various classes of
property. The Company's depreciation rates averaged 3.3 percent in 2002 and 2001 and 3.4 percent in 2000. The estimated lives for utility plant range from 5 to 60 years for
electric, 7 to 75 years for gas and 5 to 50 years for general plant.

Non-utility
Plant

Non-utility plant is stated at original cost and consists primarily of land and assets that are currently not utilized within utility operations.
Depreciation is computed for financial statement purposes using the straight-line method over the estimated useful lives of the assets (7 - 50 years).

Temporary Cash Investments

Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at
cost, which approximates market. O&R considers temporary cash investments to be cash equivalents.

Federal Income Tax

In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company has recorded an accumulated deferred federal income tax liability for
temporary differences between the book and tax basis of assets and liabilities at current tax rates. In accordance with rate agreements, the Company has

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recovered amounts from customers for a portion of the tax liability it will pay in the future as a result of the reversal or "turn-around" of these temporary differences. As to the
remaining tax liability, in accordance with SFAS No. 71, regulatory assets have been established for the net revenue requirements to be recovered from customers for the related future tax
expense (see Note K). In 1993, the PSC issued a Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in
taxes will be recoverable in rates.

Accumulated
deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction in future federal income tax expense.

O&R
and its subsidiaries file a consolidated federal income tax return as part of the consolidated return for Con Edison. The consolidated income tax liability is allocated to each member of
the consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the
members of the consolidated group.

State Income Tax

The New York State tax laws applicable to utility companies were changed, effective January 1, 2000. Certain revenue-based taxes were repealed or reduced
and replaced by a net income-based tax. In June 2001, the PSC issued its final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the
difference between taxes being collected and the tax expense resulting from the tax law changes, until those changes are incorporated in base rates.

O&R
and its subsidiaries file a combined New York State Corporation Business Franchise Tax Return on a consolidated basis with Con Edison and its other subsidiaries. Similar to a federal
consolidated income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and
apportionment of income among the states in which the Company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss.

Taxes Other Than Income Taxes

The PSC requires the Company to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue
and expense). The recovery of these taxes is part of the PSC approved revenue requirement within each of the respective regulated rate agreements.

Deferred Revenue Taxes

Deferred revenue taxes represent the unamortized balance of an accelerated payment of New Jersey Gross Receipts and Franchise Tax (NJGRFT) required by
legislation effective June 1, 1991, as well as New York State Metropolitan Transportation Authority taxes that are deferred and amortized over a 12-month period following payment,
in accordance with the requirements of the PSC. The deferred NJGRFT is being recovered in rates, with a carrying charge of 7.5 percent on the unamoritized balance, over a five-year
period.

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Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Stock-Based Compensation

The Company applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based compensation plans. See Note L. The following table illustrates the effect on net income if the Company had applied the
fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

|                        |  | 2002 |    | 2001 |   | 2000
|----------------------- |  | ---- | -- | ---- | - | ----
|
|
|Net income, as reported |  | $    | 45 |      | $ | 40  
|Pro forma net income    |  | $    | 45 |      | $ | 40  

These
pro forma amounts may not be representative of future disclosures due to changes in future market conditions and additional grants in future years.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Note B - Capitalization

Common Stock

At December 31, 2002 and 2001, O&R had 1,000 shares of common stock, $5.00 par value per share, issued and outstanding, all of which was owned by Con
Edison. Con Edison acquired O&R in July 1999.

Dividends

In accordance with PSC requirements, the dividends that O&R may pay are limited to not more than 100 percent of its income available for dividends,
calculated on a two-year rolling average basis. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from accounting
changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer to Con Edison proceeds from major transactions,
such as asset sales, or to dividends reducing O&R's equity ratio to a level appropriate to its business risk.

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Long-Term Debt

Long-term debt maturing in the period 2003-2007 is as follows:

|    
|----
|
|2003
|2004
|2005
|2006
|2007
|    

Long-term
debt includes the notes issued by O&R to the New York State Energy Research and Development Authority (NYSERDA) for the net proceeds of NYSERDA's $55 million aggregate
principal amount of Series 1994A and $44 million aggregate principal amount of Series 1995A Pollution Control Refunding Revenue Bonds. The interest rate determination method for
this debt is subject to change in accordance with the related indenture, and the debt currently bears interest at a weekly rate determined by its remarketing agent. The debt is subject to optional
and, in certain circumstances, mandatory tender for purchase by the Company. See Note N.

At
December 31, 2002, long term-debt also includes $23.2 million of mortgage bonds collateralized by substantially all the utility plant and other physical property of O&R's
utility subsidiaries, RECO and Pike.

Long-term
debt is stated at cost, which, as of December 31, 2002 approximates fair value (estimate based on current rates for debt of the same remaining maturities).

Significant Debt Covenants

There are no significant debt covenants, other than obligations to pay principal and interest when due and covenants not to consolidate with or merge into any
other corporation unless certain conditions are met, and no cross default provisions, under the financing arrangements for the
debentures of O&R. The tax-exempt financing arrangements of O&R are subject to these covenants and the covenants discussed below.

The
tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of O&R to NYSERDA in exchange for the net proceeds of a like-amount of
tax-exempt bonds with substantially the same terms sold to the public by NYSERDA. The tax-exempt financing arrangements include covenants with respect to the
tax-exempt status of the financing, including covenants with respect to a disqualifying change in use of the facilities financed. The arrangements also include provisions for the
maintenance of liquidity and credit facilities.

The
failure to comply with these debt covenants, if continued, would, except as otherwise provided, constitute an event of default with respect to the debt to which such provisions applied, in which
case the principal and accrued interest on the debt may and, in certain circumstances would, become due and payable immediately.

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Note C - Short-term Borrowing

At December 31, 2002, the Company had a $100 million commercial paper program under which short-term borrowings are made at prevailing
market rates. The program is supported by a revolving credit agreement with banks. At December 31, 2002, $1.0 million, at a weighted average interest rate of 1.3 percent per
annum, was outstanding under the program. The Company may change the amount of its program from time to time, subject to a $150 million FERC-authorized limit.

Bank
commitments under the revolving credit agreement were renewed in November 2002. The commitments may terminate upon a change in control of Con Edison or O&R and borrowings under the
agreement are subject to certain conditions, including that the ratio (calculated in accordance with the agreement) of debt to total capital of the borrower does not at any time exceed 0.65 to 1. At
December 31, 2002, the ratio was 0.49 to 1 for O&R. Borrowings under the agreement are not subject to maintenance of credit rating levels. The fees charged for the revolving credit agreement
and borrowings under the agreement reflect the credit ratings of the Company.

See
Note I for information about short-term borrowing from a related party, which the FERC has authorized.

Note D - Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees and retirees of O&R,
pursuant to the Consolidated Edison Retirement Plan (which resulted from the merger, effective January 1, 2001, of the separate pension plans previously applicable to the employees and retirees
of Con Edison of New York and O&R). The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.

Investment
gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

Consistent
with the provisions of SFAS No. 71, the Company defers for future recovery any difference between expenses recognized under SFAS No. 87, "Employers' Accounting for Pensions"
and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The
components of the Company's net periodic benefit costs for 2002, 2001 and 2000 were as follows:

|                                                 |  | 2002 |         | 2001 |   | 2000    |  
|------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|
|
|Service cost - including administrative expenses |  | $    | 6,355   |      | $ | 6,251   |  
|Interest cost on projected benefit obligation    |  |      | 27,589  |      |   | 27,016  |  
|Expected return on plan assets                   |  |      | (24,797 | )    |   | (24,831 | )
|Amortization of net actuarial loss               |  |      | 5,825   |      |   | 4,547   |  
|Amortization of prior service cost               |  |      | 431     |      |   | 416     |  
|                                                 | 
|NET PERIODIC BENEFIT COST                        |  |      | 15,403  |      |   | 13,399  |  
|                                                 | 
|Deferred and capitalized                         |  |      | 12,965  |      |   | 10,582  |  
|                                                 | 
|Net expense                                      |  | $    | 2,438   |      | $ | 2,817   |  
|                                                 | 

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The
funded status at December 31, 2002, 2001 and 2000 was as follows:

|                                                  |  | 2002 |          | 2001 |   | 2000     |  
|------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|
|
|CHANGE IN PROJECTED BENEFIT OBLIGATION            |  |      |          |      |   |          |  
|Projected benefit obligation at beginning of year |  | $    | 374,424  |      | $ | 358,173  |  
|Service cost - excluding administrative expenses  |  |      | 5,955    |      |   | 5,852    |  
|Interest cost on projected benefit obligation     |  |      | 27,589   |      |   | 27,016   |  
|Plan amendments                                   |  |      | -        |      |   | 273      |  
|Net actuarial loss                                |  |      | 16,482   |      |   | 2,763    |  
|Benefits paid                                     |  |      | (21,001  | )    |   | (19,653  | )
|                                                  | 
|PROJECTED BENEFIT OBLIGATION AT END OF YEAR       |  | $    | 403,449  |      | $ | 374,424  |  
|                                                  | 
|CHANGE IN PLAN ASSETS                             |  |      |          |      |   |          |  
|Fair value of plan assets at beginning of year    |  | $    | 236,213  |      | $ | 270,127  |  
|Actual return on plan assets                      |  |      | (19,374  | )    |   | (14,955  | )
|Employer contributions                            |  |      | 1,855    |      |   | 1,797    |  
|Benefits paid                                     |  |      | (21,001  | )    |   | (19,653  | )
|Administrative expenses                           |  |      | (952     | )    |   | (1,103   | )
|                                                  | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR          |  | $    | 196,741  |      | $ | 236,213  |  
|                                                  | 
|Funded status                                     |  | $    | (206,708 | )    | $ | (138,211 | )
|Unrecognized net loss                             |  |      | 144,639  |      |   | 89,258   |  
|Unrecognized prior service costs                  |  |      | 4,540    |      |   | 4,972    |  
|                                                  | 
|ACCRUED BENEFIT COST                              |  | $    | (57,529  | )    | $ | (43,981  | )
|                                                  | 

The
amounts recognized in the balance sheet at December 31, 2002 and 2001 were as follows:

|                                       |  | 2002 |         | 2001 |  
|-------------------------------------- |  | ---- | ------- | ---- | -
|
|
|Accrued benefit cost                   |  | $    | (57,529 | )    | $
|Additional minimum pension liability   |  |      | (1,625  | )    |  
|Intangible asset                       |  |      | 160     |      |  
|Accumulated other comprehensive income |  |      | 1,465   |      |  
|                                       | 
|Net prepaid benefit cost               |  | $    | (57,529 | )    | $
|                                       | 

The
actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

|                               |  | 2002 |   | 2001 |   | 2000 |  
|------------------------------ |  | ---- | - | ---- | - | ---- | -
|
|Discount Rate                  |  | 6.75 | % | 7.50 | % | 7.75 | %
|Expected Return on Plan Assets |  | 9.20 | % | 9.20 | % | 8.50 | %
|Rate of Compensation Increase  |  | 4.15 | % | 4.15 | % | 4.40 | %

O&R
also offers a defined contribution savings plan that covers substantially all of its employees and made contributions to the plan of $1.0 million, $1.0 million and
$0.8 million for the years 2002, 2001 and 2000, respectively.

Note E - Other Postretirement Benefits

O&R has a contributory medical and prescription drug program for all retirees, their dependents and surviving spouses. The Company also has a
non-contributory life insurance program for retirees.

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Investment gains and losses are fully recognized in expense over a 15-year period. Other actuarial gains and losses are fully recognized in expense over a 10-year period.

Plan
assets are used to pay benefits and expenses for participants who retired on or after January 1, 1995. O&R pays benefits for other participants who retired prior to January 1, 1995.
Plan assets include amounts owed by the trust to the Company of $0.8 million in 2002, $0.3 million in 2001 and $2.2 million in 2000.

Consistent
with the provisions of SFAS No. 71, the Company defers for future recovery any difference between expenses recognized under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" and the current rate allowance authorized by each regulatory jurisdiction in which it operates.

The
components of the net periodic postretirement benefit (health and life insurance) costs for 2002, 2001 and 2000 were as follows:

|                                                               |  | 2002 |        | 2001 |   | 2000   |  
|-------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|
|
|Service cost                                                   |  | $    | 1,884  |      | $ | 1,577  |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 7,996  |      |   | 7,069  |  
|Expected return on plan assets                                 |  |      | (4,245 | )    |   | (3,721 | )
|Amortization of net actuarial loss                             |  |      | 2,797  |      |   | 1,260  |  
|Amortization of prior service cost                             |  |      | (97    | )    |   | (97    | )
|                                                               | 
|NET PERIODIC POSTRETIREMENT BENEFIT COST                       |  | $    | 8,335  |      | $ | 6,088  |  
|                                                               | 
|Amortized/(deferred and capitalized)                           |  |      | (4,447 | )    |   | (2,193 | )
|                                                               | 
|Net expense                                                    |  | $    | 3,888  |      | $ | 3,895  |  
|                                                               | 

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The
funded status of the programs at December 31, 2002, 2001 and 2000 was as follows:

|                                                               |  | 2002 |         | 2001 |   | 2000    |  
|-------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|
|CHANGE IN BENEFIT OBLIGATION                                   |  |      |         |      |   |         |  
|Benefit obligation at beginning of year                        |  | $    | 101,726 |      | $ | 94,048  |  
|Service cost                                                   |  |      | 1,884   |      |   | 1,577   |  
|Interest cost on accumulated postretirement benefit obligation |  |      | 7,996   |      |   | 7,069   |  
|Plan amendments                                                |  |      | -       |      |   | -       |  
|Net actuarial loss                                             |  |      | 26,926  |      |   | 5,096   |  
|Benefits paid and administrative expenses                      |  |      | (6,876  | )    |   | (6,310  | )
|Participant contributions                                      |  |      | 260     |      |   | 246     |  
|                                                               | 
|BENEFIT OBLIGATION AT END OF YEAR                              |  | $    | 131,916 |      | $ | 101,726 |  
|                                                               | 
|CHANGE IN PLAN ASSETS                                          |  |      |         |      |   |         |  
|Fair value of plan assets at beginning of year                 |  | $    | 40,646  |      | $ | 39,069  |  
|Actual return on plan assets                                   |  |      | 54      |      |   | 106     |  
|Employer contributions                                         |  |      | 6,267   |      |   | 6,088   |  
|Participant contributions                                      |  |      | 155     |      |   | 126     |  
|Benefits paid and administrative expenses                      |  |      | (4,170  | )    |   | (4,743  | )
|                                                               | 
|FAIR VALUE OF PLAN ASSETS AT END OF YEAR                       |  | $    | 42,952  |      | $ | 40,646  |  
|                                                               | 
|Funded status                                                  |  | $    | (88,964 | )    | $ | (61,080 | )
|Unrecognized net loss                                          |  |      | 50,817  |      |   | 22,393  |  
|Unrecognized prior service costs                               |  |      | (785    | )    |   | (882    | )
|                                                               | 
|ACCRUED POSTRETIREMENT BENEFIT COST                            |  | $    | (38,932 | )    | $ | (39,569 | )
|                                                               | 

The
actuarial assumptions at December 31, 2002, 2001 and 2000 were as follows:

|                               |                   | 2002 |      | 2001 |      | 2000 |     
|------------------------------ | ----------------- | ---- | ---- | ---- | ---- | ---- | ----
|
|Discount rate                  |                   | 6.75 | %    | 7.50 | %    | 7.75 | %   
|EXPECTED RETURN ON PLAN ASSETS |                   |      |      |      |      |      |     
|                               | Tax-exempt assets |      | 9.20 | %    | 9.20 | %    | 8.50
|                               | Taxable assets    |      | 8.70 | %    | 8.70 | %    | 8.00

The
health care cost trend rate assumed for 2003 is 9.0 percent. The rate is assumed to decrease gradually to 4.75 percent by 2009 and remain at that level thereafter.

A
one-percentage point change in the assumed health care cost trend rate would have the following effects:

|                                                        |  | 1-Percentage-Point
Increase |        | 1-Percentage-Point
Decrease |  
|------------------------------------------------------- |  | --------------------------- | ------ | --------------------------- | -
|
|
|Effect on accumulated postretirement benefit obligation |  | $                           | 12,698 |                             | $
|Effect on service cost and interest cost components     |  | $                           | 1,192  |                             | $

Note F - Environmental Matters

Hazardous substances such as asbestos, polychlorinated biphenyls (PCBs) and coal tar have been used or generated in the course of operations of O&R and are
present in its facilities and equipment currently or previously owned.

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The
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) and similar state statutes impose joint and several strict liabilities, regardless of fault, upon
generators of hazardous substances for resulting removal and remediation costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without
regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred.

The
environmental remediation costs for the sites at which O&R has been asserted to have liability for remediation under Superfund or similar state statutes, including its manufactured gas sites,
(Superfund Sites) include investigation, demolition, removal, disposal, storage, replacement, containment and monitoring costs.

For
the cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants at the manufactured gas sites, estimates of the aggregate undiscounted potential liability for the
cleanup of coal tar and/or other manufactured gas plant-related environmental contaminants range from approximately $25 million to $95 million. To develop these estimates, the assumption
was made that there is contamination at the sites where investigation has not yet been started or completed. Additional assumptions were made as to the extent of contamination, the level of cleanup
required and the type and extent of remediation that will be required. Actual experience may be materially different from these assumptions.

For
sites where there are other potentially responsible parties and the Company is not managing the site investigation and remediation, the liability accrued represents the Company's estimate of what
it will need to pay to settle its obligations with respect to the site. For other sites, the liability accrued represents the Company's estimate of its investigation and remediation costs for the
site. In either case, the Company makes its estimate of its undiscounted liability for each site in light of the applicable remediation standards, experience with similar sites, the information it has
available to it at the time about the site and site-specific assumptions about such matters as the extent of contamination and remediation and monitoring methods to be used. The liability
accrued for Superfund Sites is reviewed at least quarterly and adjusted as determined to be necessary.

At
December 31, 2002, O&R had accrued $35.3 million as its estimate of its liability for Superfund Sites, including approximately $34 million relating to manufactured gas sites.
Most of the accrued liability relates to Superfund Sites where contamination has been detected and investigated in whole or in part. There will be additional liability relating to the Superfund Sites
and other sites. The amount of the additional liability is not presently determinable but may be material to O&R's financial position, results of operations or liquidity. O&R is permitted under
current rate agreements to defer for subsequent recovery through rates certain site investigation and remediation costs with respect to hazardous waste. At December 31, 2002,
$30.8 million of such costs had been deferred as a regulatory asset.

In
2002, O&R incurred $1.5 million for environmental remediation costs and received an insurance recovery of $7.2 million related to Superfund Sites.

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Suits
have been brought in New York State and federal courts against O&R 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 O&R. The suits that have been resolved, which are many, have been resolved without any payment by O&R, or for
amounts that were not, in the aggregate, material to the Company. The amounts specified in all the remaining suits total billions of dollars. However, O&R believes that these amounts are greatly
exaggerated, as experienced through the disposition of previous claims. Based on the information and relevant circumstances known to O&R at this time, these suits are not expected to have a material
adverse effect on O&R's financial position, results of operations or liquidity.

Workers'
compensation administrative proceedings have been commenced, wherein current and former employees claim benefits upon alleged disability from exposure to asbestos. Based on the information
and relevant circumstances known to O&R at this time, these claims are not expected to have a material adverse effect on O&R's financial position, results of operations or liquidity. At
December 31, 2002, a $5.4 million provision was accrued as the Company's estimate of its liability for these workers' compensation claims, including those related to asbestos, and
$1.6 million of this provision was deferred as a regulatory asset related to claims of the former employees of the divested plants.

In
May 2000, the New York State Department of Environmental Conservation issued notices of violation to O&R and four other companies that have operated coal-fired electric
generating facilities in New York State. The notices allege violations of the Federal Clean Air Act and the New York State Environmental Conservation Law resulting from the alleged failure to install
pollution control equipment that would have reduced emissions of certain chemicals deemed potentially hazardous. The notice of violations received by O&R relates to the Lovett Generating Station,
which it sold in June 1999. The Company is unable to predict whether or not alleged violations will have a material adverse effect on its financial position, results of operations or liquidity.

Note G - Non-Utility Generators

O&R has contracts with Non-Utility Generators (NUGs) for 27 MW of electric generating capacity. The contracts extend for various periods, up to
2008. Assuming performance by the NUGs, O&R is obligated to purchase capacity and energy under the contracts. For the years 2003 through 2007, fixed payments under the contracts are estimated to be
$17.2 million, $16.7 million, $16.4 million,
$5.6 million and $3.6 million. In addition, for energy delivered under one of the contracts (for 19 MW), O&R is obligated to pay variable prices that are currently estimated to be above
market levels. O&R recovers its costs under the contracts pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction.

Note H - Regulatory Assets and Liabilities

O&R has established various regulatory assets and liabilities to defer specific costs and gains that the applicable regulatory agencies have permitted or are
expected to permit to be recovered in rates or refunded to customers over time. For RECO, current recovery of purchased power costs is subject to certain limitations imposed by the NJBPU and costs
that are not currently recovered are deferred for

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future recovery. At December 31, 2002 and December 31, 2001, net recoverable purchased power costs of $79.7 million and $76.7 million, respectively, were deferred by RECO
for future recovery.

Note I - Related Party Transactions

Each month O&R is invoiced by Con Edison and its affiliates for the cost of any services rendered to O&R by Con Edison and its affiliates. These services,
provided primarily by Con Edison's other regulated subsidiary, Consolidated Edison Company of New York, Inc., include substantially all administrative support operations, such as corporate
directorship and associated ministerial duties, accounting, treasury, investor relations, information resources, legal, human resources, fuel supply and energy management services. The cost of these
services was $15.2 million for 2002, $14.4 million for 2001 and $10.7 million for 2000. In addition, O&R purchased from Con Edison of New York $102.0 million,
$140.9 million and $103.9 million of natural gas for 2002, 2001 and 2000, respectively, and $24.6 million of electricity in 2002.

O&R
provides certain recurring services to Con Edison of New York on a monthly basis, including cash receipts processing and certain administrative services. The cost of these services, which are
invoiced to Con Edison of New York, totaled $11.6 million, $10.9 million and $8.3 million in 2002, 2001 and 2000, respectively.

In
February 2002, the FERC authorized Con Edison of New York to lend funds to O&R, for periods of not more than 12 months, in amounts not to exceed $150 million outstanding at any
time at prevailing market rates. Through December 31, 2002, O&R has not borrowed any funds from Con Edison of New York.

Note J - Leases

The future minimum rental commitments under O&R's non-cancelable operating leases are as follows:

|                     |       | (Millions of Dollars)
|-------------------- | ----- | ---------------------
|
|2003                 |       | $                    
|2004                 |       |                      
|2005                 |       |                      
|2006                 |       |                      
|2007                 |       |                      
|All years thereafter |       |                      
|                    
|                     | Total |                      
|                    

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Note K - Income Tax

The components of income tax are as follows:

|                                  |                                       | For the Years Ended December 31, |                              
|--------------------------------- | ------------------------------------- | -------------------------------- | -----------------------------
|
|
|
|Charge/(benefit) to operations:   |                                       |                                  |                              
|State                             |                                       |                                  |                              
|                                  | Current                               |                                  | $                            
|                                  | Deferred - net                        |                                  |                              
|Federal                           |                                       |                                  |                              
|                                  | Current                               |                                  |                              
|                                  | Deferred - net                        |                                  |                              
|                                  | Amortization of investment tax credit |                                  |                              
|                                  |                                      
|                                  |                                       |                                  | TOTAL CHARGE TO OPERATIONS   
|                                  |                                      
|Charge/(benefit) to other income: |                                       |                                  |                              
|State                             |                                       |                                  |                              
|                                  | Current                               |                                  | $                            
|                                  | Deferred - net                        |                                  |                              
|Federal                           |                                       |                                  |                              
|                                  | Current                               |                                  |                              
|                                  | Deferred - net                        |                                  |                              
|                                  | Amortization of investment tax credit |                                  |                              
|                                  |                                      
|                                  |                                       |                                  | TOTAL BENEFIT TO OTHER INCOME
|                                  |                                      
|TOTAL                             |                                       | $                                | 24,366                       
|                                  |                                      

The
tax effect of temporary differences which gave rise to deferred tax assets and liabilities is as follows:

|              |                                                  | As of December 31, |                  
|------------- | ------------------------------------------------ | ------------------ | -----------------
|
|
|
|Liabilities:  |                                                  |                    |                  
|              | Depreciation                                     |                    | $                
|              | Regulatory Liability - Future Federal Income Tax |                    |                  
|              | Other                                            |                    |                  
|              |                                                 
|              |                                                  |                    | TOTAL LIABILITIES
|              |                                                 
|Assets:       |                                                  |                    |                  
|              | Other                                            |                    |                  
|              |                                                 
|              |                                                  |                    | TOTAL ASSETS     
|              |                                                 
|NET LIABILITY |                                                  | $                  | 134              
|              |                                                 

191

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Reconciliation
of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

|                                          |                                                       | For the Years Ended December 31, |   
|----------------------------------------- | ----------------------------------------------------- | -------------------------------- | --
|
|
|
|Statutory tax rate                        |                                                       |                                  |   
|                                          | Federal                                               |                                  | 35
|Changes in computed taxes resulting from: |                                                       |                                  |   
|                                          | State Income Tax                                      |                                  | 4 
|                                          | Depreciation related differences                      |                                  | 1 
|                                          | Cost of removal                                       |                                  | (2
|                                          | Amortization of taxes associated with divested assets |                                  | (1
|                                          | Other                                                 |                                  | (2
|                                          |                                                      
|Effective Tax Rate                        |                                                       | 35                               | % 
|                                          |                                                      

Note L - Stock-Based Compensation

Con Edison maintains a stock option plan (the Plan) that covers employees of O&R. Options may be granted to officers and key employees of Con Edison and its
subsidiaries for up to a total of 10 million shares of Con Edison's common stock. Generally, options become exercisable three years after the grant date and remain exercisable until
10 years from the grant date.

As
permitted by SFAS No. 123, O&R elected to follow APB No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options. Under
the intrinsic value method of APB No. 25, no compensation expense is recognized because the exercise price of Con Edison's employee stock options equals the market price of the underlying stock
on the date of grant.

Under
the plan, exercise of Con Edison's employee stock options requires payment in full of the exercise price, unless the committee of Con Edison's Board of Directors that administers the Plan
determines that options may be settled by paying to the option holder the difference between the fair market value of the common stock subject to the option and the exercise price (cash settlement).
In 2002, to ensure that the exercise of currently exercisable options would comply with certain technical requirements of the Sarbanes-Oxley Act of 2002 applicable to certain officers of Con Edison
and its subsidiaries, the committee determined that 1996 and 1997 stock options covering 295,500 shares of common stock held by those officers may be settled by the cash settlement method. A
$0.4 million charge to expense was recognized for O&R in 2002 for these options. Additional changes to expense will be recognized with respect to these options to the extent the fair market
value of the common shares changes in future periods.

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Disclosure of pro forma information regarding net income and earnings per share is required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock Based Compensation, Transition and
Disclosures." See "Stock-based Compensation" in Note A for an illustration of the effect on net income if O&R had applied the fair value recognition provisions of SFAS No. 123 to its
stock-based employee compensation. The fair values of 2002, 2001 and 2000 options are $6.37, $5.23 and $4.42 per share, respectively. These values were estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:

|                          |  | 2002  |   | 2001  |   | 2000  |  
|------------------------- |  | ----- | - | ----- | - | ----- | -
|
|Risk-free interest rate   |  | 5.08  | % | 5.22  | % | 6.25  | %
|Expected lives - in years |  | 6     |   | 8     |   | 8     |  
|Expected stock volatility |  | 21.43 | % | 21.32 | % | 20.51 | %
|Dividend yield            |  | 5.22  | % | 5.83  | % | 6.60  | %

A
summary of the changes in the status of stock options awarded to officers and employees of O&R under the Plan as of December 31, 2002, 2001 and 2000 is as follows:

|                        |           | Shares  |         | Weighted
Average Price
|----------------------- | --------- | ------- | ------- | ----------------------
|
|Outstanding at 12/31/99 |           | -       |         |                       
|                        | Granted   |         | 73,000  |                       
|                        | Exercised |         | -       |                       
|                        | Forfeited |         | -       |                       
|                       
|Outstanding at 12/31/00 |           | 73,000  |         |                       
|                        | Granted   |         | 101,000 |                       
|                        | Exercised |         | -       |                       
|                        | Forfeited |         | -       |                       
|                       
|Outstanding at 12/31/01 |           | 174,000 |         |                       
|                        | Granted   |         | 113,000 |                       
|                        | Exercised |         | -       |                       
|                        | Forfeited |         | (2,000  | )                     
|                       
|Outstanding at 12/31/02 |           | 285,000 |         | $                     

The
following summarizes the Plan's stock options outstanding at December 31, 2002:

|Plan Year |  | Weighted
Average
Exercise Price |        | Shares
Outstanding
At 12/31/02 |         | Remaining
Contractual Life
|--------- |  | ------------------------------- | ------ | ------------------------------ | ------- | --------------------------
|
|2002      |  | $                               | 42.510 |                                | 113,000 |                           
|2001      |  |                                 | 37.750 |                                | 100,000 |                           
|2000      |  |                                 | 32.500 |                                | 72,000  |                           

As
of December 31, 2002, 2001 and 2000, no options were exercisable.

In
June 2002, 20,000 restricted stock units were granted to a senior officer of O&R, subject to the officer meeting the terms and conditions of the agreements. The units, each of which
represents the right to receive one share of Con Edison common stock and related dividends, vest ratably through August 2005 or immediately upon the occurrence of certain events. Pursuant to
APB No. 25, O&R recognizes

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compensation expense and accrues a liability for the units over the vesting period. The expense recognized for restricted stock during 2002 was $0.2 million.

In
June 2002, Con Edison terminated its Directors' Retirement Plan applicable to non-officer directors (the termination is not applicable to directors who had previously retired
from the board) and adopted a deferred stock compensation plan for these directors. Under the plan, directors were granted stock units for accrued service. Pursuant to APB No. 25, O&R
recognizes compensation expense as incurred. An expense of $0.1 million was recorded in 2002.

Note M - Financial Information by Business Segment

O&R's business segments were determined based on similarities in economic characteristics, the regulatory environment and management's reporting requirements.
O&R's business segments are:



All
revenues of O&R's business segments are from customers located in the United States of America. Also, all assets are located in the United States of America. The accounting policies of the
segments are the same as those described in the summary of significant accounting policies. See Note A.

Common
services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided.

The
financial data for business segments are as follows:

|                              |  | Regulated Electric
|----------------------------- |  | ------------------
|
|                             
|
|Operating revenues            |  | $                 
|Intersegment revenues         |  |                   
|Depreciation and amortization |  |                   
|Income tax expense            |  |                   
|Operating income              |  |                   
|Interest charge               |  |                   
|Total assets                  |  |                   
|Construction expenditures     |  |                   

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|                              |  | Regulated Gas
|----------------------------- |  | -------------
|
|                             
|
|Operating revenues            |  | $            
|Intersegment revenues         |  |              
|Depreciation and amortization |  |              
|Income tax expense            |  |              
|Operating income              |  |              
|Interest charge               |  |              
|Total assets                  |  |              
|Construction expenditures     |  |              

|                              |  | Unregulated Subsidiaries
|----------------------------- |  | ------------------------
|
|                             
|
|Operating revenues            |  | -                       
|Intersegment revenues         |  | -                       
|Depreciation and amortization |  | -                       
|Income tax expense            |  | 95                      
|Operating income              |  | (353                    
|Interest charge               |  |                        
|Total assets                  |  | 2,774                   
|Construction expenditures     |  | -                       

|                              |  | Total
|----------------------------- |  | -----
|
|                             
|
|Operating revenues            |  | $    
|Intersegment revenues         |  |      
|Depreciation and amortization |  |      
|Income tax expense            |  |      
|Operating income              |  |      
|Interest charge               |  |      
|Total assets                  |  |      
|Construction expenditures     |  |      

Note N - Derivative Instruments and Hedging Activities

Effective January 2001, O&R adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS
No. 133).

Energy Price Hedging

O&R uses derivative instruments to hedge market price fluctuations in related underlying transactions for the physical purchase or sale of electricity (hedges).
As of December 31, 2002 and December 31, 2001, the fair value of the derivatives for such use was a gain of $1.1 million and a loss of $1.0 million, respectively.

Pursuant
to SFAS No. 71, the Company defers recognition in income of gains and losses on a hedge until the underlying transaction is completed. In accordance with rate provisions that permit
the recovery of the cost of purchased power, O&R credits or charges to its customers gains and losses on hedges and related transaction costs. See "Recoverable Energy Costs" in Note A.

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Interest Rate Hedging

O&R uses interest rate swap agreements to convert portions of its variable-rate debt into fixed-rate debt. In connection with its
$55 million promissory note issued to NYSERDA for the net proceeds of NYSERDA's variable rate Pollution Control Refunding Revenue Bonds, Series 1994A (the 1994 Bonds), O&R has a swap
agreement pursuant to which it pays interest at a fixed rate of 6.09 percent and is paid interest at the same variable rate as is paid on the 1994 Bonds. The swap is designated as a cash flow
hedge under SFAS No. 133. Any gain or loss on the hedge is recorded in
other comprehensive income (OCI) and reclassified to interest expense and included in earnings during the periods in which the hedged interest payments occur. As of December 31, 2002 and
December 31, 2001, the fair value of the O&R interest rate swap was a loss of $19.1 million and $14.2 million, respectively.

Unrealized
gains and losses on cash flow hedges for interest rate hedging, net of tax, included in accumulated OCI for the years ended December 31, 2002 and 2001 were as follows:

|                                                                                                                                               |  | 2002 |      | 2001 |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- | -
|
|
|Unrealized gains/(losses) on derivatives qualified as hedges due to cumulative effect of a change in accounting principle, net of ($5.7) taxes |  | $    | -    |      | $
|Unrealized gains/(losses) on derivatives qualified as hedges, net of ($3.1) and ($1.0) taxes                                                   |  |      | (4.4 | )    |  
|Less: Reclassification adjustment for gains/(losses) included in net income, net of ($1.1) and ($0.8) taxes                                    |  |      | (1.5 | )    |  
|                                                                                                                                               | 
|Unrealized gains/(losses) on derivatives qualified as hedges for the period                                                                    |  | $    | (2.9 | )    | $
|                                                                                                                                               | 

As
of December 31, 2002, $1.2 million of the existing after-tax losses relating to the swap agreement are expected to be reclassified from accumulated OCI to income within the next
12 months.

Note O - New Financial Accounting Standards

During 2002 the FASB issued four new accounting standards: SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 147, "Acquisitions of Certain Financial
Institutions," and SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure." The FASB also issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in November 2002 and Interpretation No. 46, "Consolidation of Variable
Interest Entities," in January 2003. In addition, during 2002, the FASB's Emerging Issues Task Force (EITF) reached a consensus on several issues within EITF Issue No. 02-3,
"Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," one of which was the rescission of EITF
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."

SFAS
No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements," effective January 1, 2003. This statement also amends SFAS No. 13, "Accounting for Leases," to require sale-leaseback accounting for certain lease
modifications that have an economic impact similar to sale-leaseback transactions and amends certain other authoritative accounting pronouncement, effective May 15, 2002. SFAS
No. 146, which was effective January 1, 2003, requires companies to recognize costs

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associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 147, which was effective October 1,
2002, provides guidance on the accounting for the acquisition of a financial institution. SFAS No. 148, which amends SFAS No. 123, provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the financial statement disclosure requirements of SFAS
No. 123 regarding the method of accounting for stock-based employee compensation and the effects of the method used on reported results. Finally, this statement amends APB Opinion
No. 28, "Interim Financial Reporting" to require disclosure about those effects in interim financial information. The amendment of SFAS No. 123 is effective for fiscal years ending after
December 15, 2002. The amendment of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. For information about the Company's stock-based
compensation, see Note L.

The
adoption of these statements had no impact on O&R's consolidated financial position, results of operations or liquidity.

Interpretation
No. 45 (FIN 45) requires a guarantor to recognize a liability at the inception of a guarantee for the fair value of the obligations it assumes under that guarantee. It
also requires a
guarantor to make significant new disclosures for guarantees even if the likelihood of the guarantor's having to make payments under the guarantee is remote. The initial recognition and measurement
provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective December 15, 2002. The adoption of
FIN 45 had no impact on O&R's consolidated financial position, results of operation or liquidity.

Interpretation
No. 46 (FIN 46) addresses the consolidation by business enterprises of variable interest entities of which the enterprise is the primary beneficiary. The consolidation
requirements apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to existing entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was
established. The adoption of FIN 46 is not expected to have any impact on O&R's consolidated financial position, results of operation or liquidity.

In
June 2002, the EITF reached a partial consensus on EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities," that revenue resulting from energy trading contracts, whether realized or unrealized and whether financially or physically settled, should
be shown net in the income statement. The new ruling became effective for periods ending after July 2002 with reclassification of prior period amounts required.

On
October 25, 2002, the EITF reached a consensus to rescind EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." As a
result, new energy trading and energy-related contracts entered into after October 25, 2002, that do not qualify as derivatives under SFAS No. 133 are not
marked-to-market. All derivative contracts will be accounted for in accordance with SFAS No. 133. Therefore, previously recognized mark-to-market
gains and losses on

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non-derivative contracts must be reversed upon adoption of this consensus. The effective date for the full rescission of EITF Issue No. 98-10 was January 1,
2003, with early application permitted.

In
October 2002, the EITF reached a consensus that gains and losses, realized and unrealized, on all derivative instruments within the scope of SFAS No. 133 should be shown net in the
income
statement, whether or not settled physically, if the derivative instruments are held for trading purposes. This consensus was effective January 1, 2003, with early adoption permitted.
Additional disclosures regarding energy trading activities required by EITF Issue No. 02-3 in June 2002 were eliminated in October 2002, with the rescission of EITF
Issue No. 98-10.

The
EITF did not reach consensus on whether or not recognition of unrealized gains and losses at inception of an energy-trading contract is appropriate. However, the FASB staff observed that
unrealized gains or losses at inception should not be recognized unless the fair value of the derivative instrument is evidenced by a quoted market price, similar current market transactions or
valuations based on observable market information.

The
above EITF consensus had no impact on O&R's consolidated financial position, results of operation or liquidity.

O&R
also adopted the following accounting standards that were issued in 2001.

On
January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill (i.e., the excess of cost over fair value of the
net assets of a business acquired) and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. Other intangible assets will
continue to be amortized over their finite useful lives. The adoption of SFAS No. 142 had no impact on O&R's consolidated financial position, results of operations or liquidity.

SFAS
No. 143, "Accounting for Asset Retirement Obligations," which O&R adopted on January 1, 2003, requires entities to record the fair value of a liability associated with an asset
retirement obligation in the period incurred. When the liability is initially recorded, the entity will capitalize the cost by increasing the amount of the related asset. The liability will be
increased to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset. Upon retirement of the asset, the entity will settle the obligation
for the amount recorded or incur a gain or loss. O&R has not identified any asset retirement obligations. The adoption of SFAS No. 143 had no impact on O&R's consolidated financial position,
results of operations or liquidity.

SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which O&R adopted on January 1, 2002, replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that all long-lived assets held for sale or meeting other
specified criteria be measured at the lower of book value or fair value less cost to sell. SFAS No. 144 also broadens the reporting of discontinued operations. The adoption of SFAS
No. 144 had no impact on O&R's consolidated financial position, results of operations or liquidity.

198

---



SCHEDULE I

Condensed Financial Information of Consolidated Edison, Inc.CONDENSED BALANCE SHEET

|                                     |                                     | At December 31, |          
|------------------------------------ | ----------------------------------- | --------------- | ---------
|
|
|ASSETS                               |                                     |                 |          
|CURRENT ASSETS                       |                                     |                 |          
|                                     | Cash and temporary cash investments |                 | $        
|                                     | Restricted cash                     |                 |          
|                                     | Other current assets                |                 |          
|                                     |                                    
|                                     | TOTAL CURRENT ASSETS                |                 |          
|INVESTMENTS IN SUBSIDIARIES          |                                     |                 | 7,000,878
|GOODWILL                             |                                     |                 | 409,404  
|OTHER ASSETS                         |                                     |                 | 10,237   
|                                     |                                    
|TOTAL ASSETS                         |                                     | $               | 7,419,162
|                                     |                                    
|CAPITALIZATION AND LIABILITIES       |                                     |                 |          
|COMMON SHAREHOLDERS' EQUITY          |                                     |                 |          
|                                     | Common stock                        |                 | $        
|                                     | Retained earnings                   |                 |          
|                                     |                                    
|                                     | TOTAL COMMON SHAREHOLDERS' EQUITY   |                 |          
|                                     | Long-term debt                      |                 |          
|                                     |                                    
|                                     | TOTAL CAPITALIZATION                |                 |          
|CURRENT LIABILITIES                  |                                     |                 |          
|                                     | Notes payable                       |                 |          
|                                     | Accounts payable                    |                 |          
|                                     | Other current liabilities           |                 |          
|                                     |                                    
|                                     | TOTAL CURRENT LIABILITIES           |                 |          
|                                     |                                    
|NONCURRENT LIABILITIES               |                                     |                 | (3,611   
|                                     |                                    
|                                     | TOTAL LIABILITIES                   |                 |          
|                                     |                                    
|TOTAL CAPITALIZATION AND LIABILITIES |                                     | $               | 7,419,162
|                                     |                                    

199

---

Condensed Financial Information of Consolidated Edison, Inc.CONDENSED INCOME STATEMENT

|                                                                    |                                                       | 2002 |         | 2001    |   | 2000    |        
|------------------------------------------------------------------- | ----------------------------------------------------- | ---- | ------- | ------- | - | ------- | -------
|
|Equity in earnings of subsidiaries                                  |                                                       | $    | 670,823 |         | $ | 701,139 |        
|Other income (deductions), net of taxes                             |                                                       |      | 4,629   |         |   | 212     |        
|Operating expenses                                                  |                                                       |      |         |         |   |         |        
|                                                                    | Amortization of O&R goodwill                          |      |         | -       |   |         | (10,917
|                                                                    | Other                                                 |      |         | -       |   |         | -      
|Interest expense                                                    |                                                       |      | (7,355  | )       |   | (8,192  | )      
|                                                                    |                                                      
|Income before cumulative effect of changes in accounting principles |                                                       |      | 668,097 |         |   | 682,242 |        
|                                                                    |                                                      
|                                                                    | Cumulative effect of changes in accounting principles |      |         | (22,061 | ) |         | -      
|                                                                    |                                                      
|NET INCOME                                                          |                                                       | $    | 646,036 |         | $ | 682,242 |        
|                                                                    |                                                      
|Average number of shares outstanding (in thousands)                 |                                                       |      | 212,990 |         |   | 212,146 |        
|Basic earnings per common share                                     |                                                       | $    | 3.03    |         | $ | 3.22    |        
|Diluted earnings per share                                          |                                                       | $    | 3.02    |         | $ | 3.21    |        

200

---

Condensed Financial Information of Consolidated Edison, Inc.CONDENSED STATEMENT OF CASH FLOWS

|                                                                    |                                                       | 2002 |          | 2001     |   | 2000     |         
|------------------------------------------------------------------- | ----------------------------------------------------- | ---- | -------- | -------- | - | -------- | --------
|
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES |                                                       | $    | 668,097  |          | $ | 682,242  |         
|                                                                    | Cumulative effect of changes in accounting principles |      |          | (22,061  | ) |          | -       
|                                                                    |                                                      
|NET INCOME                                                          |                                                       |      | 646,036  |          |   | 682,242  |         
|Dividends received from:                                            |                                                       |      |          |          |   |          |         
|                                                                    | Consolidated Edison Company of New York, Inc.         |      |          | 379,855  |   |          | 459,719 
|                                                                    | Orange and Rockland Utilities, Inc.                   |      |          | 28,000   |   |          | 28,000  
|Othernet                                                           |                                                       |      | (638,259 | )        |   | (570,100 | )       
|                                                                    |                                                      
|NET CASH FLOWS FROM OPERATING ACTIVITIES                            |                                                       |      | 415,632  |          |   | 599,861  |         
|INVESTING ACTIVITIES                                                |                                                       |      |          |          |   |          |         
|                                                                    | Contributions to subsidiaries                         |      |          | (335,200 | ) |          | (65,400 
|FINANCING ACTIVITIES                                                |                                                       |      |          |          |   |          |         
|                                                                    | Issuance of Long-term debt                            |      |          | 325,000  |   |          | -       
|                                                                    | Repurchase of common stock                            |      |          | -        |   |          | -       
|                                                                    | Common shares issued                                  |      |          | 25,098   |   |          | -       
|                                                                    | Common stock dividends                                |      |          | (430,700 | ) |          | (469,755
|                                                                    |                                                      
|NET CASH FLOWS FROM FINANCING ACTIVITIES                            |                                                       |      | (80,602  | )        |   | (469,755 | )       
|                                                                    |                                                      
|NET CHANGE FOR THE PERIOD                                           |                                                       |      | (170     | )        |   | 64,706   |         
|BALANCE AT BEGINNING OF THE PERIOD                                  |                                                       | $    | 414      |          | $ | 5,531    |         
|                                                                    |                                                      
|BALANCE AT END OF PERIOD                                            |                                                       | $    | 244      |          | $ | 70,237   |         
|                                                                    |                                                      
|LESS: RESTRICTED CASH                                               |                                                       |      | -        |          |   | 69,823   |         
|                                                                    |                                                      
|BALANCE: UNRESTRICTED CASH AND TEMPORARY CASH INVESTMENTS           |                                                       | $    | 244      |          | $ | 414      |         
|                                                                    |                                                      

201

---



SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2002, 2001 and 2000

|                       |  |                                        |  |   |        | COLUMN C
Additions |   |        |  |  
|---------------------- |  | -------------------------------------- |  | - | ------ | ------------------ | - | ------ |  | -
|
|
|
|
|Con Edison             |  | Allowance for uncollectible accounts*: |  |   |        |                    |   |        |  |  
|                       |  | 2002                                   |  | $ | 34,775 |                    | $ | 38,982 |  | -
|                       |  | 2001                                   |  | $ | 33,714 |                    | $ | 43,299 |  | -
|                       |  | 2000                                   |  | $ | 34,821 |                    | $ | 38,292 |  | -
|Con Edison of New York |  | Allowance for uncollectible accounts*: |  |   |        |                    |   |        |  |  
|                       |  | 2002                                   |  | $ | 29,400 |                    | $ | 35,215 |  | -
|                       |  | 2001                                   |  | $ | 25,800 |                    | $ | 40,097 |  | -
|                       |  | 2000                                   |  | $ | 22,600 |                    | $ | 31,808 |  | -
|O&R                    |  | Allowance for uncollectible accounts*: |  |   |        |                    |   |        |  |  
|                       |  | 2002                                   |  | $ | 2,625  |                    | $ | 1,643  |  | -
|                       |  | 2001                                   |  | $ | 3,845  |                    | $ | 3,870  |  | -
|                       |  | 2000                                   |  | $ | 5,395  |                    | $ | 3,029  |  | -

---



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CON EDISON

None.

CON EDISON OF NEW YORK

None.

O&R

None.

202

---

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements intended to qualify for the safe-harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as "expects," "estimates," "anticipates," "intends," "plans,"
"will" and similar expressions identify forward-looking statements.

Actual
results or developments might differ materially from those included in the forward-looking statements because of various factors such as:



203

---



PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CON EDISON

Information required by Part III, other than the information required by Item 201(d) of Regulation S-K in Item 12, is incorporated by
reference from Con Edison's definitive proxy statement for its Annual Meeting of Stockholders to be held on May 19, 2003. The proxy statement is to be filed pursuant to Regulation 14A
not later than 120 days after December 31, 2002, the close of the fiscal year covered by this report. The information required pursuant to Item 201(d) of
Regulation S-K is as follows:

Equity Compensation Plan Information(as of December 31, 2002)

|Plan category                                              |       | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |           | Weighted-average exercise price of outstanding options, warrants and rights (b) |         | Number of securities
remaining available
for future issuance under
equity compensation plans
(excluding securities reflected
in column (a)) (c)
|---------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |       | 6,797,651                                                                                       |           | $39.506                                                                         |         | 2,243,300                                                                                                                                      
|                                                          
|Equity compensation plans not approved by security holders |       | * 556,921                                                                                       |           | N/A                                                                             |         | N/A                                                                                                                                            
|                                                          
|                                                           | TOTAL |                                                                                                 | 7,354,572 |                                                                                 | $39.506 |                                                                                                                                                
|                                                          



In accordance with General Instruction G(3) to Form 10-K, other information regarding Con Edison's Executive Officers may be found in
Part I of this report under caption "Executive Officers of the Registrant."

CON EDISON OF NEW YORK

Information required by Part III as to Con Edison of New York is incorporated by reference from Con Edison of New York's definitive information statement
for its Annual Meeting of Stockholders to be held on May 19, 2003. The proxy statement is to be filed pursuant to Regulation 14C not later than 120 days after December 31,
2002, the close of the fiscal year covered by this report.

In
accordance with General Instruction G(3) to Form 10-K, other information regarding Con Edison of New York's Executive Officers may be found in Part I of this report under
the caption "Executive Officers of the Registrant."

204

---

ITEM 14.  CONTROLS AND PROCEDURES

Con Edison

Based upon their evaluation of Con Edison's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange
Act of 1934, as amended) within 90 days prior to the filing date of this report, Con Edison's principal executive officer and principal financial officer have concluded that these controls and
other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no significant
changes in Con Edison's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Con Edison of New York

Based upon their evaluation of Con Edison of New York's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, as amended) within 90 days prior to the filing date of this report, Con Edison of New York's principal executive officer and principal financial officer have concluded
that these controls and other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There
have been no significant changes in Con Edison of New York's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies and material weaknesses.

O&R

Based upon their evaluation of O&R's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934, as amended) within 90 days prior to the filing date of this report, O&R's principal executive officer and principal financial officer have
concluded that these controls and other procedures are effective to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. There have been no significant changes in O&R's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies and material weaknesses.

205

---

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1. List of Financial StatementsSee financial statements listed in Item 8.

2. List of Financial Statement SchedulesSee schedules listed in Item 8.

3. List of Exhibits

Exhibits listed below which have been filed previously with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of
1934, and which were designated as noted below, are hereby incorporated by reference and made a part of this report with the same effect as if filed with the report. Exhibits listed below that were
not previously filed are filed herewith.

CON EDISON

|2.1    |  | Amended and Restated Agreement and Plan of Merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000, among Con Edison, Northeast Utilities, Consolidated Edison, Inc. (a Delaware
corporation, originally incorporated as CWB Holdings, Inc.) and N Acquisition LLC. (Designated in Con Edison's Current Report on Form 8-K, dated January 11, 2000 (File No. 1-14514) as Exhibit 2.)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1  |  | Restated Certificate of Incorporation of Consolidated Edison, Inc. ("Con Edison") (Designated in the Registration Statement on Form S-4 of Con Edison (No. 333-39164) as Exhibit 3.1.)                                                                                                                                                                                                                           
|3.1.2  |  | By-laws of Con Edison, effective as of June 23, 1998. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (File No. 1-14514) as Exhibit 3.2.1)                                                                                                                                                                                                                
|4.2.1  |  | Indenture, dated as of April 1, 2002, between Con Edison and JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee. (Designated in the Registration Statement on Form S-3 of Con Edison
(No. 333-102005) as Exhibit 4.1.)                                                                                                                                                                
|4.2.1  |  | The form of Con Edison's 7.25% Debentures, Series 2002 A. (Designated in Con Edison's Current Report on Form 8-K, dated April 3, 2002, (File No. 1-14514) as Exhibit 4.)                                                                                                                                                                                                                                         
|10.1.1 |  | Con Edison 1996 Stock Option Plan, as amended and restated effective February 24, 1998. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1997 (File
No. 1-1217) as Exhibit 10.20.)                                                                                                                                                                             
|10.1.2 |  | The following employment agreements, and amendments thereto, between Con Edison and the executive officer listed below, dated as of the effective dates listed below, which are designated as follows:                                                                                                                                                                                                           

| |  |                   |  |                    |  | Securities Exchange Act
File No. 1-14514
| |  | ----------------- |  | ------------------ |  | ----------------------------------------
|
|
| |  | Eugene R. McGrath |  | Agreement: 9/1/00  |  | 10-Q                                    
| |  |                   |  | Amendment: 5/31/02 |  | 10-Q                                    
| |  | Joan S. Freilich  |  | Agreement: 9/1/00  |  | 10-Q                                    
| |  |                   |  | Amendment: 5/31/02 |  | 10-Q                                    
| |  | Kevin Burke       |  | Agreement: 9/1/00  |  | 10-K                                    
| |  |                   |  | Amendment: 5/31/02 |  | 10-Q                                    
| |  | John D. McMahon   |  | Agreement: 9/1/00  |  | 10-K                                    
| |  |                   |  | Amendment: 5/31/02 |  | 10-Q                                    

206

---

|10.1.3   |  | Restricted Stock Unit Award Agreement, dated as of May 31, 2002, between Con Edison and Stephen B. Bram. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No. 1-14514) as
Exhibit 10.1.5.)                
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1.4   |  | Severance Program for Officers of Consolidated Edison, Inc. and its Subsidiaries, effective as of September 1, 2000. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 (File
No. 1-14514) as Exhibit 10.1.3)
|10.1.5.1 |  | The Consolidated Edison, Inc. Stock Purchase Plan. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-14514) as Exhibit 10)                                                                           
|10.1.5.2 |  | Amendment, dated April 8, 2002, to Consolidated Edison, Inc. Stock Purchase Plan. (Designated in Con Edison's Registration Statement on Form S-8 (No. 333-86820) as Exhibit 10.2.)                                                                                    
|10.1.6   |  | Consolidated Edison, Inc. Deferred Stock Compensation Plan for Non-Officer Directors, effective July 1, 2002. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File
No. 1-14514) as Exhibit 10.1.1.)      
|10.1.7.1 |  | The Con Edison Retirement Plan, effective January 1, 2001. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.2.1.)                                                        
|10.1.7.2 |  | Amendment No. 1 to the Consolidated Edison Retirement Plan. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.2.2.)                                                       
|10.1.8   |  | The Consolidated Edison Thrift Plan, as amended effective May 8, 2002. (Designated in Con Edison's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-14514 as Exhibit 10.1.3.)                                              
|10.1.9.1 |  | Guaranty, dated as of November 14, 2000, from Consolidated Edison, Inc. in favor of Hawkeye Funding, Limited Partnership.                                                                                                                                             
|10.1.9.2 |  | Lease Agreement, dated as of November 14, 2000, between Hawkeye Funding, Limited Partnership, as Lessor, and Newington Energy, L.L.C., as Lessee (the Newington Project Lease).                                                                                       
|10.1.9.3 |  | Amendment No. 1, dated as of April 1, 2002, to the Newington Project Lease.                                                                                                                                                                                           
|12.1.1   |  | Statement of computation of ratio of earnings to fixed charges for the years 1998-2002.                                                                                                                                                                               
|12.1.2   |  | Statement of computation of ratio of earnings to fixed charges and preferred stock dividend requirements for the years 1998-2002.                                                                                                                                     
|21.1     |  | Subsidiaries of Con Edison.                                                                                                                                                                                                                                           
|23.1     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                 
|24.1     |  | Powers of Attorney of each of the persons signing this report by attorney-in-fact.                                                                                                                                                                                    
|99.1.1   |  | Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                
|99.1.2   |  | Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                

CON EDISON OF NEW YORK

|3.2.1.1 |  | Restated Certificate of Incorporation of Con Edison filed with the Department of State of the State of New York on December 31, 1984. (Designated in the Annual Report on Form 10-K of Con Edison of New York for
the year ended December 31, 1989 (File No. 1-1217) as Exhibit 3(a).)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

207

---

|3.2.1.2 |  | The following certificates of amendment of Restated Certificate of Incorporation of Con Edison of New York filed with the Department of State of the State of New York, which are designated as follows:
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |         |  | Securities Exchange Act
File No. 1-1217
| |  | ------- |  | ---------------------------------------
|
|
| |  | 5/16/88 |  | 10-K                                   
| |  | 6/2/89  |  | 10-K                                   
| |  | 4/28/92 |  | 8-K                                    
| |  | 8/21/92 |  | 8-K                                    
| |  | 2/18/98 |  | 10-K                                   

|3.2.2 |  | By-laws of Con Edison of New York, effective June 20, 2002. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File 1-1217 as
Exhibit 3.2.)                                                                                                                                                                     
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2.1 |  | Participation Agreement, dated as of December 1, 1992, between New York State Energy Research and Development Authority ("NYSERDA") and Con Edison of New York (designated in Con Edison of New York's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 4(f)), and the following amendments thereto, which are designated as follows:

| |  | Supplemental
Participation Agreement |  | Securities Exchange Act
File No. 1-1217
| |  | ------------------------------------ |  | ---------------------------------------
|
| |  | First                                |  | 3/15/93                                
| |  | Second                               |  | 10/1/93                                
| |  | Third                                |  | 12/1/94                                
| |  | Fourth                               |  | 7/1/95                                 

|4.2.2 |  | Participation Agreement, dated as of July 1, 1999, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999 (File No. 1-1217) as Exhibit 4.1.)                                                                                                            
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2.3 |  | Participation Agreement, dated as of June 1, 2001, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2001 (File No. 1-1217) as Exhibit 10.2.1)                                                                                                          
|4.2.4 |  | Supplemental Participation Agreement, dated as of October 1, 2002, to Participation Agreement, dated as of June 1, 2001 between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File 1-1217) as Exhibit 4.2.2.)                                    
|4.2.5 |  | Participation Agreement, dated as of November 1, 2001, between NYSERDA and Con Edison of New York. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2001 (File No. 1-1217) as Exhibit 10.2.1)                                                                                                 
|4.2.6 |  | Indenture of Trust, dated as of December 1, 1992, between NYSERDA and Morgan Guaranty Trust Company of New York, as Trustee (Morgan Guaranty) (designated in Con Edison of New York's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 1-1217) as Exhibit 4(i)), and the following amendments thereto, which are designated as follows:

| |  | Supplemental
Indenture of Trust |  | Securities Exchange Act
File No. 1-1217
| |  | ------------------------------- |  | ---------------------------------------
|
| |  | First                           |  | 3/15/93                                
| |  | Second                          |  | 10/1/93                                
| |  | Third                           |  | 12/1/94                                
| |  | Fourth                          |  | 7/1/95                                 

208

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|4.2.7.1  |  | Indenture of Trust, dated as of July 1, 1999 between NYSERDA and HSBC Bank USA, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (File No. 1-1217) as
Exhibit 4.2.)                                                                                
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2.7.2  |  | Supplemental Indenture of Trust, dated as of July 1, 2001, to Indenture of Trust, dated July 1, 1999 between NYSERDA and HSBC Bank USA, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2001 (File No. 1-1217) as Exhibit 10.2.2.)                     
|4.2.8.1  |  | Indenture of Trust, dated as of June 1, 2001 between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-1217)
 as Exhibit 10.2.3.)                                                                     
|4.2.8.2  |  | Supplemental Indenture of Trust, dated as of October 1, 2002, to Indenture of Trust, dated as of June 1, 2002, between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2002 (File 1-1217) as Exhibit 4.2.1.)    
|4.2.9    |  | Indenture of Trust, dated as of November 1, 2001 between NYSERDA and The Bank of New York, as trustee. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 (File
No. 1-1217) as Exhibit 10.2.2.)                                                             
|4.2.10.1 |  | Indenture, dated as of December 1, 1990, between Con Edison of New York and The Chase Manhattan Bank (National Association), as Trustee (the "Debenture Indenture"). (Designated in Con Edison of New York's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-1217) as Exhibit 4(h).)                 
|4.2.10.2 |  | First Supplemental Indenture (to the Debenture Indenture), dated as of March 6, 1996, between Con Edison of New York and The Chase Manhattan Bank (National Association), as Trustee. (Designated in Con Edison of New York's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-1217) as Exhibit 4.13.)
|4.2.10.3 |  | The following forms of Con Edison of New York's Debentures:                                                                                                                                                                                                                                                                      

| |  |                      |  | Securities Exchange Act
File No. 1-1217 |  |          |  | Securities Exchange Act
File No. 1-1217
| |  | -------------------- |  | --------------------------------------- |  | -------- |  | ---------------------------------------
|
| |  | 75/8%, Series 1992 B |  | 8-K                                     |  | 2/5/92   |  | 4(b                                    
| |  | 63/8%, Series 1993 D |  | 8-K                                     |  | 4/7/93   |  | 4                                      
| |  | 71/2%, Series 1993 G |  | 8-K                                     |  | 6/7/93   |  | 4                                      
| |  | 71/8%, Series 1994 A |  | 8-K                                     |  | 2/8/94   |  | 4                                      
| |  | 65/8%, Series 1995 A |  | 8-K                                     |  | 6/21/95  |  | 4                                      
| |  | 73/4%, Series 1996 A |  | 8-K                                     |  | 4/24/96  |  | 4                                      
| |  | 6.45%, Series 1997 B |  | 8-K                                     |  | 11/24/97 |  | 4                                      
| |  | 61/4%, Series 1998 A |  | 8-K                                     |  | 1/29/98  |  | 4.1                                    
| |  | 7.10%, Series 1998 B |  | 8-K                                     |  | 1/29/98  |  | 4.2                                    
| |  |                      |  |                                         |  |          |  |                                        

|10.2.1 |  | Amended and Restated Agreement and Settlement, dated September 19, 1997, between Con Edison of New York and the Staff of the New York State Public Service Commission (without Appendices). (Designated in Con Edison of New York's Current Report on
Form 8-K, dated September 23, 1997, (File No. 1-1217) as Exhibit 10.)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2.2 |  | Settlement Agreement, dated October 2, 2000, by and among Con Edison of New York, the Staff of the New York State Public Service Commission and certain other parties. (Designated in Con Edison of New York's Current Report on Form 8-K, dated
September 22, 2000, (File No. 1-1217) as Exhibit 10.)                     
|       |  |                                                                                                                                                                                                                                                                                                                            

209

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|10.2.3.1 |  | Planning and Supply Agreement, dated March 10, 1989, between Con Edison of New York and the Power Authority of the State of New York. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-1217) as Exhibit 10(gg).)                                     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2.3.2 |  | Delivery Service Agreement, dated March 10, 1989, between Con Edison of New York and the Power Authority of the State of New York. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 1-1217) as Exhibit 10(hh).)                                        
|10.2.4.  |  | Employment Contract, dated May 22, 1990, between Con Edison of New York and Eugene R. McGrath (designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1990 (File No. 1-1217) as
Exhibit 10) and the following amendments thereto, which are designated as follows:

| |  |         |  | Securities Exchange Act File No. 1-1217 | 
| |  | ------- |  | --------------------------------------- | 
|
| |  | 8/27/91 |  | 10-Q                                    | 
| |  | 8/25/92 |  | 10-Q                                    | 
| |  | 2/18/93 |  | 10-K                                    | 
| |  | 8/24/93 |  | 10-Q                                    | 
| |  | 8/24/94 |  | 10-Q                                    | 
| |  | 8/22/95 |  | 10-Q                                    | 
| |  | 7/23/96 |  | 10-Q                                    | 
| |  | 7/22/97 |  | 10-Q                                    | 
| |  | 7/28/98 |  | 8-K                                     | 
| |  | 7/27/99 |  | 10-Q                                    | 
| |  | 7/20/00 |  | 10-Q                                    | 

|10.2.5 |  | Agreement and Plan of Exchange, entered into on October 28, 1997, between Con Edison and Con Edison of New York. (Designated in the Registration Statement on Form S-4 of Con Edison (No. 333-39164) as Exhibit 2.)                                                                                                                                                                                          
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2.6 |  | The Consolidated Edison Company of New York, Inc. Executive Incentive Plan, as amended and restated as of August 1, 2000. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001 (File No. 1-1217) as Exhibit 10.2.1.)                                                                                                                          
|10.2.7 |  | Consolidated Edison Company of New York, Inc Supplemental Retirement Income Plan, as amended and restated as of April 1, 1999. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1998
(File No. 1-1217) as Exhibit 10.10.)                                                                                                                                  
|10.2.8 |  | Deferred Compensation Plan for the Benefit of Trustees of Con Edison of New York, dated February 27, 1979, and amendments thereto, dated September 19, 1979 (effective February 27, 1979), February 26, 1980, and November 24,
1992 (effective January 1, 1993). (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1217) as Exhibit 10(i).)
|10.2.9 |  | Supplemental Medical Plan for the Benefit of Con Edison of New York's officers. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-1217) as Exhibit 10(aa).)                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                              

210

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|10.2.10 |  | The Consolidated Edison Retiree Health Program for Management Employees, effective as of January 1, 1993 (designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-1217) as
Exhibit 10(ll)) and the following amendments thereto, which are designated as follows:
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |          |  | Securities Exchange Act File No. 1-1217
| |  | -------- |  | ---------------------------------------
|
| |  | 10/31/94 |  | 10-Q                                   
| |  | 12/28/94 |  | 10-K                                   
| |  | 12/29/95 |  | 10-K                                   
| |  | 7/1/96   |  | 10-K                                   
| |  | 11/14/97 |  | 10-K                                   
| |  | 12/30/98 |  | 10-K                                   

|10.2.11   |  | The Con Edison of New York Severance Pay Plan for Management Employees. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (File No. 1-1217) as Exhibit 10.)                                                      
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2.12.1 |  | The Consolidated Edison Company of New York, Inc. Deferred Income Plan, as amended and restated as of April 1, 1999. (Designated in Con Edison of New York's Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 1-1217) as Exhibit 10.19.)                      
|10.2.12.2 |  | Amendment No. 1 to The Consolidated Edison Company of New York, Inc. Deferred Income Plan, effective as of September 1, 2000. (Designated in Con Edison of New York's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001 (File No. 1-1217) as Exhibit 10.2.2.)
|12.2      |  | Statement of computation of ratio of earnings to fixed charges for the years 1998 - 2002.                                                                                                                                                                                              
|23.2      |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                 
|24.2      |  | Powers of Attorney of each of the persons signing this report by attorney-in-fact. (Included as part of Exhibit 24.1.)                                                                                                                                                                 
|99.2.1    |  | Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                 
|99.2.2    |  | Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                 

O&R

|3.3.1.1 |  | Restated Certificate of Incorporation of O&R, dated May 7, 1996. (Designated in O&R's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-4315) as Exhibit 3.4.)   
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.3.1.2 |  | Certificate of Amendment of the Restated Certificate of Incorporation of O&R, dated July 14, 1999. (Designated in O&R's Form 10-Q for the period ended June 30, 1999 (File No. 1-4315) as Exhibit 3.1.)
|3.3.2   |  | By-laws of O&R, as Adopted on July 8, 1999. (Designated in O&R's Form 10-Q for the period ended June 30, 1999 (File No. 1-4315) as Exhibit 3.2.)                                                       
|4.3.1.1 |  | Indenture, dated as of June 15, 2000, between O&R and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee.                                                                    
|4.3.1.2 |  | The form of O&R's 7.50% Debentures, Series 2000 A. (Designated in O&R's Current Report on Form 8-K, dated June 13, 2000 (File No. 1-4315 as Exhibit 4.)                                                
|4.3.2   |  | Mortgage Trust Indenture of Rockland Electric Company, dated as of July 1, 1954. (Designated in O&R's Registration Statement No. 2-14159 as Exhibit 2.16.)                                             
|        |  |                                                                                                                                                                                                        

211

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|4.3.3  |  | Mortgage Trust Indenture of Pike County Light & Power Company, dated as of July 15, 1971. (Designated in O&R's Registration Statement No. 2-45632 as Exhibit 4.31.)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.3   |  | Statement of computation of ratio of earnings to fixed charges for the years ended 1998 - 2002.                                                                    
|21.3   |  | Subsidiaries of O&R. (Included as part of Exhibit 21.1 hereto.)                                                                                                    
|24.3   |  | Powers of Attorney of each of the persons signing this report by attorney-in-fact. (Included as part of Exhibit 24.1 hereto.)                                      
|99.3.1 |  | Certification of chief executive officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                             
|99.3.2 |  | Certification of chief financial officer required under Section 906 of the Sarbanes-Oxley Act of 2002.                                                             

(b) Reports on Form 8-K

CON EDISON

Con Edison filed no Current Reports on Form 8-K during the quarter ended December 31, 2002. Con Edison filed a Current Report on
Form 8-K, dated January 16, 2003, reporting (under Item 5) its unaudited net income for common stock for the year ended December 31, 2002 and certain
information about its pension plan and furnishing (under Item 9) a copy of its press release, dated January 16, 2003, and certain additional information. Con Edison also filed a Current
Report on Form 8-K, dated February 11, 2003, furnishing (under Item 9) a presentation dated February 11, 2003.

CON EDISON OF NEW YORK

Con Edison of New York filed a Current Report on Form 8-K, dated December 19, 2002, reporting (under Item 5) the completion the
sale of $500 million aggregate principal amount of its 4.875% Debentures, Series 2002 B. No other Con Edison of New York Current Report on Form 8-K was filed during
the quarter ended December 31, 2002.

O&R

O&R filed no Current Reports on Form 8-K during the quarter ended December 31, 2002.

212

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, each Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on February 27, 2003.

|Consolidated Edison, Inc.                     |  |                                                                                          |  |                                    
|--------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -----------------------------------
|Consolidated Edison Company
of New York, Inc. |  |                                                                                          |  | Orange and Rockland Utilities, Inc.
|By                                            |  | /s/JOAN S. FREILICHJoan S. Freilich
Executive Vice President and Chief Financial Officer |  | By                                 

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the Registrant, and in the capacities, indicated on February 27, 2003.

|Signature                               |  | Registrant             |  | Title                                                                                                                 
|--------------------------------------- |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Eugene R. McGrath*                      |  | Con Edison             |  | Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)                  
|                                        |  | Con Edison of New York |  | Chairman of the Board, Chief Executive Officer and Trustee (Principal Executive Officer)                              
|                                        |  | O&R                    |  | Chairman of the Board and Director                                                                                    
|Joan S. Freilich*                       |  | Con Edison             |  | Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer)                          
|                                        |  | Con Edison of New York |  | Executive Vice President, Chief Financial Officer and Trustee (Principal Financial Officer)                           
|Edward J. Rasmussen*                    |  | Con Edison             |  | Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)                                
|                                        |  | Con Edison of New York |  | Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)                                
|                                        |  | O&R                    |  | Vice President, Controller, and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|John D. McMahon*                        |  | O&R                    |  | President, Chief Executive Officer and Director (Principal Executive Officer)                                         
|Vincent A. Calarco*                     |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|George Campbell Jr.*                    |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Gordon J. Davis*                        |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Michael J. Del Guidice*                 |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Ellen V. Futter*                        |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Sally Hernandez-Pinero*                 |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Peter W. Likins*                        |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Frederic V. Salerno*                    |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Richard A. Voell*                       |  | Con Edison             |  | Director                                                                                                              
|                                        |  | Con Edison of New York |  | Trustee                                                                                                               
|Stephen R. Volk*                        |  | Con Edison             |  | Director                                                                                                              
|George Strayton*                        |  | O&R                    |  | Director                                                                                                              
|*By  JOAN S. FREILICH, Attorney-in-fact |  |                       

213

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CERTIFICATIONS

CON EDISONPrincipal Executive Officer

I,
Eugene R. McGrath, the principal executive officer of Consolidated Edison, Inc., certify that:

|Date: February 27, 2003 |  |                                                                                      
|----------------------- |  | -------------------------------------------------------------------------------------
|                        |  | /s/EUGENE R. MCGRATHEugene R. McGrath
Chairman, President and Chief Executive Officer

214

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CON EDISONPrincipal Financial Officer

I,
Joan S. Freilich, the principal financial officer of Consolidated Edison, Inc., certify that:

|Date: February 27, 2003 |  |                                                                                         
|----------------------- |  | ----------------------------------------------------------------------------------------
|                        |  | /s/JOAN S. FREILICHJoan S. Freilich
Executive Vice President and Chief Financial Officer

215

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CON EDISON OF NEW YORKPrincipal Executive Officer

I,
Eugene R. McGrath, the principal executive officer of Consolidated Edison Company of New York, Inc., certify that:

|Date: February 27, 2003 |  |                                                                           
|----------------------- |  | --------------------------------------------------------------------------
|                        |  | /s/EUGENE R. MCGRATHEugene R. McGrath
Chairman and Chief Executive Officer

216

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CON EDISON OF NEW YORKPrincipal Financial Officer

I,
Joan S. Freilich, the principal financial officer of Consolidated Edison Company of New York, Inc., certify that:

|Date: February 27, 2003 |  |                                                                                         
|----------------------- |  | ----------------------------------------------------------------------------------------
|                        |  | /s/JOAN S. FREILICHJoan S. Freilich
Executive Vice President and Chief Financial Officer

217

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O&RPrincipal Executive Officer

I,
John D. McMahon, the principal executive officer of Orange and Rockland Utilities, Inc., certify that:





|Date: February 27, 2003 |  |                                                                        
|----------------------- |  | -----------------------------------------------------------------------
|                        |  | /s/JOHN D. MCMAHONJohn D. McMahon
President and Chief Executive Officer

218

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O&RPrincipal Financial Officer

I,
Edward J. Rasmussen, the principal financial officer of Orange and Rockland Utilities, Inc., certify that:

|Date: February 27, 2003 |  |                                                                                     
|----------------------- |  | ------------------------------------------------------------------------------------
|                        |  | /s/EDWARD J. RASMUSSENEdward J. Rasmussen
Vice President and Chief Financial Officer

219

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